<PAGE>
As filed with the Securities and Exchange Commission on April 4, 1997.
REGISTRATION NO. 333-21403
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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U.S. RESTAURANT PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
MARYLAND 6798 75-2687420
(State or other jurisdiction of (Primary Standard Industrial (I.R.S.Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
5310 HARVEST HILL ROAD
SUITE 270, L.B. 168
DALLAS, TEXAS 75230
(972) 387-1487
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------------------
ROBERT J. STETSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5310 HARVEST HILL ROAD
SUITE 270, L.B. 168
DALLAS, TEXAS 75230
(972) 387-1487
(Address, including zip code, and telephone number, including
area code, of agent for service)
----------------------
Copies to:
KENNETH L. BETTS, ESQ.
WINSTEAD SECHREST & MINICK P.C.
1201 ELM STREET,
SUITE 5400
DALLAS, TEXAS 75270
(214) 745-5400
Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE AND ALL OTHER
CONDITIONS DESCRIBED IN THE ENCLOSED PROXY STATEMENT/PROSPECTUS HAVE BEEN
SATISFIED OR WAIVED.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box: [ ]
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
U.S. RESTAURANT PROPERTIES, INC.
FORM S-4
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
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LOCATION IN
FORM S-4 ITEM PROXY STATEMENT/PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . . . Available Information; Incorporation of Certain
Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information. . . . . . . . . . . Summary; Risk Factors
4. Terms of the Transaction . . . . . . . . . . . . . Summary; The Conversion; The Special Meeting;
Federal Income Tax Considerations
5. Pro Forma Financial Information. . . . . . . . . . Summary; Selected Historical and Pro Forma
Financial Information and Other Data
6. Material Contacts with the Company Being
Acquired . . . . . . . . . . . . . . . . . . . . . Summary; The Company; Business
7. Additional Information Required for
Reoffering by Persons and Parties Deemed To
Be Underwriters. . . . . . . . . . . . . . . . . . Not Applicable
8. Interests of Named Experts and Counsel . . . . . . Experts; Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . . Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants. . . . Not Applicable
11. Incorporation of Certain Information by
Reference. . . . . . . . . . . . . . . . . . . . . Not Applicable
12. Information with Respect to S-2 or S-3
Registrants. . . . . . . . . . . . . . . . . . . . Not Applicable
13. Incorporation of Certain Information by
Reference. . . . . . . . . . . . . . . . . . . . . Not Applicable
<PAGE>
14. Information with Respect to Registrants Other
than S-2 or S-3 Registrants. . . . . . . . . . . . Summary; The Company; Management's Discussion
and Analysis of Results of Operations and Financial
Condition; Business; Policies with Respect to Certain
Activities; Market Prices of Units and Distributions;
Capitalization; Management; Principal Stockholders;
Description of Capital Stock; Certain Provisions of
Maryland Law and of the REIT Corporation's Articles
and Bylaws; Comparative Rights of Unitholders and
Stockholders
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies. . . . . Summary; The Company; Management's Discussion
and Analysis of Results of Operations and Financial
Condition; Business; Policies with Respect to Certain
Activities; Market Prices of Units and Distributions;
Capitalization; Management; Principal Stockholders;
Description of Capital Stock; Certain Provisions of
Maryland Law and of the REIT Corporation's Articles
and Bylaws; Comparative Rights of Unitholders and
Stockholders
16. Information with Respect to S-2 or S-3
Companies. . . . . . . . . . . . . . . . . . . . . Not Applicable
17. Information with Respect to Companies Other
than S-2 or S-3 Companies. . . . . . . . . . . . . Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations Are to be Solicited . . . . . . . . Outside Front Cover Page; Summary;
The Special Meeting
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited, or in
an Exchange Offer. . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
5310 HARVEST HILL ROAD, SUITE 270, L.B. 168
DALLAS, TEXAS 75230
(972) 387-1487
(800) 322-9827
Dear Limited Partner:
We are seeking your approval to convert U.S. Restaurant Properties Master
L.P. ("USRP") to a self-advised real estate investment trust ("REIT"). This
conversion will not change either the strategy of the company or the
"flow-through" tax advantages the company currently enjoys. The conversion will
be tax-free, and the shares of the company will continue to be traded on the New
York Stock Exchange ("NYSE") under our current trading symbol, "USV." Your vote
on this matter is important -- not voting effectively counts as a no vote, so
please send in your proxy.
WHY CONVERT TO THE REIT STRUCTURE? The answer is to enhance investor value
by employing a structure (I.E. a REIT as opposed to a master limited partnership
("MLP")) that is more widely accepted and endorsed by investors, particularly
institutional investors. Currently, there are only four NYSE-traded MLPs that
invest in real estate, of which USRP is one. On the other hand, there are
approximately 150 NYSE-traded REITs, and a vast majority of those are
"self-advised." As a self-advised REIT, the company should enjoy greater access
to lower-cost debt financing, which should increase profits and the cash
available for dividends. Also, the company believes that it would enjoy more
participation from institutional investors, which should increase the stock
price relative to remaining an MLP. As the company continues to grow and its
financing requirements grow with it, we believe that self-advised REIT status
has become very important to our future.
WHAT IS A "SELF-ADVISED" REIT? In a self-advised REIT, the management is
employed by the REIT, rather than by an external advisor, such as the managing
general partner arrangement the company currently uses. To become self advised,
your managing general partner will convert its property management contract and
convert its aggregate 1.98% partnership interest in exchange for REIT shares (or
equivalent partnership interests), and then the management team of your managing
general partner will become employees of the REIT. In exchange for the property
management contract and 1.98% partnership interest, the managing general partner
will receive consideration (consisting of an interest in U.S. Restaurant
Properties Operating L.P., shares of REIT common stock and/or units in USRP)
equal in value to 850,000 REIT shares (the "Initial Shares"), and will be
eligible to receive additional shares in the year 2000 if certain targets are
reached (collectively, the "Acquisition Price"). Following the receipt of the
Initial Shares, all management fees will cease. Assuming the continued growth
of the company, the assignment and conversion will increase the cash available
for dividends to the stockholders, and will increase net income above what it
would otherwise have been.
On a pro forma basis, giving effect to the acquisition of the approximately
$73 million of properties currently under binding contract, the cash available
for distribution
<PAGE>
per share would have been $2.62 in 1996 if USRP had been a self-advised REIT
on the terms described above and in the attached Proxy Statement/Prospectus,
$.05 per share more than in its present structure as an advised entity. In
addition, any property acquisitions in excess of the $73 million of
properties currently under contract will add to the accretive nature of the
transaction. There can be no assurance that all of such properties will be
acquired or that additional properties will be available at prices acceptable
to the company. Additionally, pro forma results are not necessary indicative
of what the company's financial position would had been had such transactions
occurred on the assumed date.
The Acquisition Price was approved by a special committee of outside
directors of the managing general partner, and the special committee has
received a fairness opinion with respect to such exchange from the investment
banking firm Morgan Keegan & Company, Inc.
It has been just 24 months since the limited partners approved amendments
to the partnership agreements which enabled USRP to expand. Since that
approval, the price of the Units on the New York Stock Exchange has risen more
than 80%, and partnership dividends, net income and cash available for
distributions have all increased substantially. Your approval of the conversion
is important to take the company to its next stage of growth and progress.
There are two alternative ways in which the REIT conversion can be
completed on a tax-free basis: the "merger alternative" and "the exchange
alternative" (see the attached Proxy Statement/Prospectus for a detailed
description of the alternatives). The merger alternative is the simpler
approach and is preferred by management, but to ensure that this approach is
tax-free we have asked the IRS to confirm its tax free status. In the event
that the IRS does not provide that confirmation, then the exchange alternative
must be used, and it will provide the same advantages of REIT conversion. TO
ENSURE THAT USRP CONVERTS TO A REIT, YOU MUST VOTE FOR BOTH THE MERGER AND THE
EXCHANGE ALTERNATIVES ON YOUR PROXY CARD.
We encourage you to read the Proxy Statement/Prospectus and then vote your
Units in favor of the conversion by filling out the enclosed proxy card and
returning it to D.F. King & Co. in the enclosed, self-addressed, stamped
envelope. Not voting is the same as voting against the conversion, so we urge
everyone to vote. If you have any questions, please call us toll free at
(800-322-9827). Thank you for your consideration of the conversion.
Best Regards,
Robert Stetson Fred Margolin
Chief Executive Officer Chairman of the Board
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
Notice Of A Special Meeting Of
The Limited Partners on June 4, 1997
To the Limited Partners of U.S. Restaurant Properties Master L.P.:
A special meeting (the "Special Meeting") of the limited partners (the
"Limited Partners") of U.S. Restaurant Properties Master L.P. ("USRP") will be
held at ______________________________ on June 4, 1997 at 10:00 a.m., or at any
adjournment thereof, to consider and vote upon two alternative proposals to
implement the proposed conversion (the "Conversion") of USRP into a real estate
investment trust ("REIT").
The Conversion will be effected through one of two alternatives (i) the
Merger Alternative or (ii) the Exchange Alternative. The Merger Alternative
would be effected through a tax-free merger (the "Merger") of USRP Acquisition,
L.P., a Delaware limited partnership that is an indirectly wholly-owned
subsidiary of U.S. Restaurant Properties, Inc., a newly formed Maryland
corporation (the "REIT Corporation") which intends to qualify as a REIT under
federal tax laws, with and into USRP and, as a result, USRP will become a
subsidiary of the REIT Corporation. U.S. Restaurant Properties Operating L.P.
(the "Operating Partnership") will remain in existence following consummation of
the Merger. The result of the Merger would be that holders of units of
beneficial interest of USRP (the "Units") would become stockholders of the REIT
Corporation. Consummation of the Merger is contingent upon the receipt of a
satisfactory ruling from the Internal Revenue Service as to the tax-free nature
of the Merger.
In the event such ruling is not received, the Conversion will be phased in
through the implementation of amendments to the partnership agreement of USRP to
permit holders of Units to exchange their Units for shares of the REIT
Corporation's common stock at any time and to require such an exchange prior to
the transfer of the Units to third parties, all as more fully described in the
accompanying Proxy Statement/Prospectus (the "Exchange Alternative"). As a
result, following consummation of the Conversion, each Unitholder will
effectively become a stockholder of the REIT Corporation. The Exchange
Alternative will be implemented only if USRP does not receive a favorable ruling
with respect to the tax-free nature of the Merger.
In addition, as part of the Conversion, in order for the REIT Corporation
to become self-advised, QSV Properties, Inc. (formerly U.S. Restaurant
Properties, Inc.), the Managing General Partner of USRP ("QSV"), will withdraw
as managing general partner of USRP and a corporate subsidiary of the REIT
Corporation will be substituted as managing general partner of USRP pursuant to
the terms of the merger agreement. As a result, as part of each of the Merger
Alternative and the Exchange Alternative, the consent of the Limited Partners is
being sought for certain amendments to the partnership agreement of the
Operating Partnership to provide for the withdrawal of QSV as managing general
partner and to provide the Partnership with increased flexibility to pursue
business opportunities that compliment its existing business strategy.
As there are two alternative methods proposed to implement the Conversion,
Limited Partners who support the Conversion should vote in favor of both the
Merger Alternative and the Exchange Alternative. The accompanying Proxy
Statement/Prospectus describes the Conversion and the Merger Alternative and the
Exchange Alternative in greater detail.
Only Limited Partners of record as of the close of business on ____________,
1997, are entitled to notice of, and to vote at, the Special Meeting. Such
Limited Partners may vote at the Special Meeting either in person or by
proxy. If you cannot attend the Special Meeting, please complete, sign, date
and return the accompanying proxy card in the enclosed stamped and
self-addressed envelope so that the proxyholders may vote the Units that you
hold as a Limited Partner pursuant to your instructions. If you attend the
Special Meeting, you may revoke your proxy and vote such Units in person.
Very truly yours,
QSV PROPERTIES, INC.,
(FORMERLY U.S. RESTAURANT PROPERTIES, INC.)
THE MANAGING GENERAL PARTNER
Dallas, Texas
_____________, 1997
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 4, 1997
U.S. RESTAURANT PROPERTIES, INC.
U.S. RESTAURANT PROPERTIES MASTER L.P.
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus relates to the proposed conversion (the
"Conversion") of U.S. Restaurant Properties Master L.P. ("USRP") into a real
estate investment trust ("REIT"). The REIT Corporation (as defined below)
will be self-advised and will continue to expand the property ownership,
management, acquisition and marketing operations of USRP, through U.S.
Restaurant Properties Operating, L.P. (the "Operating Partnership" and,
together with USRP, the "Partnerships"). Upon completion of the Conversion,
the Operating Partnership will become a subsidiary of the REIT Corporation
and the units of beneficial interest of USRP (the "Units") will be eligible
for sale on the New York Stock Exchange (the "NYSE") as shares of common
stock, $.001 par value per share (the "Common Stock"), of the REIT
Corporation. This Proxy Statement/Prospectus and the accompanying form of
proxy are first being mailed to the Limited Partners on or about __________,
1997.
This Proxy Statement/Prospectus is being furnished to the limited
partners (the "Limited Partners") of USRP in connection with the solicitation
of proxies by QSV Properties, Inc. (formerly U.S. Restaurant Properties,
Inc.), in its capacity as the managing general partner (the "Managing General
Partner") of USRP, for use at the special meeting of Limited Partners to be
held on June 4, 1997 (the "Special Meeting"). At the Special Meeting, the
Limited Partners will be asked to approve the two alternative proposals to
effect Conversion of USRP into a REIT: (i) the Merger Alternative and (ii)
the Exchange Alternative.
The Merger Alternative would be effected through the tax-free merger of
USRP with a partnership subsidiary of the REIT Corporation, with USRP being
the surviving entity (the "Merger") and, as a result, becoming a subsidiary
of the REIT Corporation. See "The Conversion--The Merger Alternative."
Pursuant to the Merger, each holder of Units ("Unitholders") will receive one
share of Common Stock for each Unit so held. Consummation of the Merger is
contingent upon the receipt of a satisfactory ruling from the Internal
Revenue Service as to the tax-free nature of the Merger.
In the event such ruling is not received, the Conversion will be phased
in through the implementation of amendments to the partnership agreement of
USRP to permit holders of Units to exchange their Units for shares of Common
Stock at any time and to require such an exchange prior to the transfer of
the Units to third parties (the "Exchange Alternative"). The Exchange
Alternative will be implemented only if USRP does not receive a favorable
ruling with respect to the tax-free nature of the Merger.
In addition, as part of the Conversion, in order for the REIT Corporation
to become self-advised, the Managing General Partner will withdraw as
managing general partner of the Partnerships (with a corporate subsidiary of
the REIT Corporation being substituted as general partner of both
Partnerships). In conjunction therewith, the Managing General Partner will
(i)
<PAGE>
convert its interest in (a) its allocable share of income, profits, loss and
distributions of the Operating Partnership, as general partner thereof, and
(b) fees and disbursements for the acquisition and management of the
Operating Partnership's properties (together, the "Operating Partnership
General Partner Interest"), payable to it pursuant to the terms of the
partnership agreement of the Operating Partnership or assign such interest to
USRP (depending upon how the Conversion is effected) and (ii) convert its
interest in USRP (together with the conversion described above, the
"Termination") for shares of Common Stock, an interest in the Operating
Partnership and/or Units (depending upon how the Conversion is effected)
having in the aggregate a value initially equal to 850,000 shares of Common
Stock and will be eligible to receive additional consideration in the year
2000. Following the Termination, the executive officers and other employees
of the Managing General Partner will become executive officers and employees
of the REIT Corporation and no further management fees will be payable. As a
result, the Company will become self-advised. See "The
Conversion--Termination of Operating Partnership General Partner Interest."
As a result, as part of each of the Merger Alternative and Exchange
Alternative, the consent of the Limited Partners is being sought for certain
amendments to the partnership agreement of the Operating Partnership to
provide for the withdrawal of the Managing General Partner and to provide the
Operating Partnership with increased flexibility to pursue business
opportunities that compliment its existing business strategy.
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 35, FOR CERTAIN FACTORS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK, INCLUDING:
- CONFLICT OF INTEREST OF THE MANAGING GENERAL PARTNER IN ESTABLISHING
ACQUISITION PRICE, WHICH WAS MITIGATED BY ESTABLISHING THE SPECIAL
COMMITTEE.
- THE CONVERSION WILL RESULT IN CERTAIN BENEFITS TO THE MANAGING GENERAL
PARTNER AND ITS AFFILIATES.
- NO ASSURANCE THAT THE MARKET PRICE OF THE COMMON STOCK WILL INITIALLY
OR THEREAFTER EQUAL THE MARKET PRICE OF THE UNITS.
- LIMITATION ON PERCENTAGE OWNERSHIP OF SHARES OF COMMON STOCK AND OTHER
TRANSFER RESTRICTIONS.
- ABSENCE OF DISSENTERS' APPRAISAL RIGHTS; ALL UNITHOLDERS BOUND BY THE
VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING UNITS.
- TAXATION OF THE REIT CORPORATION AS A CORPORATION IF IT FAILS TO
QUALIFY AS A REIT.
- REAL ESTATE INVESTMENT RISKS SUCH AS THE EFFECT OF ECONOMIC AND OTHER
CONDITIONS ON THE ABILITY OF THE PROPERTIES TO GENERATE SUFFICIENT
CASH FLOW TO MEET OPERATING EXPENSES AND DEBT SERVICE REQUIREMENTS.
A special committee (the "Special Committee"), consisting of the
independent members of the Board of Directors of the Managing General Partner
has reviewed and made recommendations with respect to the Acquisition Price
(as hereinafter defined) to be received by the Managing General Partner in
connection with the Termination. The Special Committee retained independent
legal counsel and retained Morgan Keegan & Company,
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<PAGE>
Inc., as its independent financial advisor, which has expressed its opinion
that the Acquisition Price is fair to the Unitholders from a financial point
of view.
This Proxy Statement/Prospectus also constitutes a prospectus of U.S.
Restaurant Properties, Inc., a Maryland corporation (the "REIT Corporation"),
with respect to up to _____ shares of Common Stock to be issued by the REIT
Corporation pursuant to either (i) the merger agreement to be entered into
between the REIT Corporation and USRP in the event Conversion is effected
pursuant to the Merger Alternative, or (ii) the exchange of Units for shares
of Common Stock in accordance with the terms and conditions of USRP's amended
partnership agreement in the event the Conversion is effected pursuant to the
Exchange Alternative.
On __________, 1997, the last reported sale price of the Units on the
NYSE was $__________ per Unit.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is ____________, 1997.
- 3 -
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE
INTO THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF
PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE REIT CORPORATION OR USRP. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE COMMON STOCK OFFERED
HEREBY SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE REIT CORPORATION OR USRP SINCE THE DATE
HEREOF OR THAT THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN
ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. USRP
UNDERTAKES TO PROVIDE COPIES OF SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE),
WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO
PRESIDENT, QSV PROPERTIES, INC., 5310 HARVEST HILL ROAD, SUITE 270, DALLAS,
TEXAS 75230 (TELEPHONE (972) 387-1487, FAX (972) 490-9119). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, SUCH REQUESTS SHOULD BE RECEIVED BY
APRIL 20, 1997.
AVAILABLE INFORMATION
USRP is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by USRP can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven
World Trade Center, 13th Floor, New York, New York 10048 and CitiCorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511.
Copies of such material can be obtained by mail from the Public Reference
Section of the Commission at 450 West Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such reports, proxy statements and other
information may also be obtained from the web site that the Commission
maintains at http://www.sec.gov. In addition, reports, proxy statements and
other information concerning USRP may be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
Reports, proxy statements and other information concerning USRP may also
be obtained electronically through a variety of databases, including, among
others, the Commission's Electronic Data Gathering and Retrieval ("EDGAR")
program, Knight-Rider Information Inc., Federal Filing/Dow Jones and
Lexis/Nexis.
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<PAGE>
The REIT Corporation has filed with the Commission a Registration
Statement on Form S-4 (together with all amendments, supplements and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Stock to be issued
pursuant to the Conversion. This Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts
of which have been omitted in accordance with the rules and regulations of
the Commission. For further information, reference is hereby made to the
Registration Statement. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission are not necessarily complete, and in
each instance reference is made to the copy of such document so filed. Each
such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by USRP with the
Commission pursuant to the Exchange Act, are incorporated herein by reference:
(1) Annual Report on Form 10-K for the fiscal year ended December 31,
1996;
(2) Current Report on Form 8-K dated December 30, 1996, as amended by
the Form 8-K/A filed January 21, 1997; and
(3) Registration Statement on Form 8-A dated February 6, 1986 and
Amendment No. 1 to Registration Statement on Form 8-A dated
February 20, 1986.
All documents filed by USRP pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Proxy Statement/Prospectus
and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
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FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus, including documents incorporated by
reference, contain forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which might not
even be anticipated. Future events and actual results, financial and
otherwise, may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed under the captions "Risk
Factors" and "Management's Discussion and Analysis of Results of Operations
and Financial Condition." In addition, factors that could cause actual
results of the Company to differ materially from those contemplated by or
projected, forecast, estimated or budgeted in forward looking statements
relating to the results of operations and business of the Company following
the Conversion include the following possibilities: (i) the expected cost
savings to be realized are not made or unanticipated offsetting costs are
incurred, and (ii) costs or difficulties related to the conversion to a real
estate investment trust are greater than expected. Accordingly, there can be
no assurance that the actual results will conform to the forward-looking
statements in this Proxy Statement/Prospectus.
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TABLE OF CONTENTS
AVAILABLE
INFORMATION............................................................. 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 5
SUMMARY..................................................................... 12
Overview of the Conversion.............................................. 12
The Special Meeting..................................................... 12
Risk Factors............................................................ 13
Disadvantages of the Conversion......................................... 15
Advantages of the Conversion............................................ 17
Recommendation of the Managing General Partner.......................... 19
Conflicts of Interest................................................... 19
The Company............................................................. 20
Mechanics of the Conversion............................................. 22
Termination of the Operating Partnership General Partner Interest....... 25
Analysis of Alternatives Considered..................................... 26
Allocation of Shares of Common Stock Among Unitholders and the
Managing General Partner........................................... 26
No Dissenters' Appraisal Rights ........................................ 27
Tax Consequences of the Conversion...................................... 27
Summary of Comparison of Taxation of Stockholders and Unitholders....... 30
Effects of the Conversion on Rights of Unitholders...................... 32
Comparison of Rights of Unitholders and Stockholders.................... 33
Market Prices of Units and Distributions................................ 34
RISK FACTORS................................................................ 35
Conflicts of Interest................................................... 35
Tax Consequences of the Conversion...................................... 35
Adverse Consequences of Failure to Qualify as a REIT; Other Tax
Liabilities........................................................ 38
Absence of Appraisal Rights............................................. 39
Benefits to Managing General Partner/Management......................... 39
Substitution of Trading of Common Stock for Units....................... 39
Comparative Rights of the Units and Common Stock........................ 39
Future Dilution......................................................... 40
Certain Antitakeover Provisions; Ownership Limits....................... 40
Restrictions on Transfer................................................ 42
Adverse Effect of Increases in Interest Rates........................... 42
No Restrictions on Changes in Investment, Financing and Other Policies.. 42
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Acquisition and Expansion Risks......................................... 42
Investment Concentration in Single Industry............................. 44
Dependence on Success of Burger King.................................... 44
Possible Rent Defaults and Failure to Renew Leases and Franchise
Agreements......................................................... 44
Real Estate Investment Risks............................................ 44
Dependence on Key Personnel............................................. 46
Competition............................................................. 47
Development Risks....................................................... 47
Risk of Newly-Constructed Restaurant Properties......................... 47
THE COMPANY................................................................. 48
History and Structure of USRP........................................... 48
The REIT Corporation.................................................... 48
Strategy................................................................ 49
THE CONVERSION.............................................................. 51
Background of the Conversion............................................ 51
Disadvantages of the Conversion......................................... 52
Advantages of the Conversion............................................ 53
The Merger Alternative.................................................. 56
Exchange Alternative.................................................... 61
Termination of the Operating Partnership General Partner Interest....... 61
Analysis of the Special Committee....................................... 65
Fairness Opinion........................................................ 70
Analysis of Alternatives Considered..................................... 76
Comparison of Values.................................................... 76
Allocation of Shares of Common Stock Among Unitholders and the
Managing General Partner........................................... 78
Executive Compensation.................................................. 78
No Dissenters' Appraisal Rights......................................... 79
Costs of the Conversion................................................. 79
Consequences If Conversion Is Not Approved.............................. 80
Fiduciary Duties........................................................ 80
Accounting Treatment.................................................... 81
THE SPECIAL MEETING......................................................... 81
Eligible Units.......................................................... 82
Required Legal Opinion.................................................. 82
Required Vote........................................................... 82
Abstentions and Broker Non-Votes........................................ 83
Proxies................................................................. 83
Revocation of Proxies................................................... 84
Proxy Solicitor......................................................... 84
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Solicitations by the Managing General Partner........................... 84
SELECTED HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION AND OTHER DATA.............................................. 85
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION........................ 87
Overview................................................................ 87
Results of Operations................................................... 88
Liquidity and Capital Resources......................................... 89
Inflation............................................................... 91
Seasonality............................................................. 91
BUSINESS.................................................................... 92
General................................................................. 92
Industry................................................................ 93
Investment Criteria..................................................... 94
Properties.............................................................. 95
Leases with Restaurant Operators........................................ 97
Ownership of Real Estate Interests...................................... 98
Use and Other Restrictions on the Operation and Transfer
of Burger King Restaurant Properties.............................. 100
Restaurant Alterations and Reconstruction.............................. 100
Competition............................................................ 101
Regulation............................................................. 101
Insurance.............................................................. 103
Employees.............................................................. 103
Legal Proceedings...................................................... 103
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES................................ 103
Investment Policies.................................................... 104
Financing Policies..................................................... 105
Affiliate Transaction Policy........................................... 106
Certain Other Policies................................................. 106
PRICE RANGE OF UNITS AND DISTRIBUTION POLICY............................... 108
CAPITALIZATION............................................................. 110
MANAGEMENT................................................................. 111
Directors and Executive Officers....................................... 111
Executive Compensation................................................. 113
Employment Agreements.................................................. 113
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Indemnification Agreements............................................. 114
Insurance.............................................................. 114
Certain Transactions with Related Parties.............................. 114
PRINCIPAL STOCKHOLDERS..................................................... 114
DESCRIPTION OF CAPITAL STOCK............................................... 115
Description of Securities.............................................. 115
General................................................................ 115
Common Stock........................................................... 115
Preferred Stock........................................................ 116
Restrictions on Transfer............................................... 117
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE REIT CORPORATION'S ARTICLES AND BYLAWS...................... 120
Classification of the Board of Directors............................... 120
Limitation of Liability and Indemnification............................ 121
Business Combinations.................................................. 122
Control Share Acquisitions............................................. 122
Amendment to the Articles.............................................. 123
Dissolution of the Company............................................. 123
Advance Notice of Director Nominations and New Business................ 123
Meetings of Stockholders............................................... 124
COMPARATIVE RIGHTS OF UNITHOLDERS AND STOCKHOLDERS......................... 124
General................................................................ 124
Management............................................................. 125
Voting Rights.......................................................... 125
Special Meetings....................................................... 126
Amendment of Master Partnership Agreement and Articles of
Incorporation..................................................... 126
Limited Liability...................................................... 127
Dissolution of the Partnership and the REIT Corporation
and Termination of REIT Status.................................... 128
Liquidation Rights..................................................... 128
Limitations of Liability of General Partners and Trustees.............. 128
Indemnification........................................................ 129
Derivative Actions..................................................... 129
Inspection of Books and Records........................................ 129
Distributions and Dividends............................................ 130
FEDERAL INCOME TAX CONSIDERATIONS.......................................... 130
A. The Merger Alternative............................................ 130
1. Qualification as Nonrecognition Transaction.................. 130
2. Tax Consequences to USRP..................................... 132
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3. Tax Consequences to Unitholders.............................. 134
4. Tax Consequences to the REIT Corporation..................... 136
5. Tax Consequences of the REIT Corporation's Qualification as
a REIT....................................................... 136
B. Exchange Alternative.............................................. 147
1. Partnership Status........................................... 147
2. Partner Status............................................... 150
3. Tax Consequences of Unit Ownership........................... 150
4. Tax Treatment of Operations.................................. 153
5. Treatment of Short Sales..................................... 156
6. Alternative Minimum Tax...................................... 156
7. Tax-Exempt Entities, Regulated Investment Companies
and Foreign Investors........................................ 157
8. Uniformity of Units.......................................... 158
9. Disposition of Units: Exchange for Shares in the REIT
Corporation.................................................. 158
10. Constructive Termination or Dissolution of Partnership....... 160
11. Partnership Income Tax information Returns and
Partnership Audit Procedures................................. 161
12. Information Return Filing Requirements....................... 162
13. Nominee Reporting............................................ 162
14. State and Other Taxes........................................ 163
C. Differences between a Partnership and a REIT...................... 163
ERISA CONSIDERATIONS....................................................... 164
Employee Benefit Plans, Tax-Qualified Retirement Plans and IRAs........ 165
Status of the Company under ERISA...................................... 166
LEGAL MATTERS.............................................................. 166
EXPERTS.................................................................... 167
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
APPENDIXES
A. Agreement and Plan of Merger...................................... A-1
B. Fairness Opinion.................................................. B-1
C. Material Amendments to Master Partnership Agreement............... C-1
D. Material Amendments to Operating Partnership Agreement............ D-1
SIGNATURES................................................................ II-5
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN OR
INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS AND THE
APPENDICES HERETO. LIMITED PARTNERS ARE URGED TO READ CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES HERETO IN THEIR ENTIRETY. AS USED IN
THIS PROXY STATEMENT/PROSPECTUS, UNLESS OTHERWISE REQUIRED BY THE CONTEXT, THE
TERM "REIT CORPORATION" MEANS U.S. RESTAURANT PROPERTIES, INC., A MARYLAND
CORPORATION, THE TERM "USRP" MEANS U.S. RESTAURANT PROPERTIES MASTER L.P., THE
TERM "OPERATING PARTNERSHIP" MEANS U.S. RESTAURANT PROPERTIES OPERATING L.P.,
AND THE TERM "MANAGING GENERAL PARTNER" MEANS QSV PROPERTIES, INC. (FORMERLY
U.S. RESTAURANT PROPERTIES, INC., A DELAWARE CORPORATION), IN ITS CAPACITY AS
MANAGING GENERAL PARTNER OF EACH OF THE PARTNERSHIPS. USRP AND THE OPERATING
PARTNERSHIP ARE GENERALLY REFERRED TO TOGETHER HEREIN AS THE "PARTNERSHIPS."
ALL REFERENCES HEREIN TO THE "COMPANY" WHEN USED WITH RESPECT TO THE
ACQUISITION, OWNERSHIP AND OPERATION OF THE PROPERTIES REFER TO THE COMBINED
OPERATIONS OF THE PARTNERSHIPS, PRIOR TO THE CONVERSION, AND THE COMBINED
OPERATIONS OF THE REIT CORPORATION AND THE PARTNERSHIPS, AS APPLICABLE,
FOLLOWING THE CONVERSION.
OVERVIEW OF THE CONVERSION
This Proxy Statement/Prospectus relates to a proposal to convert USRP into
a REIT in a tax-free transaction. As it is presently constituted, USRP is a
publicly-traded limited partnership. As a result of the Conversion, the
Operating Partnership will become a subsidiary of the REIT Corporation and the
Units will be eligible for sale on the NYSE as shares of Common Stock. The REIT
Corporation will become "self-advised" through the conversion by the Managing
General Partner of the Operating Partnership General Partner Interest and the
subsequent employment of the management team of the Managing General Partner by
the REIT Corporation. FOR THE CONVERSION TO BE COMPLETELY APPROVED, THE
AFFIRMATIVE VOTE OF THE HOLDERS OF MORE THAN 50% OF THE TOTAL NUMBER OF
OUTSTANDING UNITS IS REQUIRED FOR APPROVAL OF BOTH THE MERGER ALTERNATIVE AND
THE EXCHANGE ALTERNATIVE. ACCORDINGLY, ABSTENTIONS AND BROKER NON-VOTES WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE CONVERSION.
THE SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING. The Special Meeting will be held
on Wednesday, June 4, 1997, at 10:00 a.m. (Dallas time), at _________________.
At the Special Meeting, the Limited Partners will be asked to approve the
Conversion through the approval of both the Merger Alternative and the Exchange
Alternative.
RECORD DATE; LIMITED PARTNERS ENTITLED TO VOTE. The Managing General
Partner has fixed the close of business on ____________, 1997 as the record date
(the "Record Date") for the determination of Limited Partners entitled to notice
of, and to vote at, the Special Meeting and
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any adjournment thereof. On the Record Date, USRP had issued and outstanding
_____________ Units.
VOTING AND REVOCATION OF PROXIES. To vote by proxy, a Limited Partner must
complete, sign, date and deliver the proxy card to D. F. King & Company before
the Special Meeting. Unless indicated to the contrary on the proxy card, the
directions given on the proxy card will be for all of the Units that such
Limited Partner may vote. If a Limited Partner signs and returns a proxy card
without giving any directions, the proxyholder will vote such Limited Partner's
Units for the approval of both the Merger Alternative and the Exchange
Alternative.
A Limited Partner may revoke its proxy at any time prior to the
proxyholder's voting of the Units to which such proxy applies by: (i)
submitting a later dated proxy to D.F. King & Company or someone else who
attends the Special Meeting, (ii) attending the Special Meeting and delivering a
written notice of revocation of the proxy to the representative of D.F. King &
Company present at the Special Meeting, or (iii) delivering a written notice of
revocation of the proxy to D.F. King & Company at its address set forth herein,
which D.F. King & Company receives on or before ___________, 1997.
RISK FACTORS
The Conversion and an investment in shares of Common Stock involve certain
risks. Such risks include, among others:
- A majority of the members of the Board of Directors of the Managing
General Partner, by virtue of their ownership interests in and/or
positions or affiliations with the Managing General Partner were
subject to a conflict of interest in determining the Acquisition
Price. This risk has been mitigated by the appointment of the Special
Committee consisting of the two unaffiliated directors.
- Taxation of the REIT Corporation as a corporation if it fails to
qualify as a REIT and the REIT Corporation's liability for certain
Federal, state and local income taxes in such event.
- Unitholders are afforded no dissenters' appraisal rights or other
similar rights in connection with the Conversion under applicable law
or the Master Partnership Agreement, nor will such rights be
voluntarily accorded to the Unitholders by the Company. Consequently,
all Unitholders will be bound by the vote of Unitholders owning a
majority of the outstanding Units.
- The Conversion will result in certain benefits to the Managing General
Partner and its affiliates. In particular, as a result of the
Termination, the Managing General Partner will receive the Acquisition
Price, thereby enabling it to realize the present value of projected
payments otherwise
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payable to it over a period of years pursuant to the Operating
Partnership General Partner Interest.
- It is possible that the per share prices at which the Common Stock
trades will be less than the per Unit prices at which the Units have
traded. As a result, the value of the stockholders' investment in the
REIT Corporation following the Conversion could be lower than the
value of their investment in the USRP prior to the Conversion.
- Material differences between the rights of holders of the Units and
holders of shares of Common Stock which arise generally because of the
differences between laws governing limited partnerships and laws
governing corporations.
- No assurance that the Common Stock will initially or thereafter equal
the market price of the Units.
- Future dilution in the percentage interest of the Company held by
Unitholders as a result of the issuance of additional shares of Common
Stock in connection with any public offering by the REIT Corporation
to raise additional equity capital.
- Increases in market interest rates, which may lead prospective
purchasers of the Common Stock to demand a higher annual yield from
future distributions, which may adversely affect the market price of
the Common Stock.
- The ability of the REIT Corporation's board of directors (the "REIT
Board") to change the investment, financing and other policies of the
Company at any time without stockholder approval.
- The potential anti-takeover effect of limiting individual share
ownership to 8.75% of the outstanding Common Stock (with certain
exceptions) and certain other provisions contained in the
organizational documents of the Company, such as the ability to issue
shares of preferred stock, the staggered board of directors and the
business combination provision, any of which may discourage a change
in control and may limit any opportunity for the Company's
stockholders to receive a premium for their Common Stock.
- The ownership limit provided for in the REIT Corporation's Amended
Articles of Incorporation (the "Articles") may restrict the transfer
of Common Stock.
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- Risks associated with the acquisition and expansion of the Company
including the failure to acquire properties under binding agreements
of acquisition, uncertainty that the Company will be able to refinance
its indebtedness when due and the risk of higher interest rates or
other unfavorable terms on debt incurred to refinance such
indebtedness, and the risk of potential increases in leverage due to
the absence of a provision in the organizational documents of the
Company that limits the amount of debt that the Company may incur.
- Concentration on fast food and casual dining restaurant properties.
- Dependence on the success of Burger King.
- Possible rent defaults and failure to renew leases and franchise
agreements.
- Real estate investment risks, such as the effect of economic and other
conditions on multifamily property values (including the dependence of
the Properties on the economies of the metropolitan areas where they
are located), the ability of the Properties to generate revenues
sufficient to meet operating expenses, including future debt service,
the illiquidity of real estate investments, potential liability of the
Company for unknown or future environmental liabilities and costs of
compliance with the Americans with Disabilities Act of 1990 and
similar laws, and potential losses in the event of a casualty or other
liability that is uninsurable or not economically insurable.
- The dependence of the Company on the efforts of its executive
officers, particularly Robert J. Stetson and Fred H. Margolin.
- Competition from other entities and individuals in the acquisition of
triple net leased restaurant properties and from other national and
regional fast food restaurant chains.
- New project development risks, including construction delays or costs
that may exceed budgeted or contracted amounts, new project
commencement risks such as receipt of zoning, occupancy and other
required governmental approvals and permits and the incurrence of
development costs in connection with projects that are not pursued to
completion.
- The risk that newly-constructed restaurant properties will not produce
desired revenue levels (and, therefore, lease rentals) once opened.
For a more thorough discussion of each of these risks, see "Risk Factors."
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DISADVANTAGES OF THE CONVERSION
The Board of Directors of the Managing General Partner (the "Board of
Directors") believes that the Conversion may have the following disadvantages
which it believes will be substantially outweighed by the advantages discussed
below:
- The REIT Corporation was organized and intends to conduct its
operations so as to qualify for taxation as a REIT under the
applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code"). A qualified REIT may avoid paying federal income tax
because it is allowed to deduct certain dividends or distributions
paid to its stockholders in computing its taxable income. To qualify
as a REIT, the REIT Corporation is required, among other things, to
meet certain stock ownership, income, asset and distribution rules and
tests. Under certain circumstances, the failure of the REIT
Corporation to meet the qualification rules and tests could cause the
REIT Corporation to be taxed as a corporation, in which case dividends
paid to the stockholders would not be deductible by the REIT
Corporation in computing its taxable income, subjecting the REIT
Corporation to entity-level taxes to which USRP is not subject.
- A person who acquires Units is entitled to certain benefits relating
to basis adjustments under Section 754 of the Code upon the sale or
exchange of Units or the death of a Unitholder. There will be no
Section 754 adjustments upon the sale or exchange of shares of Common
Stock or the death of a stockholder of the REIT Corporation. The
basis adjustments attributable to Unitholders will become part of the
REIT Corporation's basis for its assets at the time of the Conversion.
Unitholders who would have been entitled to additional depreciation
deductions attributable to such adjustments will no longer be able to
use such deductions to reduce their share of annual income from
distributions from the REIT Corporation. The REIT Corporation's
depreciation deductions will be allocated ratably among the
stockholders of the REIT Corporation in determining the portion of the
distributions by the REIT Corporation that will be taxable by the
recipients thereof as ordinary dividends. As a result, Unitholders
with significant Section 754 adjustments (generally those who
purchased their Units at higher prices and on more recent dates) will
generally recognize somewhat greater amounts of taxable income each
year following the Conversion then if the Conversion had not occurred.
- Certain provisions of the Articles may have the effect of discouraging
a third party from making an acquisition proposal for the Company and
may thereby inhibit a change in control of the Company. In addition,
the Articles prohibit ownership either directly or indirectly under
applicable attribution rules of the Code of more than 8.75% of the
shares of Common Stock by any stockholder, subject to certain
exceptions. Such ownership limit may have the effect of preventing an
acquisition of control of the Company without the
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approval of the REIT Board. Finally, under Maryland law, certain
business combinations between a Maryland corporation and an
"Interested Stockholder" (as hereinafter defined) are prohibited for
five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. The existence of these
contractual and statutory prohibitions on the transfer of stock and
the acquisition of control may inhibit a change of control of the
Company under circumstances that could give the holders of shares of
Common Stock the opportunity to realize a premium over the
then-prevailing market prices. The partnership agreement of USRP
(the "Master Partnership Agreement") does not contain any such
provisions, and USRP, as a Delaware limited partnership, is not
subject to the same statutory prohibitions on business combinations.
- The investment and financing policies of the Company following the
Conversion will be determined by the REIT Board. These policies may
be amended or revised at any time and from time to time at the
discretion of the REIT Board without a vote of the stockholders or
partners of the Company.
See "Risk Factors" and "The Conversion--Disadvantages of the Conversion."
ADVANTAGES OF THE CONVERSION
ADVANTAGES TO UNITHOLDERS. The Board of Directors is recommending that the
Limited Partners vote in favor of the Conversion by voting in favor of both the
Merger Alternative and the Exchange Alternative because it believes that the
Conversion will result in the following advantages to the Unitholders:
- As part of the Conversion, the Managing General Partner will be
withdrawing as managing general partner of the Partnership, and as a
result, the REIT Corporation will become self-advised and will, as a
result of the termination of all management fees, have additional cash
for distribution to its stockholders. For the year ended December 31,
1996, the Managing General Partner was paid $2.5 million with respect
to the Operating Partnership General Partner Interest and its general
partner interest in USRP (the "USRP Interest"). In addition, because
the fee which would be payable to the Managing General Partner
pursuant to the Operating Partnership General Partner Interest
increases by at least 1% of the value of new acquisitions, the savings
to the Company from the Termination will continue to grow as the
Company acquires additional properties. In order for the Termination
to be accretive (I.E. increase the cash available for distribution per
Unit or share relative to USRP remaining as an advised entity) to the
Unitholders on a cash available for distribution per Unit basis, the
Company needs to acquire an additional $55 million of properties,
assuming the acquired properties produce the same rate of return as
the
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historical rate of return on the Company's properties. As of
March 28, 1997, the Company had approximately $73 million worth of
properties under binding contract. Accordingly, on a pro forma basis,
after giving effect to the Termination and the acquisition of such
additional properties, as of December 31, 1996, the cash available for
distribution per Unit for 1996 would have increased from $2.57 to
$2.62. There can be no assurance that all of such properties will be
acquired or that additional properties will be available at prices
acceptable to the Company. Additionally, pro forma results are not
necessarily indicative of what the Company's financial positions would
have been had such transactions occurred on the issuance date. See
"Risk Factors--Acquisition and Expansion Risks," "Selected Historical
and Pro Forma Financial Information and Other Data" and "Price Range
of Units and Distribution Policy." These initial savings in the first
year are partially offset by the one-time costs of completing the
Conversion (all of which are payable by USRP), currently estimated to
be $580,000. See "The Conversion--Costs of the Conversion."
- The greater number of investors that currently consider investments in
REITs as compared to partnerships may affect the market price per
share of Common Stock versus the market price per Unit, based on
comparable levels of the Company's operating performance, although no
assurance can be given that any increase will occur.
- Management believes that, based upon the large amounts of capital
raised by REITs during the past several years, the higher level of
holdings by institutional investors and the greater number of research
analysts and brokerage firms following and making markets in REITs as
compared to real estate limited partnerships, the Company may have
greater access to public and private sources of debt and equity
capital than it now has, potentially enabling the Company to raise
capital on more favorable terms than are now available. Because the
Company's strategy is to continue to acquire properties to increase
earnings and dividends, the ability to access more, lower cost capital
should enable the Company to grow at a more rapid rate.
- Following the Conversion, the Company will be able to raise additional
capital through the issuance of various classes of securities
(including preferred stock) which may not be dilutive to holders of
Common Stock.
- Following the Conversion, the Operating Partnership will remain in
existence. As a result, the REIT Corporation will be an "umbrella
partnership" REIT ("UPREIT"), thereby permitting the Company to
continue to acquire properties in tax-free exchanges with other
partnerships.
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- The Conversion is expected to ultimately result in cost savings of
approximately $200,000 per year as a result of the elimination of the
need to generate and mail certain tax reporting information to Limited
Partners. Upon receipt of shares of Common Stock, Limited Partners
will also be relieved of having to deal with the burdensome and time
consuming Federal income tax reporting attributable to a
publicly-traded partnership. These initial savings are partially
offset by the costs of the Conversion. See "The Conversion--Costs of
the Conversion."
ADVANTAGES TO THE MANAGING GENERAL PARTNER/MANAGEMENT. In addition to
advantages described above which apply to all Unitholders (including the
Managing General Partner following the Termination), the Managing General
Partner and management thereof will realize the following benefits from the
Conversion:
- The Managing General Partner will also receive an additional benefit
from the Conversion as a result of the receipt of the Acquisition
Price (as hereinafter defined) consisting of shares of Common Stock,
Units and/or an interest in the Operating Partnership as a result of
the conversion of its Operating Partnership General Partner Interest.
Receipt of the Acquisition Price enables the Managing General Partner
to immediately realize the present value of the projected payments
otherwise payable to it pursuant to the Operating Partnership General
Partner Interest.
- Each of Messrs. Stetson and Margolin, the President and Chief
Executive Officer and Chairman of the Board and Treasurer,
respectively, of the Managing General Partner, will be employed by the
REIT Corporation in similar capacities for compensation commencing at
$250,000 per year, subject to increases (up to a maximum annual cash
salary and bonus of $300,000 until the end of the year 2000) at the
discretion of the REIT Board, and will be eligible to receive annual
incentive stock options.
See "The Conversion--Advantages of the Conversion." The advantages of the
Conversion should be considered by the Limited Partners in light of the
disadvantages of and the risks associated with the Conversion. See "Risk
Factors" and "The Conversion--Disadvantages of the Conversion."
RECOMMENDATION OF THE MANAGING GENERAL PARTNER
The Board of Directors has approved the Conversion and has determined that
the Conversion and each of the Merger Alternative and the Exchange Alternative
(if a favorable ruling as to the tax-free nature of the Merger is not received
from the Internal Revenue Service) are in the best interests of, and on terms
that are fair to, the Unitholders. The Managing General Partner recommends
approval and adoption of the Conversion by the Unitholders. The Board of
Directors believes that the Conversion will result in the benefits to the
Limited Partners described above under "--Advantages of the Conversion." The
Board of
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Director's substantive recommendations and conclusions are based on the
analysis of the advantages, the disadvantages and the risks of converting from
partnership to REIT form and making the changes in operating format described
herein. See "Risk Factors," "The Conversion--Disadvantages of the Conversion"
and "--Advantages of the Conversion."
CONFLICTS OF INTEREST
In considering the recommendation of the Managing General Partner with
respect to the Conversion, the Limited Partners should be aware that a majority
of the members of the Board of Directors, by virtue of their ownership interests
in and/or positions or affiliations with the Managing General Partner, were
subject to conflicts of interest in determining the Acquisition Price and the
resulting consideration to be received by the Managing General Partner with
respect to the Termination. Accordingly, the Board of Directors appointed a
special committee (the "Special Committee") composed of the independent members
thereof to negotiate on behalf of the Unitholders the Acquisition Price.
Neither member of the Special Committee is an affiliate of, or otherwise has any
economic interest in, the Managing General Partner. Morgan Keegan & Company,
Inc. ("Morgan Keegan"), the Special Committee's financial advisor, has rendered
an opinion that, as of the date hereof, the Acquisition Price is fair, from a
financial point of view, to the Unitholders. The Board of Directors does not
believe that the intention of the members of the Special Committee to serve as
directors of the REIT Corporation following the Conversion results in a material
conflict of interest.
THE COMPANY
USRP. USRP acquires, owns and manages income-producing properties that it
leases on a triple net basis to operators of fast food and casual dining
restaurants, primarily BURGER KING-Registered Trademark- (BURGER KING-Registered
Trademark- is a registered trademark of Burger King Brands, Inc.) and other
national and regional brands, including DAIRY QUEEN-Registered Trademark- (DAIRY
QUEEN-Registered Trademark- is a registered trademark of American Dairy Queen
Corporation), HARDEE'S-Registered Trademark- is a registered trademark of
Hardee's Food Systems, Inc.) and CHILI'S-Registered Trademark-
(CHILI'S-Registered Trademark- is a registered trademark of Brinker Restaurant
Corporation). USRP acquires properties either from third party lessors or from
operators on a sale/leaseback basis. Under a triple net lease, the tenant is
obligated to pay all costs and expenses, including all real property taxes and
assessments, repairs and maintenance and insurance. Triple net leases do not
require substantial reinvestment by the property owner and, as a result, more
cash from operations may be used for distributions to Unitholders or for
acquisitions.
USRP is one of the largest publicly-owned entities in the United States
dedicated to acquiring, owning and managing restaurant properties. At March 28,
1997, USRP's portfolio consisted of 345 restaurant properties in 44 states (the
"Properties"), approximately 99.5% of which were leased. From USRP's initial
public offering in 1986 until March 31, 1995, USRP's portfolio was limited to
approximately 125 restaurant properties, all of which were leased on a triple
net basis to operators of Burger King restaurants. In May 1994, an investor
group led by Robert J. Stetson and Fred H. Margolin acquired the Managing
General Partner. In March 1995,
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certain amendments to the Partnership Agreements were proposed by the new
management and adopted by the Limited Partners which amendments authorized
USRP to acquire additional properties, including restaurant properties not
affiliated with Burger King Corporation ("BKC"). Since adoption of the
amendments, through March 28, 1997, USRP has acquired 224 properties for an
aggregate purchase price of approximately $133 million, including 208
properties acquired since January 1, 1996 and has entered into binding
agreements to acquire 114 additional restaurant properties (the "Acquisition
Properties") for an aggregate purchase price of approximately $73 million.
Upon acquisition of the Acquisition Properties, USRP's portfolio will consist
of an aggregate of 459 properties in 44 states, consisting of 173 Burger King
restaurants, 42 DAIRY QUEEN restaurants, 30 GRANDY'S-Registered
Trademark-(GRANDY'S-Registered Trademark- is a registered trademark of
Grandy's, Inc.) restaurants, 30 HARDEE'S restaurants, 20 PIZZA HUT-Registered
Trademark- (PIZZA HUT-Registered Trademark- is a registered trademark of
Pizza Hut, Inc.) restaurants, 10 SCHLOTZSKY'S-Registered Trademark-
(SCHLOTZSKY's is a registered trademark of Schlotzsky's, Inc.) restaurants,
eight CHILI'S restaurants, 78 ARBY'S-Registered Trademark- (ARBY'S-Registered
Trademark- is a registered trademark of Triarc Corp.) restaurants, 17
BRUEGGER'S BAGEL-Registered Trademark- (BRUEGGER'S BAGEL-Registered
Trademark- is a registered trademark of Bruegger's Corporation) restaurants
and 51 other properties, most of which are regional brands.
USRP is a Delaware limited partnership. The principal executive offices of
USRP and the Managing General Partner are located at 5310 Harvest Hill Road,
Suite 270, Dallas, Texas 75230. The telephone number is (972) 387-1487.
THE REIT CORPORATION. The REIT Corporation is a newly-formed Maryland
corporation, all of the stock of which is currently owned by the Managing
General Partner, that was organized to succeed to the operations of USRP
pursuant to the Conversion. The REIT Corporation has not engaged in any
activities other than in connection with its organization and the Conversion.
Upon consummation of the Conversion pursuant to the Merger, the current partners
of USRP will become stockholders of the REIT Corporation and the Operating
Partnership will become a subsidiary of the REIT Corporation. In the event that
the Partnership Alternative is used to effect the Conversion, the REIT
Corporation will become a limited partner of the Operating Partnership and the
Unitholders will have the right to exchange their Units for shares of Common
Stock.
The principal executive offices of the REIT Corporation are located at 5310
Harvest Hill Road, Suite 270, Dallas, Texas 75230. The telephone number is
(972) 387-1487.
BUSINESS AND ACQUISITION STRATEGY. After the Conversion, the Company's
strategy will be to continue its operations in substantially the same manner in
which it has been operated and to acquire, develop, own and manage additional
properties throughout the United States and internationally. In conjunction
with the Conversion, the Partnership Agreements are being amended to provide the
Company with increased flexibility to pursue other investment opportunities that
arise during the ordinary course of acquiring and leasing restaurant properties
and that compliment its existing business strategy. As part of its strategy of
expanding its restaurant property portfolio, the Company intends to build-out
properties in conjunction with other food vendors, such as convenience stores,
and retail outlets and
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may, from time to time, originate loans secured by real estate. See "The
Company--Strategy" and "Business--General."
The Company's primary business objective will be to maximize cash available
for distribution to its stockholders and partners, if any. The Company will
seek to achieve growth in cash available for distribution by aggressively
managing and leasing the Properties and by acquiring other restaurant
properties. Cash available for distribution will also be affected by external
factors such as inflation and changes in general economic conditions. The
Company's business objectives also include protecting the Company's capital and
providing the opportunity to realize capital growth from appreciation in the
value of a diversified portfolio of investments. There can be no assurance that
these objectives will be realized. The Company intends to continue to expand
its portfolio by acquiring triple net leased properties and structuring
sale/leaseback transactions consistent with its existing strategies prior to the
Conversion. Those strategies include focusing primarily on restaurant
properties, investing in major restaurant brands, acquiring existing
restaurants, consolidating smaller portfolios and maintaining a conservative
capital structure.
The Company's investments may be in any form of debt, equity, convertible
or hybrid instrument or combination thereof. Equity investments will generally
be made with the intention of a long-term holding period. Although debt
investments also are expected to be generally long-term in nature, the term of
such instruments is subject to individual circumstances. It is possible the
Company's investments may be subject to existing mortgage financing and other
indebtedness which have priority over the interests of the Company. The Company
may pursue its investment objectives independently and/or with other entities,
through joint ventures or other types of co-ownership, in which the Company may
have a majority or minority position. See "Policies with Respect to Certain
Activities--Investment Policies."
The Company's management team consists of senior executives with extensive
experience in the acquisition, operation and financing of fast food and casual
dining restaurants. As a result, management has an extensive network of
contacts within the franchised fast food and casual dining restaurant industry.
See "Management."
MECHANICS OF THE CONVERSION
THE MERGER ALTERNATIVE
GENERAL. If approved by the Unitholders, the Conversion will be effected
by the Merger Alternative unless the Company does not receive a satisfactory
private letter ruling (the "Ruling") from the Internal Revenue Service (the
"IRS") regarding the tax-free nature of the Merger prior to August 31, 1997, or
such later date as may be agreed to by the Special Committee, in its sole
discretion. If the Ruling is not received, the Conversion will be effected by
the Exchange Alternative. See "--The Exchange Alternative." If the Ruling is
satisfactory to the Managing General Partner, the Conversion would be effected
by the Merger Alternative pursuant to the terms and conditions of the Merger
Agreement. In accordance with
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the terms of the Merger Agreement, USRP Acquisition, L.P. (the "REIT Sub"), a
Delaware partnership that is an indirectly wholly-owned subsidiary of the
REIT Corporation, will be merged with and into USRP with USRP being the
surviving entity. The Operating Partnership will remain in existence
following the Merger, with USRP, the REIT Corporation and one or more of the
REIT Corporation's corporate subsidiaries as the sole partners thereof
following consummation of the Merger.
If the Merger Alternative is approved by the Limited Partners and a
satisfactory Ruling is received from the IRS, the Conversion would be effected
by the Merger as follows:
- The Unitholders will receive in exchange for their Units one (1) share
of Common Stock for each Unit held by them prior to the Conversion, or
an aggregate of 7,012,585 shares of Common Stock (99% of all shares of
Common Stock to be outstanding immediately following the Conversion)
on account of the Unitholders' aggregate 99% interest in USRP.
- The Managing General Partner will initially receive 70,834 shares of
Common Stock (1% of all shares of Common Stock to be outstanding
immediately following the Conversion) on account of the Managing
General Partner's 1% interest in USRP.
See "--Allocation of Shares of Common Stock Among Unitholders and the Managing
General Partner."
THE MERGER AGREEMENT. The Merger Alternative will be effected pursuant to
the terms and conditions of the Merger Agreement. A vote in favor of the Merger
Alternative will constitute a vote for approval of the Merger Agreement. The
Merger Agreement, attached as APPENDIX A hereto and incorporated herein by
reference, provides that, subject to the conditions thereof, the REIT
Corporation will indirectly acquire the operations of USRP through the merger of
USRP with a partnership subsidiary of the REIT Corporation with USRP as the
surviving entity and, as a result, becoming an indirect, wholly-owned subsidiary
of the REIT Corporation. As part of the Conversion, the Managing General
Partner will withdraw as managing general partner of USRP and, pursuant to the
terms of the Merger Agreement, a corporate subsidiary of the REIT Corporation
will be substituted as managing general partner of USRP. The Merger will become
effective after all of the conditions to consummation of the Merger have been
satisfied, including the receipt of a favorable Ruling from the IRS, or on such
later date as the parties may mutually agree, by filing with the Secretary of
State of the State of Delaware a certificate of merger as required by applicable
Delaware law. If the Conversion is approved and effected by the Merger
Alternative, it is anticipated that the Merger will be effective on or prior to
______________, 1997.
The obligations of the parties to effect the Merger are subject to certain
conditions, including (i) the approval and adoption of the Merger Agreement and
the transactions contemplated thereby by the affirmative vote of the holders of
a majority of the outstanding Units
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as of the Record Date; (ii) no statute, rule or regulation having been
enacted or promulgated by any governmental authority which prohibits the
exchange of Units for Common Stock or consummation of the Merger; (iii) no
order or injunction of a United States or state court of competent
jurisdiction in effect prohibiting the exchange of Units or consummation of
the Merger; (iv) the receipt by USRP of an opinion of counsel to the effect
that the Merger will be treated as part of a transaction described in Section
351 of the Code; (v) the receipt of a favorable Ruling from the IRS as to
treatment of the Merger as part of a transaction described in Section 351 of
the Code; (vi) the receipt of all permits, qualifications and other
governmental approvals that are required under applicable law in connection
with the Merger and the other transactions contemplated by the Merger
Agreement; (vii) the approval of the Common Stock for listing on the NYSE
upon official notice of issuance; and (viii) the approval of the amendments
to the Partnership Agreements by the affirmative vote of the holders of a
majority of the Units outstanding as of the Record Date. These conditions
may not be waived by USRP.
AMENDMENTS TO PARTNERSHIP AGREEMENTS. In order to effect the Conversion,
whether through the Merger Alternative or the Exchange Alternative, and to
provide greater operating flexibility following the Conversion, certain
amendments are proposed to be made to the Master Partnership Agreement and the
partnership agreement of the Operating Partnership (the "Operating Partnership
Agreement" and, together with the Master Partnership Agreement, the "Partnership
Agreements") to, among other things, provide for the Termination and to provide
the general partner of the Operating Partnership flexibility to issue different
classes of partnership interests. A vote in favor of either the Merger
Alternative or the Exchange Alternative will constitute a vote in favor of the
amendments to the Partnership Agreements described below. The proposed
amendments to the Partnership Agreements would:
- Establish a price for the conversion of the Operating Partnership
General Partner Interest for an interest in the Operating Partnership
and/or Units (which conversion shall occur at such time as the
Managing General Partner ceases to be the managing general partner of
the Partnerships, whether by transfer of interest, withdrawal or
removal (other than for "cause"));
- Permit the admission of new limited partners of the Operating
Partnership at the discretion of the managing general partner;
- Provide a mechanism to permit holders of interests in the Operating
Partnership and/or Units to exchange such interests for shares of
Common Stock;
- Permit the issuance of Operating Partnership interests with terms
comparable to shares of preferred stock which may, from time to time,
be issued by the REIT Corporation; and
- Expand the powers of the Partnerships to enable them to originate
loans secured by real estate and to acquire properties not exclusively
used by restaurants.
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EXCHANGE ALTERNATIVE
In the event that the Ruling is not obtained from the IRS, the Conversion,
if approved by the Limited Partners, would be effected through the admission of
the REIT Corporation as a limited partner of the Operating Partnership and the
exchange of Units for shares of Common Stock by the Unitholders from time to
time, at their discretion, pursuant to the exchange right to be provided for in
the amended Master Partnership Agreement, as described above. The Exchange
Alternative will be implemented only if USRP does not receive a favorable Ruling
from the IRS.
If the Conversion is effected pursuant to the Exchange Alternative, the
Unitholders will not be required to exchange the Units for shares of Common
Stock until such time as they want to sell their Units, which exchange would
only become effective at such time as the Common Stock is listed on the NYSE and
would require such an exchange to take place prior to the sale of the Units to a
third party. Additionally, in order to effect the Exchange Alternative, each
of the other amendments to the Master Partnership Agreement described above
under "--The Merger Alternative--Amendments to the Partnership Agreements" would
become effective. A vote in favor of the Exchange Alternative will constitute a
vote in favor of the amendment to the Master Partnership Agreement described
below.
TERMINATION OF THE OPERATING PARTNERSHIP GENERAL PARTNER INTEREST
GENERAL. As noted above, one of the amendments to the Partnership
Agreements being proposed in order to effect the Conversion is the establishment
of the price (the "Acquisition Price") to be paid for the conversion of the
Operating Partnership General Partner Interest and the conversion of the USRP
Interest. If the Conversion is effected by the Merger Alternative, the Managing
General Partner will withdraw as managing general partner of the Partnerships
effective as of August 31, 1997 (unless extended by the Special Committee in its
sole discretion) and, pursuant to the terms of the Merger Agreement, a corporate
subsidiary of the REIT Corporation will be substituted as managing general
partner of the Partnerships. If the Exchange Alternative is adopted, the
Managing General Partner will withdraw as the managing general partner of the
Partnerships effective as of August 31, 1997 (unless extended by the Special
Committee, in its sole discretion) and, pursuant to the terms of the Partnership
Agreements, a corporate subsidiary of the REIT Corporation would be substituted
as managing general partner of the Partnerships. In conjunction with either
such withdrawal, the Managing General Partner will (i) convert the Operating
Partnership General Partner Interest (if the Conversion is effected through the
Merger Alternative) or assign such interest to USRP (if the Conversion is
effected through the Exchange Alternative) pursuant to the terms of the
Partnership Agreements, and (ii) convert the USRP Interest pursuant to the terms
of the Merger Agreement and/or the Master Partnership Agreement, as applicable,
for the Acquisition Price. As a result of the Termination, the Company will
become self-advised.
The Acquisition Price consists of two components: (i) the initial share
consideration (the "Initial Share Consideration") and (ii) the contingent share
consideration (the "Contingent Share
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Consideration"). The Acquisition Price consists of two components because of
the Special Committee's interest in protecting the stockholders of the REIT
Corporation from being diluted from the issuance of the Acquisition Shares
(as defined below) and to establish a price to be paid for the Operating
Partnership General Partner Interest and the USRP Interest which cannot be
valued with certainty. The Initial Share Consideration is equal to the value
of 850,000 shares of Common Stock (subject to adjustment in the event of
certain dilutive events), and shall consist of shares of Common Stock, Units
and/or an interest in the Operating Partnership, as applicable, depending
upon how the Conversion is effected (collectively, the "Initial Shares").
The Initial Shares shall be issued by the REIT Corporation, USRP or the
Operating Partnership, as applicable, as soon as practicable following the
date of the Termination, but in no event later than 30 days thereafter. The
Contingent Share Consideration is equal to the value of up to 550,000 shares
of Common Stock (subject to adjustment in the event of certain dilutive
events), and shall consist of Units and/or an interest in the Operating
Partnership, as applicable, depending upon how the Conversion is effected
(collectively, the "Contingent Shares" and, together with the Initial Shares,
the "Acquisition Shares"). The exact number of Contingent Shares to be
issued will be determined by dividing the fees and distributions (in excess
of $3,612,500) which would otherwise have been payable to the Managing
General Partner for fiscal year 2000 pursuant to the Property Management
Contract and the Property Interests (less certain expenses to be incurred by
the REIT Corporation following the Termination) by $4.25. The Managing
General Partner will not receive any distributions with respect to the
Contingent Shares, or otherwise have any rights with respect thereto, until
they are issued. The Contingent Shares shall be issued by USRP or the
Operating Partnership, as applicable, as soon as practicable following the
end of the year 2000, but in no event later than March 31, 2001.
THE FAIRNESS OPINION. Morgan Keegan is acting as the financial advisor to
the Special Committee in connection with establishing the Acquisition Price and
has rendered its opinion to the Special Committee that the Acquisition Price is
fair, from a financial point of view, to the Unitholders. USRP appointed the
Special Committee to act on behalf of the Unitholders for purposes of evaluating
the Acquisition Price. The full text of Morgan Keegan's opinion is set forth as
APPENDIX B to this Proxy Statement/Prospectus. See "The Conversion--Fairness
Opinion." Morgan Keegan's opinion does not address the fairness of the Merger
Alternative or the Exchange Alternative. See "The Conversion--Fairness
Opinion--Scope of Opinion."
ANALYSIS OF ALTERNATIVES CONSIDERED
CONTINUATION OF USRP. In reaching its decision to recommend the
Conversion, the Board of Directors considered the alternative of continuing USRP
in its current form as a master limited partnership. The Board of Directors
determined, however, that, based on the reasons discussed above under
"--Advantages of the Conversion," proceeding with the Conversion would be more
beneficial to the Unitholders than the alternative of continuing USRP in its
existing form. The Managing General Partner believes these advantages
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outweigh the disadvantages discussed under the caption "--Disadvantages of
the Conversion" above. See "The Conversion--Analysis of Alternatives
Considered."
LIQUIDATION OF USRP. With respect to the alternative of liquidating USRP,
the Board of Directors concluded that, based on the anticipated liquidation
value per Unit ($20.00) such alternative was less favorable to the Unitholders
than the receipt of shares of Common Stock, assuming the Common Stock trades at
a price per share comparable to the current trading price per Unit ($27.00 at
March 31, 1997), although no assurance can be given that such trading price will
result. The "Risk Factors--Substitution of Trading of Common Stock for Units"
and the "The Conversion--Comparison of Values."
ALLOCATION OF SHARES OF COMMON STOCK AMONG UNITHOLDERS AND THE MANAGING GENERAL
PARTNER
The Board of Directors determined, based on the fact that the REIT
Corporation will initially own the same assets as those held by USRP through its
ownership interest in the Operating Partnership, that it was appropriate for
each of the Unitholders to receive one share of Common Stock for each Unit held
by them immediately prior to the Conversion (or 7,012,585 shares of Common Stock
on account of their 99% percentage interest in USRP). Based on this analysis,
the Board of Directors concluded that the Managing General Partner should
receive 70,834 shares of Common Stock (if the Conversion is effected through the
Merger Alternative) and 1% of the outstanding Units immediately following the
Conversion (if effected through the Exchange Alternative).
In order to determine the number of shares of Common Stock (or the
equivalent interest in the Operating Partnership equivalent number of Units) to
be issued to the Managing General Partner in connection with the conversion of
its Operating Partnership General Partner Interest, the Board of Directors
established the Special Committee to act on behalf of the Unitholders for
purposes of evaluating the Acquisition Price. The Managing General Partner
determined that a special committee was necessary due to the potential conflict
of interest between management of the Managing General Partner and the
Unitholders in determining the Acquisition Price. See "The Conversion--Analysis
of the Special Committee."
NO DISSENTERS' APPRAISAL RIGHTS
Unitholders who object to the Conversion will have no dissenters' appraisal
rights (I.E., the right, instead of receiving Common Stock, to seek a judicial
determination of the "fair value" of their Units and to compel USRP to purchase
Units for cash in that amount) under state law or the Master Partnership
Agreement, nor will such rights be voluntarily accorded to the Unitholders by
the Company. Thus, approval of the Conversion by the holders of a majority of
all Units outstanding on the Record Date will bind all Unitholders, and
objecting Unitholders will have no alternative to receipt of Common Stock other
than selling their Units in the market. The Units are currently listed on the
NYSE under the ticker symbol "USV." If the Conversion
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is effected by the Merger Alternative, the Common Stock is expected to be
listed on the NYSE effective at the time the Merger is consummated. If the
Conversion is effected through the Exchange Alternative, the Common Stock is
expected to be listed on the NYSE at such time as the Company completes its
initial public offering (the "IPO"). See "The Conversion--No Dissenters'
Appraisal Rights."
TAX CONSEQUENCES OF THE CONVERSION
TAX CONSEQUENCES OF THE MERGER ALTERNATIVE. Although pursuant to the
Merger, USRP will be the surviving entity (and become a subsidiary of the REIT
Corporation), for federal income tax purposes USRP will be deemed to have been
terminated in the Merger. For federal income tax purposes, the Merger will
generally be tax-free to USRP and the Unitholders under Sections 351 and 731 of
the Code except to the extent (if any) that USRP's aggregate tax basis in its
assets is less than the liabilities assumed and taken subject to by the REIT
Corporation in the Merger. It is expected that the USRP's aggregate tax basis
in its assets will exceed the sum of such liabilities, so that USRP itself
should not recognize gain upon the Merger. However, Unitholders whose adjusted
basis in their Units or in partnership property is less than their share of
USRP's nonrecourse indebtedness will recognize gain to the extent of such
difference.
It is a condition precedent to consummation of the Merger that the IRS
issue a favorable Ruling as to treatment of the Merger as part of a transaction
described in Section 351 of the Code. The Ruling, however, is conditioned upon
the accuracy of certain factual assumptions and representations. If the IRS
should subsequently determine that the assumptions or representations were
materially inaccurate, the IRS would not be bound by the Ruling and might
challenge the nonrecognition treatment of the Merger in whole or in part. There
can be no assurance that any such challenge could be successfully resisted by
USRP. If the Merger should fail to qualify as tax-free under Section 351, each
Unitholder could be required to recognize gain or loss equal to the difference
between the sum of the value of the Common Stock received by the Unitholder plus
the Unitholder's share of partnership liabilities and the Unitholder's share of
USRP's tax basis in the property at the time of the Merger. Any losses
previously allocated by USRP to a Unitholder that have not been used because of
the at-risk, basis or passive activity limitations can be used to offset gain
recognized on the Merger. Unitholders should consult their own tax advisors to
determine whether they will recognize gain in the Merger. See "Federal Income
Tax Considerations--The Merger Alternative."
REIT STATUS. A qualified REIT is not subject to federal income tax if its
dividends paid to stockholders for each year equal or exceed the sum of the
REIT's adjusted ordinary taxable income plus its capital gains, because the REIT
is allowed a deduction for such dividends paid. The dividends are includible in
the income of a REIT's stockholders. If a REIT should fail to qualify as a REIT
for any year, or should fail to pay sufficient dividends, the REIT could be
required to pay federal income or excise taxes, thereby reducing the cash
available for distribution to its stockholders.
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The REIT Corporation intends to operate in a manner that will enable it
to qualify as a REIT under the Code commencing with the taxable year in which
the Merger is consummated. Although the Managing General Partner believes
that the REIT Corporation will be so organized and will so operate and that
it initially will qualify as a REIT, no assurance can be given that the REIT
Corporation in fact will qualify or remain qualified as a REIT.
Qualification as a REIT involves the application of highly technical and
complex Code provisions and Treasury Regulations for which there are only
limited judicial or administrative interpretations. The determination of
various factual matters and circumstances not entirely within the REIT
Corporation's control may affect its ability to qualify as a REIT. Moreover,
no assurance can be given that new legislation, regulations, administrative
interpretations or court decisions will not significantly alter the tax laws
regarding qualification as a REIT or the federal income tax consequences of
such qualification. USRP is not aware of any current facts or circumstances
that would generate a change in such tax laws so as to significantly and
adversely affect the REIT Corporation's ability to qualify or operate as a
REIT.
If in any taxable year the REIT Corporation were to fail to qualify as a
REIT, the REIT Corporation would be subject to federal income tax at regular
corporate rates on its taxable income, calculated without any deduction for
dividends paid to stockholders. Moreover, unless entitled to relief under
certain statutory provisions, the REIT Corporation would be disqualified from
treatment as a REIT for the four taxable years following the year in which
such qualification was lost. Even if the REIT Corporation subsequently
requalified as a REIT, it might be required to make distributions at that
time equal to any earnings accumulated during the period of non-REIT status
and to pay a full corporate-level tax on any unrealized gain in its assets as
of the date of requalification ("built-in gain").
Any taxes payable by the REIT Corporation would reduce the funds
available for distribution to stockholders for each of the years involved.
During the period in which the REIT Corporation had lost its REIT status, the
REIT Corporation would no longer be required by the Code to make any
distributions to stockholders. Although the REIT Corporation currently
intends to operate in a manner designed to qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause
the REIT Corporation's board of directors to revoke the election for the REIT
Corporation to qualify as a REIT. See "Federal Income Tax
Considerations--The Merger Alternative--Tax Consequences of the REIT
Corporation's Qualification as a REIT--Failure to Qualify."
CERTAIN TAXES IMPOSED ON A REIT. If the REIT Corporation qualifies for
taxation as a REIT, it generally will not be subject to federal corporate
income taxes on its net income that is currently distributed to its
stockholders. However, the REIT Corporation will be subject to federal income
or excise taxes at various rates on the following: (i) undistributed REIT
taxable income, including net capital gains; (ii) "alternative minimum
taxable income" (under certain circumstances); (iii) net income from the sale
or other disposition of "foreclosure property," or other nonqualifying income
from "foreclosure property;" (iv) net income from "prohibited transactions;"
(v) net income attributable to the greater of the amount by which the REIT
Corporation fails the 75% or 95% gross income tests if the REIT Corporation
maintains its
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qualification as a REIT; (vi) the excess of required distributions over the
amounts actually distributed; and (vii) "built-in gain" recognized on the
disposition of an asset during the 10-year period following acquisition by
the REIT Corporation of the asset from a C corporation in a carryover-basis
transaction. See "Federal Income Tax Considerations--The Merger -- Tax
Consequences of the REIT Corporation's Qualification as a REIT--Taxation of
the REIT Corporation as a REIT."
DISTRIBUTION REQUIREMENTS. In order to obtain the favorable tax
treatment associated with REITs qualifying under the Code, the REIT
Corporation generally will be required each year to distribute to its
stockholders at least 95% of its otherwise taxable income (after certain
adjustments). In addition, the REIT Corporation will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any taxable year are less than the
sum of 85% of its ordinary income plus 95% of its capital gain net income for
the taxable year. The REIT Corporation intends to make timely distributions
to stockholders in amounts sufficient to satisfy the annual distribution
requirements in order to qualify as a REIT and to avoid liability for federal
income or excise taxes. The REIT Corporation may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at REIT taxable income. In addition, the REIT
Corporation may recognize net capital gain in excess of the cash received in
connection with the sale of property subject to indebtedness. In such cases,
the REIT Corporation may have less cash available for distribution than is
necessary to meet the annual distribution requirements, and in order to meet
such requirements, the REIT Corporation may arrange for short-term (or
possibly long-term) borrowings or pay distributions in the form of taxable
stock dividends. Furthermore, under certain circumstances, the REIT
Corporation may be able to rectify a failure to meet the distribution
requirements by paying "deficiency dividends" to stockholders in a later year
which would be included in the REIT Corporation's deduction for dividends
paid for the earlier year. See "Federal Income Tax Considerations--The Merger
Alternative--Tax Consequences of the REIT Corporation's Qualification as a
REIT--Taxation of the REIT Corporation as a REIT."
TAX CONSEQUENCES OF THE EXCHANGE ALTERNATIVE. If the Conversion is
effected pursuant to the Exchange Alternative, no gain or loss should be
recognized by the Unitholders as a result of the amendments to the
Partnership Agreements and the admission of the REIT Corporation as a limited
partner of the Operating Partnership. A Unitholder's eventual exchange of
Units for shares in the REIT Corporation will be a taxable event; however, no
exchange of Units will be required if the Conversion is effected pursuant to
the Exchange Alternative until such time as the Unitholder wishes to sell its
Units. See "Federal Income Tax Considerations--Partnership
Alternative--Disposition of Units; Exchange for Shares in the REIT
Corporation." Prior to such exchange, the Unitholders generally will
continue to be taxed in the same manner as they were taxed preceding the
admission of the REIT Corporation into the Operating Partnership.
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<PAGE>
SUMMARY OF COMPARISON OF TAXATION OF STOCKHOLDERS AND UNITHOLDERS
TAXATION OF STOCKHOLDERS. The following discussion assumes that the REIT
Corporation qualifies as a REIT for federal income tax purposes. See
generally "Federal Income Tax Considerations--The Merger Alternative--Tax
Consequences of the REIT Corporation's Qualification as a REIT--Taxation of
Stockholders."
Generally, distributions to stockholders of the REIT Corporation will be
taxable as ordinary income up to the amount of the REIT Corporation's current
or accumulated earnings and profits. Distributions in excess of the REIT
Corporation's current or accumulated earnings and profits will be treated
first as a tax-free return of capital; distributions in excess of a
stockholder's tax basis in its Common Stock will be taxable as gain realized
from the sale of such Common Stock. Dividends that are properly designated
by the REIT Corporation as capital gain dividends will be treated generally
as long-term capital gains for the taxable year (to the extent they do not
exceed the REIT Corporation's actual net capital gain). In contrast with
partners in a partnership as described below, the stockholders will not
recognize income in excess of the fair market value of any property
(including money) distributed by the REIT Corporation.
Distributions by a REIT in excess of its taxable income may result in
immediate recognition of taxable gain to a stockholder whose tax basis has
been reduced to zero, whereas any gain attributable to such distributions by
USRP may generally be deferred until the sale of property or the Unitholder's
Units.
Stockholders may not deduct on their income tax returns any net operating
losses or net capital losses of the REIT Corporation. Any such losses may,
however, be carried forward by the REIT Corporation and used to reduce the
REIT Corporation's taxable income, capital gains and the amount that the REIT
Corporation will be required to distribute in order to remain qualified as a
REIT.
A transferee Unitholder is entitled to the benefit of certain basis
adjustments under Section 754 of the Code upon a sale or exchange of Units or
the death of a Unitholder. There will be no Section 754 adjustments upon the
sale or exchange of Common Stock or the death of a stockholder of the REIT
Corporation. Basis adjustments attributable to Unitholders will become part
of the REIT Corporation's basis for its assets at the time of the Merger.
Unitholders who would have been entitled to additional depreciation
deductions attributable to such adjustments will no longer be able to utilize
such deductions to reduce their share of annual income from the property.
The REIT Corporation's depreciation deductions (including those attributable
to the special basis adjustments of former Unitholders) will be allocated
ratably among the stockholders in determining the portion of the REIT
Corporation's distributions that will be taxable as ordinary dividends. As a
result, for each year following the Merger, Unitholders with significant
positive Section 754 adjustments (generally those who purchased their Units
at higher prices and on more recent dates) will generally recognize somewhat
greater amounts of taxable income than if the Merger had not occurred. Upon
a sale of property, the capital gain will similarly be calculated uniformly
by the REIT Corporation, resulting in greater capital gain dividends for
stockholders who
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<PAGE>
had significant positive Section 754 adjustments and smaller capital gain
dividends for stockholders who had negative or less significant positive
Section 754 adjustments (or would have had such adjustments if the Merger had
not been consummated) than if property were to have been sold by USRP without
the Merger. No consideration has been given to the impact on particular
Unitholders described above in arriving at the number of shares of Common
Stock to be received by each Unitholder. See "Federal Income Tax
Considerations--Exchange Alternative--Tax Treatment of Operations--Section
754 Election."
The REIT Corporation is required to demand of its stockholders who own of
record 5% or more of the Common Stock (assuming there are more than 2,000
stockholders of record) information respecting the Common Stock actually or
constructively owned by such stockholders. The REIT Corporation is required
to maintain a list of those stockholders who fail to comply, and noncomplying
stockholders are required to include the required information in their tax
returns. See "Federal Income Tax Considerations--The Merger Alternative--Tax
Consequences of the REIT Corporation's Qualification as a REIT--Share
Ownership; Reporting."
TAXATION OF UNITHOLDERS. The following discussion summarizes the
taxation of Unitholders as partners in USRP. See generally, "Federal Income
Tax Considerations--Exchange Alternative."
Unitholders are subject to tax based on their distributive share of the
income, gain, loss, deductions and credits of USRP, regardless of whether
USRP distributes any cash or property to the Unitholders during the taxable
year. A Unitholder may, therefore, realize taxable income in excess of cash
distributions. For example, a Unitholder may realize taxable income in
excess of cash distributions if (i) USRP retains cash in excess of
depreciation and original issue discount deductions to repay loans made to
USRP or to make other nondeductible expenditures, (ii) Units are transferred,
(iii) property is sold, or (iv) a Unitholder's share of USRP's indebtedness
decreases reducing the Unitholder's adjusted tax basis in its Units below
zero. A Unitholder generally is entitled to deduct its distributive share of
partnership losses, if any, only to the extent permitted by the basis,
at-risk and passive activity loss limitations.
USRP elected under Section 754 of the Code to adjust the basis of
partnership property upon certain transfers of Units so that the transferee
Unitholder's proportionate share of the adjusted basis of partnership
property equals his basis in his Units. As a result, a transferee Unitholder
who purchases a Unit at a price greater than the transferor's share of USRP's
basis in partnership property will recognize in most circumstances less
taxable income (or more loss) upon the sale of partnership property than if
the election were not in effect. On the other hand, a transferee Unitholder
who purchased a Unit at a cost less than the transferor's share of USRP's
basis in its property will recognize, in most circumstances, more income (or
less loss) upon the sale of partnership property than if the election were
not in effect. The election also has an impact on the amount of depreciation
deductions allocated to a transferee Unitholder. A similar election is not
available to a REIT. See "--Taxation of Stockholders" above.
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<PAGE>
EFFECTS OF THE CONVERSION ON RIGHTS OF UNITHOLDERS
As a result of the Conversion, Unitholders will become stockholders of
the REIT Corporation. The REIT Corporation is a Maryland corporation, while
USRP is a Delaware limited partnership. For a summary comparison of the
material differences between the corporate law of the State of Maryland and
the partnership law of the State of Delaware, see "Comparative Rights of
Unitholders and Stockholders."
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<PAGE>
COMPARISON OF RIGHTS OF UNITHOLDERS AND STOCKHOLDERS
The following summarizes certain rights of Unitholders currently as
compared to the rights of stockholders if the Conversion is approved. For a
more detailed description, see "Comparative Rights of Unitholders and
Stockholders."
<TABLE>
UNITHOLDERS STOCKHOLDERS
----------- ------------
<S> <C> <C>
Right to Elect No right to elect directors of Vote to elect directors.
Management managing general partner.
Right to 80% of Unitholders must vote to Two-thirds vote of stockholders is
Remove remove managing general partner required to remove members of the
Management without cause (a majority Board of Directors, provided that
with cause). cause exists.
General In addition to approval of certain Stockholder approval is required
for fundamental actions, Unitholder (i) election or removal of directors;
Voting Rights approval is required for certain (ii) with certain exceptions,
Regarding financial and investment decisions, amendment of the Articles of
Governance including (i) sale of all or Incorporation; (iii) termination of
substantially all of the assets and the REIT Corporation's existence;
(ii) merger or consolidation of (iv) reorganization of the REIT
USRP or the Operating Partnership. Corporation; and (v) merger,
consolidation or share exchange of
the REIT Corporation, or the sale or
disposition of substantially all of
the REIT Corporation's assets.
Dissolution Requires consent of a majority of Requires approval of two-thirds of
all Unitholders stockholders
Liquidation Unitholders share ratably in Stockholders share ratably in any
Rights accordance with percentage assets remaining after satisfaction
interests. of obligations to creditors and any
liquidation preferences of Preferred
Shares.
</TABLE>
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<PAGE>
MARKET PRICES OF UNITS AND DISTRIBUTIONS
The Units are listed for trading on the NYSE under the ticker symbol
"USV." The following table sets forth, for the periods indicated, the closing
sale price of the Units as reported on the NYSE in such periods and the cash
dividends declared in such periods (and paid in the subsequent period). As
of March 31, 1997, the record number of Unitholders was 1803.
1994 HIGH LOW DISTRIBUTION
---- ---- --- ------------
1st quarter $16 3/4 $15 7/8 $ .39
2nd quarter 17 1/4 15 3/8 .39
3rd quarter 17 1/2 16 3/4 .41
4th quarter 17 3/8 13 .42
------
$1.61
------
------
1995 HIGH LOW DISTRIBUTION
---- ---- --- ------------
1st quarter $16 1/2 $14 1/4 $ .42
2nd quarter 17 1/8 15 3/4 .42
3rd quarter 18 7/8 16 3/4 .43
4th quarter 20 1/4 18 .44
------
$1.71
------
------
1996 HIGH LOW DISTRIBUTION
---- ---- --- ------------
1st quarter $23 3/8 $19 1/2 $ .47
2nd quarter 25 21 1/8 .48
3rd quarter 25 3/8 21 1/2 .485
4th quarter 28 1/4 22 5/8 .50
------
$1.935
------
------
1997 HIGH LOW DISTRIBUTION
---- ---- --- ------------
1st quarter $30 3/4 $27 $ -
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<PAGE>
RISK FACTORS
LIMITED PARTNERS SHOULD CAREFULLY CONSIDER, IN ADDITION TO THE OTHER
INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS, THE MATTERS
DESCRIBED BELOW IN DETERMINING WHETHER TO VOTE FOR THE CONVERSION.
CONFLICTS OF INTEREST
The Partnership Agreements provide that the Operating Partnership pay
fixed and percentage fees annually to the Managing General Partner relating
to the properties owned and acquired by the Partnership. In connection with
the Termination, the Managing General Partner will be issued the Acquisition
Shares designed to compensate it for the conversion of the Operating
Partnership General Partner Interest and the conversion of the USRP Interest
based on the Acquisition Price. The Limited Partners should be aware that a
majority of the members of the Board of Directors, by virtue of their
ownership interests in and/or positions or affiliations with the Managing
General Partner, were subject to a conflict of interest in determining the
Acquisition Price. See "The Conversion--Termination of the Operating
Partnership General Partner Interest."
The Board of Directors appointed the Special Committee to review and make
a recommendation with respect to the Acquisition Price. Neither member of
the Special Committee is an affiliate of, or otherwise has any economic
interest in, the Managing General Partner or its affiliates. The Board of
Directors does not believe that the intention of the members of the Special
Committee to serve as directors of the REIT Corporation following the
Conversion resulted in a material conflict of interest.
In addition, the Special Committee retained Morgan Keegan to review the
Acquisition Price and to provide an opinion that the Acquisition Price is
fair, from a financial point of view, to the Unitholders. Morgan Keegan was
selected to provide this service based upon Morgan Keegan's qualifications,
expertise and reputation as an investment bank and as a professional in the
securities industry. Morgan Keegan delivered an opinion to the Special
Committee on _____________, 1997 that as of the date hereof the Acquisition
Price was fair, from a financial point of view, to the Unitholders. No
limitations were placed on Morgan Keegan by the Special Committee or other
parties to the Conversion with respect to the investigations made or the
procedures followed by Morgan Keegan in rendering its opinion. See "The
Conversion--Termination of the Operating Partnership General Partner
Interest."
TAX CONSEQUENCES OF THE CONVERSION
TAX CONSEQUENCES OF THE MERGER ALTERNATIVE. The Merger will generally be
tax-free to USRP and the Unitholders under Section 351 of the Code except to
the extent (if any) that USRP's aggregate tax basis in its assets is less
than the liabilities assumed and taken subject to by the REIT Corporation in
the Merger. It is expected that USRP's aggregate tax basis in its assets will
exceed the sum of such liabilities, so that USRP itself should not recognize
gain upon
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<PAGE>
the Merger. Gain recognized by USRP, if any, would be allocated among the
Unitholders in accordance with the Master Partnership Agreement. However,
Unitholders whose adjusted basis in their Units or in partnership property is
less than their share of USRP's nonrecourse indebtedness (I.E., who have
negative tax capital accounts) will recognize gain to the extent of such
difference.
The Merger is conditioned on the issuance by the IRS of a favorable
Ruling as to treatment of the Merger as part of a transaction described in
Section 351 of the Code. The Ruling, however, will be conditioned upon the
accuracy of certain factual assumptions and representations. If the IRS
should subsequently determine that the assumptions or representations were
materially inaccurate, the IRS would not be bound by the ruling and might
challenge the nonrecognition treatment of the Merger in whole or in part.
There can be no assurance that any such challenge could be successfully
resisted by USRP. If the Merger should fail to qualify as tax-free under
Section 351, each Unitholder could be required to recognize gain or loss
equal to the excess, if any, of the sum of the value of the Common Stock
received by the Unitholder plus the Unitholder's share of partnership
liabilities over the Unitholder's share of USRP's tax basis in its assets at
the time of the Merger. Unitholders should consult their own tax advisors to
determine whether they will recognize gain in the Merger. See "Federal
Income Tax Considerations--The Merger Alternative--Qualification as
Nonrecognition Transaction."
TAX CONSEQUENCES OF EXCHANGE ALTERNATIVE. There are numerous federal and
state income tax considerations associated with owning and disposing of
Units. See "Federal Income Tax Considerations--Exchange Alternative." Under
the Exchange Alternative, prior to their exchange of Units for shares of
Common Stock, Unitholders will continue to be taxed in the same manner as
they were taxed preceding the admission of the REIT Corporation as a limited
partner of the Operating Partnership. A Unitholders' exchange of Units for
shares of Common Stock will be a taxable event.
POTENTIAL LOSS OF PARTNERSHIP STATUS. The availability to a Unitholder
of the federal income tax benefits of an investment in USRP depends in large
part on the classification of the Partnerships as partnerships for federal
income tax purposes. Based upon certain representations of the Managing
General Partner, Winstead Sechrest & Minick P.C., tax counsel to the
Partnership, has rendered its opinion that under current law and regulations,
the Partnerships will be classified as partnerships for federal income tax
purposes. However, the opinion of counsel is not binding on the IRS. No
advance ruling from the IRS as to such status has been or will be requested.
If the IRS were to challenge the federal income tax status of the
Partnerships or the amount of a Unitholder's allocable share of the
Partnerships' taxable income, such challenge could result in an audit of the
Unitholder's entire tax return and in adjustments to items on that return
that are unrelated to the ownership of Units. In addition, each Unitholder
would bear the cost of any expenses incurred in connection with an
examination of his personal tax return. If USRP were to fail to qualify as a
partnership for federal income tax purposes, the REIT Corporation could fail
to qualify as a REIT. See "Federal Income Tax Considerations--The Merger
Alternative--Tax Consequences of the REIT Corporation's Qualification as a
REIT."
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<PAGE>
It is not clear whether USRP will continue to be a "publicly traded
partnership" for purposes of Section 7704 of the Code after the Units are no
longer listed on the NYSE. Counsel's opinion is based on the assumption that
at least 90% of USRP's gross income for each taxable year will constitute
either (i) real property rents, (ii) gain from the sale or other disposition
of real property, or (iii) other qualifying income within the meaning of
Section 7704(d) of the Code.
If either Partnership were taxable as a corporation or treated as an
association taxable as a corporation in any taxable year, its income, gains,
losses, deductions and credits would be reflected only on its tax return
rather than being passed through to its partners, and its taxable income
would be taxed at corporate rates. In addition, its distributions to each of
its partners would be treated as dividend income (to the extent of its
current and accumulated earnings and profits), and, in the absence of
earnings and profits, as a nontaxable return of capital (to the extent of
such partner's tax basis in his interest therein), or as taxable capital gain
(after such partner's tax basis in his interest therein is reduced to zero).
Furthermore, losses realized by such Partnership would not flow through to
the Unitholders. Accordingly, treatment of either Partnership as a
corporation for federal income tax purposes would probably result in a
material reduction in a Unitholder's cash flow and after-tax return. See
"Federal Income Tax Considerations--Exchange Alternative--Partnership Status."
LIMITED DEDUCTIBILITY OF PARTNERSHIP LOSSES. Losses generated by USRP,
if any, will be available to Unitholders that are subject to the passive
activity loss limitations of Section 469 of the Code to offset only future
income generated by USRP and cannot be used to offset income to a Unitholder
from other passive activities or investments or any other source if USRP
continues to be a "publicly traded partnership." Losses from USRP that are
not deductible because of the passive activity loss limitations may be
deducted when the Unitholder disposes of all of his Units in a fully taxable
transaction with an unrelated party. Net passive income from USRP may be
offset only by a Unitholder's investment interest expense and by unused
partnership losses carried over from prior years. See "Federal Income Tax
Considerations--Exchange Alternative--Tax Consequences of Unit
Ownership--Limitations on the Deductibility of Losses."
RISK OF CHALLENGE TO PARTNERSHIP ALLOCATIONS. Certain aspects of the
allocations contained in the Partnership Agreements may be challenged
successfully by the IRS. If an allocation contained in the Partnership
Agreements is not given effect for federal income tax purposes, items of
income, gain, loss, deduction or credit could be reallocated to the
Unitholders and the managing general partner in accordance with their
respective interests in such items, based upon all the relevant facts and
circumstances. Such reallocation among the Unitholders and the managing
general partner of such items of income, gain, loss, deduction or credit
allocated under the Partnership Agreements could result in additional taxable
income to the Unitholders. Such reallocation of partnership items also could
affect the uniformity of the intrinsic federal tax characteristics of the
Units. See "Federal Income Tax Considerations--Exchange Alternative--Tax
Consequences of Unit Ownership--Allocation of Partnership Income, Gain, Loss
and Deduction."
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<PAGE>
POSSIBLE UNSUITABILITY OF UNITS FOR TAX-EXEMPT ENTITIES, REGULATED
INVESTMENT COMPANIES AND FOREIGN INVESTORS. An investment in Units may not
be suitable for tax-exempt entities, regulated investment companies and
foreign investors. See "Federal Income Tax Considerations--Exchange
Alternative--Tax Treatment of Operations--Tax-Exempt Entities, Regulated
Investment Companies and Foreign Investors."
RISK OF TAX LIABILITY EXCEEDING CASH DISTRIBUTIONS OR PROCEEDS FROM
DISPOSITIONS OF UNITS. Because USRP is not a taxable entity and incurs no
federal income tax liability, a Unitholder will be required to pay federal
income tax and, in certain cases, state and local income taxes on his
allocable share of USRP's income, whether or not he receives cash
distributions from USRP. There can be no assurance that Unitholders will
receive cash distributions equal to their allocable share of taxable income
from USRP. Further, upon the sale or other disposition of Units, a
Unitholder may incur tax liability in excess of the amount of cash received.
To the extent that a Unitholder's tax liability exceeds the amount
distributed to him or the amount he receives on the sale or other disposition
of his Units, he will incur an out-of-pocket expense. See "Federal Income
Tax Considerations--Exchange Alternative--Tax Consequences of Unit Ownership."
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; OTHER TAX LIABILITIES
The REIT Corporation intends to operate so as to qualify as a REIT under
the Code. Although the REIT Corporation believes it has been and will
continue to be organized and operated in such a manner, no assurance can be
given that the REIT Corporation will qualify or remain qualified as a REIT.
Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters
and circumstances not entirely within the REIT Corporation's control may
affect the REIT Corporation's ability to qualify as a REIT. For example, in
order to qualify as a REIT, at least 95% of the REIT Corporation's gross
income in any year must be derived from qualifying sources and the REIT
Corporation must pay dividends to stockholders aggregating annually at least
95% of its REIT taxable income (excluding net capital gains). Further, no
assurance can be given that new legislation, regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax
consequences of such qualification. The REIT Corporation, however, is not
aware of any pending tax legislation that would adversely affect the REIT
Corporation's ability to operate as a REIT.
If in any taxable year the REIT Corporation were to fail to qualify as a
REIT, the REIT Corporation would not be allowed a deduction for dividends to
stockholders in computing its taxable income and would be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at corporate rates. Unless entitled to relief under certain statutory
provisions, the REIT Corporation also would be disqualified from treatment as
a REIT for the four taxable years following the year during which
qualification was lost. As a result, the funds available for distribution to
the REIT Corporation's stockholders would be reduced for each of the years
involved. In addition, dividends would no longer be required to be paid. To
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<PAGE>
the extent that dividends to stockholders would have been paid in
anticipation of the REIT Corporation's qualification as a REIT, the REIT
Corporation might be required to borrow funds or to liquidate certain of its
investments to pay the applicable tax. Although the REIT Corporation
currently intends to operate in a manner designed to qualify as a REIT, it is
possible that future economic, market, legal, tax or other considerations may
cause the REIT Board to revoke the REIT election. See "Federal Income Tax
Considerations--The Merger Alternative--Tax Consequences of the REIT
Corporation's Qualification as a REIT."
ABSENCE OF APPRAISAL RIGHTS
Under applicable law and the Master Partnership Agreement, Unitholders
will have no dissenters' appraisal rights or other similar rights in
connection with the Conversion, nor will such rights be voluntarily accorded
to the Unitholders by the Company. Consequently, all Unitholders will be
bound by the vote of Unitholders owning a majority of the outstanding Units.
Unitholders who do not wish to own Common Stock must either sell their Units
prior to the consummation of the Merger or sell their Common Stock subsequent
thereto. See "The Conversion--No Dissenters' Appraisal Rights."
BENEFITS TO MANAGING GENERAL PARTNER/MANAGEMENT
The Conversion will result in certain benefits to the Managing General
Partner and its affiliates. In particular, as a result of the Termination,
the Managing General Partner will receive shares of Common Stock, Units
and/or an interest in the Operating Partnership. Receipt of the Acquisition
Price enables the Managing General Partner to immediately realize the present
value of the projected payments otherwise payable to it over a period of
years pursuant to the Operating Partnership General Partner Interest.
Additionally, each of Messrs. Stetson and Margolin will be employed by the
REIT Corporation for compensation commencing at $250,000 per year and will be
eligible to receive annual incentive bonuses and stock options.
SUBSTITUTION OF TRADING OF COMMON STOCK FOR UNITS
The Common Stock is expected to be approved for listing on the NYSE.
There can be no assurance given, however, that the market price of the Common
Stock will initially or thereafter equal the market price of the Units. As a
result, the value of the stockholders' investment in the Company following
the Conversion could be lower than the value of their investment in USRP
prior to the Conversion.
COMPARATIVE RIGHTS OF THE UNITS AND COMMON STOCK
There are certain material differences between the rights of holders of
the Units and holders of shares of Common Stock which arise generally because
of the differences between laws governing limited partnerships and laws
governing corporations, as well as from their respective governing
instruments. These differences relate to, among other matters, management,
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<PAGE>
voting rights and the right to compel dissolution. For instance, holders of
shares of Common Stock have the right to elect the directors of the REIT
Corporation, whereas holders of Units do not elect those persons who manage
USRP. However certain matters that require the approval of the Limited
Partners do not require the approval of stockholders, including, the powers
of USRP and the managing general partner. See "Comparative Rights of
Unitholders and Stockholders."
FUTURE DILUTION
Because the REIT Corporation plans to issue additional shares of Common
Stock after the Conversion to facilitate the Company's ongoing growth
strategy, the Unitholders will experience dilution in their percentage
interest in the Company, generally without any requirement of stockholder
approval. See "Description of Capital Stock."
CERTAIN ANTITAKEOVER PROVISIONS; OWNERSHIP LIMITS
CHARTER PROVISIONS. Certain provisions of the Articles may have the
effect of discouraging a third party from making an acquisition proposal for
the Company and may thereby inhibit a change in control of the Company under
circumstances that could give the holders of shares of Common Stock the
opportunity to realize a premium over the then-prevailing market prices.
Furthermore, the ability of the stockholders to effect a change in management
control of the REIT Corporation would be substantially impeded by such
antitakeover provisions. Moreover, in order for the REIT Corporation to
maintain its qualification as a REIT, not more than 50% in value of its
outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain
entities). For the purpose of preserving the REIT Corporation's REIT
qualification, the Articles prohibit ownership either directly or under the
applicable attribution rules of the Code of more than 8.75% of the shares of
Common Stock by any stockholder, subject to certain exceptions. Such
ownership limit may have the effect of preventing an acquisition of control
of the Company without the approval of the REIT Board. See "Description of
Capital Stock," "Certain Provisions of Maryland Law and of the REIT
Corporation's Articles and Bylaws" and "Federal Income Tax Considerations."
STAGGERED BOARD. The REIT Board will be divided into three classes. The
terms of the first, second and third classes will expire in 1998, 1999 and
2000, respectively. Directors of each class will be elected for a three-year
term upon the expiration of the current class's term. The staggered terms
for directors may affect the stockholders' ability to effect a change in
control of the REIT Corporation even if a change in control were in the
stockholders' best interest. See "Certain Provisions of Maryland Law and of
the REIT Corporation's Articles and Bylaws."
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<PAGE>
PREFERRED STOCK. The Articles authorize the REIT Board to issue up to 10
million shares of preferred stock and to establish the preferences and rights
of any such shares issued. See "Description of Capital Stock--Preferred
Stock." The issuance of preferred stock could have the effect of delaying or
preventing a change in control of the Company even if a change in control
were in the stockholders' best interest. No shares of preferred stock will
be issued or outstanding upon consummation of the Conversion.
BUSINESS COMBINATIONS. Under the Maryland General Corporation Law (the
"MGCL"), certain business combinations (including a merger, consolidation,
share exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland corporation and an
"Interested Stockholder" are prohibited for five years after the most recent
date on which the Interested Stockholder became an Interested Stockholder.
An Interested Stockholder is any person who beneficially owns 10% or more of
the voting power of the then-outstanding voting stock of the corporation or
an affiliate of such person. Thereafter, such business combination must be
recommended by the board of directors of such corporation and approved by a
super-majority vote of the corporation's stockholders. The business
combination provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The Bylaws of the REIT Corporation contain a
provision exempting from these provisions of the MGCL and business
combination involving QSV (or its affiliates) or any person acting in concert
as a group with any of the foregoing persons. See "Certain Provisions of
Maryland Law and of the REIT Corporation's Articles and Bylaws--Business
Combinations."
CONTROL SHARE ACQUISITIONS. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquirer, by officers or by directors who are employees of the corporation.
"Control Shares" are voting shares of stock, which if aggregated with all
other shares of common stock previously acquired by such person, or in
respect of which such person is able to exercise or direct the exercise of
voting power, would entitle the acquirer to exercise voting power in electing
directors within certain ranges of voting power (from one-fifth to a
majority). A "control share acquisition" means the acquisition of control
shares, subject to certain exceptions. A person who has made or proposes to
make a control share acquisition, upon satisfaction of certain conditions,
may compel the board of directors to call a special meeting of stockholders
to be held within 50 days of demand to consider the voting rights of the
shares. The corporation may, subject to certain conditions and limitations,
redeem any or all of the control shares for fair value if voting rights are
not approved at the meeting or if the acquiring person does not deliver an
acquiring person statement as required by the MGCL. If voting rights for
control shares are approved at a stockholders meeting and the acquirer
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The control share acquisition
statute does not apply to shares acquired in a merger,
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consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws
of the corporation. See "Certain Provisions of Maryland Law and of the REIT
Corporation's Articles and Bylaws--Control Share Acquisitions."
RESTRICTIONS ON TRANSFER
The ownership limit provided in the Articles may restrict the transfer of
Common Stock or Preferred Stock. For example, if any purported transfer of
Common Stock or Preferred Stock would (i) result in any person owning,
directly or indirectly, Common Stock or Preferred Stock in excess of 8.75% of
the number of outstanding shares of Common Stock (except for QSV which
initially may own no more than 15.0% of the number of such outstanding shares
or (ii) 9.8% of the number of outstanding shares of Preferred Stock of any
series of Preferred Stock, (iii) result in the Common Stock and Preferred
Stock being owned by fewer than 100 persons, (iv) result in the REIT
Corporation being "closely held" (as defined in the Code), or (v) cause the
REIT Corporation to own, directly or constructively, 10% or more of the
ownership interests in a tenant of the REIT Corporation's or the Operating
Partnership's real property, the Common Stock or Preferred Stock will be
designated as "Excess Stock" and transferred automatically to a trust
effective on the day before the purported transfer of such Common Stock or
Preferred Stock. See "Description of Capital Stock--Restrictions on
Transfer."
ADVERSE EFFECT OF INCREASES IN INTEREST RATES
One of the factors that may influence the market price of the Common
Stock is the annual yield from distributions made by the Company on the
Common Stock as compared to yields on certain financial instruments. Thus, a
general increase in market interest rates could result in higher yields on
certain financial instruments which could adversely affect the market price
for the Common Stock, since alternative investment vehicles may be more
attractive.
NO RESTRICTIONS ON CHANGES IN INVESTMENT, FINANCING AND OTHER POLICIES
The investment and financing policies of the Company, and its policies
with respect to all other activities, including its growth, debt,
capitalization, dividends and operating policies, will be determined by the
REIT Board. Although the REIT Board has no present intention to do so, these
policies may be amended or revised at any time and from time to time at the
discretion of the REIT Board without a vote of the stockholders or partners,
if any, of the Company. A change in these policies could adversely affect
the Company's financial condition or results of operations or the market
price of the Common Stock. See "Policies With Respect to Certain
Activities."
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ACQUISITION AND EXPANSION RISKS
FAILURE TO ACQUIRE ACQUISITION PROPERTIES. As of March 28, 1997, the
Company had 114 properties under binding agreements of acquisition. In
connection with the execution of such agreements, the Company made deposits of
approximately $937,500 which may be non-refundable in whole or in part if the
Company elects not to close some or all of such acquisitions. In addition,
should some or all of these properties not be acquired, consummation of the
Termination will result in less cash available for distribution to Unitholders
or holders of Common Stock, as the case may be, following the Conversion until
$55 million of additional properties are acquired. No assurance can be given
that additional properties meeting the Company's acquisition criteria will be
available or, if available, could be acquired by the Company.
RISK OF REFINANCING EXISTING INDEBTEDNESS. Currently, the Company's
borrowings do not have long-term maturities and as a result, the Company will be
required to refinance such borrowings prior to the maturities of the lease terms
of its properties. Refinancing will depend upon the creditworthiness of the
Company and the availability of financing under market conditions at the time
such refinancing is required. Such refinancing of the Company's borrowings
could result in higher interest costs and adversely affect results from
operations. Payment of the interest on, or amortization of, any such
indebtedness could also decrease the cash distributable to stockholders and
partners, if any, if the financing and other costs of the Company's growth
strategy exceed any incremental revenue generated.
RISK OF LEVERAGE. In order to fund the Company's growth strategy, the
Company may borrow funds and grant liens on its properties to secure such
indebtedness. If the Company were unable to repay or otherwise default in
respect of any indebtedness, the Company's properties could become subject to
foreclosure. The Company's charter documents do not restrict the amount of such
indebtedness, and the extent of the Company's indebtedness from time to time may
affect its interest costs, results of operations and its ability to respond to
future business adversities and changing economic conditions. The Company has
implemented a non-binding policy to maintain a ratio of total indebtedness of
50% or less to the greater of total market capitalization or the original cost
of all of the Company's properties as of the date of such calculation. Because
it is anticipated that the Company will not fix all of its interest costs for
the long term, future changes in interest rates may positively or negatively
affect the Company.
RISK OF MANAGING EXPANDED PORTFOLIO. At March 31, 1995, the Company owned
and managed fewer than 125 restaurant properties. As of March 28, 1997, the
Properties consisted of 345 restaurant properties. As a result of the rapid
growth of the Company's portfolio and the anticipated additional growth, there
can be no assurance that management will be able to adapt its management,
administrative, accounting and operational systems to respond to the growth
represented by the Acquisition Properties or any future growth. In addition,
there can be no assurance that the Company will be able to maintain its current
rate of growth or negotiate and acquire any acceptable properties in the future.
A larger portfolio of properties could entail additional operating expenses that
would be payable by the Company. Such
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acquisitions may also require loans to prospective tenants. Making loans to
existing or prospective tenants involves credit risks and could subject the
Company to regulation under various federal and state laws. Any operation of
restaurants, even on an interim basis, would also subject the Company to
operating risks (such as uncertainties associated with labor and food costs),
which may be significant.
INVESTMENT CONCENTRATION IN SINGLE INDUSTRY
The Company's current strategy is to continue to acquire interests in
restaurant properties, specifically fast food and casual dining restaurant
properties. As a result, a downturn in the fast food or casual dining segment
could have a material adverse effect on the Company's total rental revenues and
amounts available for distribution to its stockholders and partners. See
"Business."
DEPENDENCE ON SUCCESS OF BURGER KING
Of the Properties, 173 are occupied by operators of Burger King
restaurants. In addition, the Company intends to acquire additional Burger King
properties. As a result, the Company is subject to the risks inherent in
investments concentrated in a single franchise brand, such as a reduction in
business following adverse publicity related to the brand or if the Burger King
restaurant chain (and its franchisees) were to suffer a system-wide decrease in
sales, the ability of franchisees to pay rents (including percentage rents) to
the Company may be adversely affected. See "Business--Properties."
POSSIBLE RENT DEFAULTS AND FAILURE TO RENEW LEASES AND FRANCHISE AGREEMENTS
The Properties are leased to restaurant franchise operators pursuant to
leases with remaining terms varying from one to 28 years at December 31, 1996
and an average remaining term of nine years. No assurance can be given that
such leases will be renewed at the end of the lease terms or that the Company
will be able to renegotiate terms which are acceptable to the Company. The
Company has attempted to extend the terms of certain of its existing leases
pursuant to an "early renewal program," but in connection therewith has had to
commit to paying for certain improvements on such properties. See
"Business--Leases with Restaurant Operators."
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS. The Company's investments in real estate are subject to
varying degrees of risk inherent in the ownership of real property. The
underlying value of the Company's real estate and the income therefrom and,
consequently, the ability of the Company to make distributions to stockholders
and partners are dependent upon the operators of the Properties generating
income in excess of operating expenses in order to make rent payments. Income
from the Properties may be adversely affected by changes in national economic
conditions, changes in local market conditions due to changes in general or
local economic conditions and neighborhood characteristics, changes in interest
rates and the availability, cost and terms of mortgage funds, the impact of
compliance with present or future environmental laws, the ongoing
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need for capital improvements, particularly for older restaurants, increases
in operating expenses, adverse changes in governmental rules and fiscal
policies, civil unrest, acts of God (which may result in uninsured losses),
acts of war, adverse changes in zoning laws and other factors beyond the
Company's control.
ILLIQUIDITY OF REAL ESTATE MAY LIMIT ITS VALUE. Real estate investments
are relatively illiquid. The ability of the Company to vary its portfolio in
response to changes in economic and other conditions is limited. No assurance
can be given that the market value of any of the Company's properties will not
decrease in the future. If the Company must sell an investment, there can be no
assurance that the Company will be able to dispose of it in a desirable time
period or that the sales price will recoup or exceed the amount paid for such
investment.
POSSIBLE LIABILITY THAT COULD RESULT FROM ENVIRONMENTAL MATTERS. The
Company's operating costs may be affected by the obligation to pay for the cost
of complying with existing environmental laws, ordinances and regulations, as
well as the cost of compliance with future legislation. Under current federal,
state and local environmental laws, ordinances and regulations, a current or
previous owner or operator of real property may be liable for the costs of
removal or remediation of hazardous or toxic substances on, under or in such
property. Such laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of such hazardous or toxic
substances. In addition, the presence of contamination from hazardous or toxic
substances, or the failure to remediate such contaminated property properly, may
adversely affect the ability of the owner of the property to use such property
as collateral for a loan or to sell such property. Environmental laws also may
impose restrictions on the manner in which a property may be used or transferred
or in which businesses may be operated, and may impose remedial or compliance
costs. The costs of defending against claims of liability or remediating
contaminated property and the cost of complying with environmental laws could
materially adversely affect the Company's results of operations and financial
condition.
In connection with the Company's acquisition of a property, a Phase I
environmental assessment is obtained. A Phase I environmental assessment
involves researching historical usages of a property, databases containing
registered underground storage tanks and other matters, including an on-site
inspection, to determine whether an environmental issue exists with respect to
the property which needs to be addressed. If the results of a Phase I
environmental assessment reveal potential issues, a Phase II assessment, which
may include soil testing, ground water monitoring or borings to locate
underground storage tanks, is ordered for further evaluation and, depending upon
the results of such assessment, the transaction is consummated or the
acquisition is terminated. Certain of the Phase I surveys obtained on the
Properties revealed potential environmental concerns and the Company has had
Phase II reports prepared with respect to such Properties.
None of the environmental surveys prepared to date has revealed any
environmental liability or compliance concern at the Properties that the Company
believes would have a material adverse effect on the Company's business, assets,
results of operations or liquidity, nor is the Company aware of any such
liability or concern. Nevertheless, it is possible that Phase I surveys
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will not reveal all environmental liabilities or compliance concerns or that
there will be material environmental liabilities or compliance concerns of
which the Company will not be aware. Moreover, no assurances can be given
that (i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Company's existing and future properties will not be affected by the
condition of neighboring properties (such as the presence of leaking
underground storage tanks) or by third parties (whether neighbors such as dry
cleaners or others) unrelated to the Company.
AMERICANS WITH DISABILITIES ACT. The Americans with Disabilities Act (the
"ADA") generally requires that all public accommodations, including restaurants,
comply with certain federal requirements relating to physical access and use by
persons with physical disabilities. A determination that the Company or one of
the Company's properties is not in compliance with the ADA could result in the
imposition of fines, injunctive relief, damages or attorney's fees. The
Company's leases contemplate that compliance with the ADA is the responsibility
of the operator. While the Company believes that compliance with the ADA can be
accomplished without undue costs, the costs of compliance may be substantial and
may adversely impact the ability of such lessees to pay rentals to the Company.
In addition, a determination that the Company is not in compliance with the ADA
could result in the imposition of fines or an award of damages to private
litigants.
UNINSURED AND UNDERINSURED LOSSES COULD RESULT IN LOSS OF VALUE OF
FACILITIES. The Company requires its lessees to maintain comprehensive
insurance on each of the properties, including liability, fire and extended
coverage, and the Company is an additional named insured under such policies.
Management believes such specific coverage is of the type and amount customarily
obtained for or by an owner on real property assets. The Company intends to
require lessees of subsequently acquired properties, including the Acquisition
Properties, to obtain similar insurance coverage. However, there are certain
types of losses, generally of a catastrophic nature, such as earthquakes and
floods, that may be uninsurable or not economically insurable, as to which the
Company's properties (including the Properties and the Acquisition Properties)
are at risk depending on whether such events occur with any frequency in such
areas. In addition, because of coverage limits and deductibles, insurance
coverage in the event of a substantial loss may not be sufficient to pay the
full current market value or current replacement cost of the Company's
investment. Inflation, changes in building codes and ordinances, environmental
considerations and other factors also might make it unfeasible to use insurance
proceeds to replace a facility after it has been damaged or destroyed. Under
such circumstances, the insurance proceeds received by the Company might not be
adequate to restore its economic position with respect to such property.
DEPENDENCE ON KEY PERSONNEL
Robert J. Stetson, currently President and Chief Executive Officer of the
Managing General Partner, and Fred H. Margolin, currently Chairman of the Board
of the Managing General Partner, will, following the Termination, hold similar
positions with the REIT Corporation. The Company's continued success is
dependent upon the efforts and abilities of
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these and other of its key executive officers. In particular, the loss of
the services of either Mr. Stetson or Mr. Margolin could have a material
adverse effect on the Company's operations and its ability to effectuate its
growth strategy. There can be no assurance that the Company would be able to
recruit or hire any additional personnel with equivalent experience and
contacts. Following the Termination, the REIT Corporation will enter into
employment contracts with each of Messrs. Stetson and Margolin. See
"Management--Employment Agreements."
COMPETITION
ACQUISITIONS. Numerous entities and individuals compete with the Company
to acquire triple net leased restaurant properties, including entities which
have substantially greater financial resources than the Company. These entities
and individuals may be able to accept more risk than the Company is willing to
undertake. Competition generally may reduce the number of suitable investment
opportunities available to the Company and may increase the bargaining power of
property owners seeking to sell. There can be no assurance that the Company
will find attractive triple net leased properties or sale/leaseback transactions
in the future.
OPERATIONS. The restaurants operated on the properties are subject to
significant competition (including competition from other national and regional
fast food restaurant chains) including other Burger King 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 and other competitors such as convenience stores and
supermarkets that sell prepared and ready-to-eat foods. The success of the
Company depends, in part, on the ability of the restaurants operated on the
properties to compete successfully with such businesses. The Company does not
intend to engage directly in the operation of restaurants. However, the Company
would operate restaurants located on its properties if required to do so in
order to protect the Company's investment. As a result, the Company generally
will be dependent upon the experience and ability of the lessees operating the
restaurants located on the properties.
DEVELOPMENT RISKS
The Company may pursue certain restaurant property developments. New
project developments are subject to numerous risks, including construction
delays or costs that may exceed budgeted or contracted amounts, new project
commencement risks such as receipt of zoning, occupancy and other required
governmental approvals and permits and the incurrence of development costs in
connection with projects that are not pursued to completion. In addition,
development involves the risk that developed properties will not produce desired
revenue levels once leased, the risk of competition for suitable development
sites from competitors which may have greater financial resources than the
Company and the risk that debt or equity financing is not available on
acceptable terms. There can be no assurance that development activities might
not be curtailed or, if consummated, will perform in accordance with the
Company's expectations and distributions to stockholders and partners, if any,
might be adversely affected.
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RISK OF NEWLY-CONSTRUCTED RESTAURANT PROPERTIES
The Company may pursue the acquisition of newly-constructed restaurant
properties that do not have operating histories. The acquisition of
newly-constructed restaurant properties involves numerous risks, including the
risk that newly-constructed restaurant properties will not produce desired
revenue levels (and, therefore, lease rentals) once opened.
THE COMPANY
HISTORY AND STRUCTURE OF USRP
USRP, formerly Burger King Investors Master L.P, was formed in 1985 by BKC
and QSV Properties Inc. ("QSV"), both of which were at that time wholly-owned
subsidiaries of The Pillsbury Company. QSV acted as the managing general
partner of the Partnership. BKC was a special general partner of the
Partnership until its withdrawal on November 30, 1994.
USRP effected an initial public offering in 1986 and the proceeds therefrom
were used to buy the Company's initial portfolio of 128 properties from BKC.
From 1986 through March 1995, the Master Partnership Agreement limited the
activities of the Company to managing the original portfolio of properties.
In May 1994, an investor group led by Messrs. Stetson and Margolin,
acquired QSV and later changed its name to U.S. Restaurant Properties, Inc. In
March 1995, the Managing General Partner proposed and the Limited Partners
adopted certain amendments to the Partnership Agreements that authorized the
Company to acquire additional properties not affiliated with BKC.
The Company operates through the Operating Partnership, formerly Burger
King Operating Limited Partnership, which holds the interests in most of the
Properties. USRP owns the entire 99.01% limited partnership interest in the
Operating Partnership. The Partnerships are Delaware limited partnerships and
continue in existence until December 31, 2035, unless sooner dissolved or
terminated.
In 1996, the Partnerships organized U.S. Restaurant Properties Business
Trust I and U.S. Restaurant Properties Business Trust II, Delaware business
trusts. These trusts were organized to facilitate obtaining mortgage financing.
The principal executive offices of USRP and the Managing General Partner
are located at 5310 Harvest Hill Road, Suite 270, Dallas, Texas 75230. The
telephone number is (972) 387-1487, FAX (972) 490-9119.
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THE REIT CORPORATION
The REIT Corporation is a newly-formed Maryland corporation, all of the
stock of which is currently owned by the Managing General Partner, that was
organized to succeed to the operations of USRP pursuant to the Conversion. The
REIT Corporation was created for the purpose of effecting the Conversion. Prior
to the Conversion, the REIT Corporation will have no substantial assets or
operations. The REIT Corporation has not engaged in any activities other than
in connection with its organization and the Conversion. Upon consummation of
the Conversion pursuant to the Merger Alternative, the REIT Corporation will
indirectly acquire the operations of USRP through the Merger of USRP into a
partnership subsidiary of the REIT Corporation with USRP being the surviving
entity. If the Conversion is effected pursuant to the Exchange Alternative, the
REIT Corporation will initially be admitted as a limited partner of the
Operating Partnership, and at such time as the Managing General Partner effects
the Termination, a corporate subsidiary of the REIT Corporation will become the
managing general partner of each of the Partnerships.
Certain members of the initial REIT Board are the same as the members of
the Board of Directors of the Managing General Partner. The executive officers
of the REIT Corporation include Mr. Stetson and Mr. Margolin, the President and
Chief Executive Officer and Chairman of the Board of Directors, respectively, of
the Managing General Partner. Mr. Stetson and Mr. Margolin will hold the same
positions with the Company. See "Management."
Upon consummation of the Conversion pursuant to the Merger Alternative, the
current partners of USRP will become the stockholders of the REIT Corporation
and the Operating Partnership will become a subsidiary of the REIT Corporation.
If the Conversion is effected pursuant to the Exchange Alternative, the Master
Partnership Agreement will be amended to provide the Unitholders with the right,
from time to time, to exchange each Unit for one share of Common Stock but will
be required to make such exchange prior to the transfer of the Units to third
parties. Until such time as all Unitholders exchange their Units for shares of
Common Stock, USRP will remain in existence. After the Conversion, the
Company's business strategy will be to continue the operations of the Company in
substantially the same manner in which it has been operated prior to the
Conversion and to acquire, develop, own and manage additional restaurant
properties throughout the United States and internationally. See "--Strategy"
below. The Company's investment objectives will be to maximize cash available
for distribution to its stockholders and partners, if any, to protect the
Company's capital and to provide the opportunity to realize capital growth from
the appreciation in value of a diversified portfolio of properties.
The principal executive offices of the REIT Corporation are located at 5310
Harvest Hill Road, Suite 270, Dallas, Texas 75230. The telephone number is
(972) 387-1487.
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STRATEGY
The Company's principal business objective is to expand and diversify its
property portfolio through frequent acquisitions of small to medium-sized
portfolios of fast food and casual dining restaurant properties. As part of its
strategy of expanding its property portfolio, the Company intends to build-out
properties in conjunction with other food vendors, such as convenience stores,
and retail outlets. In conjunction with the Conversion, the Operating
Partnership Agreement is being amended to provide the Company with increased
flexibility to pursue other investment opportunities that arise during the
ordinary course of acquiring and leasing restaurant properties and that
compliment its existing business strategy. As part of its strategy of expanding
its property portfolio, the Company intends to build-out properties in
conjunction with other food vendors, such as convenience stores, and retail
outlets and may, from time to time, originate loans secured by real estate. See
"Business--General" and "--Investment Criteria." The Company intends to achieve
growth and diversification while maintaining low portfolio investment risk
through adherence to proven acquisition criteria with a conservative capital
structure. The Company intends to continue to expand its portfolio by acquiring
triple net leased properties and structuring sale/leaseback transactions
consistent with the following strategies:
- FOCUS ON RESTAURANT PROPERTIES. The Company will take advantage of
senior management's extensive experience in fast food and casual
dining restaurant operations to identify new investment opportunities
and acquire restaurant properties satisfying the Company's investment
criteria. Management believes, based on its industry knowledge and
experience, that relative to other real estate sectors, restaurant
properties provide numerous acquisition opportunities at attractive
valuations. In addition, the proposed amendments to the Partnership
Agreements will give the Company increased flexibility to pursue other
investment opportunities that arise during the ordinary course of
acquiring and leasing restaurant properties and authorize the Company,
through the Operating Partnership, to originate loans secured by real
estate.
- INVEST IN MAJOR RESTAURANT BRANDS. The Company intends to continue to
acquire properties operated as major national and regional restaurant
brands, such as Burger King, DAIRY QUEEN, HARDEE'S and CHILI'S by
competent, financially-stable operators. Certain of the Properties
are also operated as GRANDY'S, PIZZA HUT, KFC and TACO BELL
restaurants. Management believes, based on its industry knowledge and
experience, that successful restaurants operated under these types of
brands will continue to offer stable, consistent income to the Company
with minimal risk of default or non-renewal of the lease and franchise
agreement. As a result of its concentration on major national and
regional brands, in the last three fiscal years, of all rental
revenues due, more than 99.5% has been collected.
- ACQUIRE EXISTING RESTAURANTS. The Company's strategy will continue to
focus primarily on the acquisition of existing fast food and casual
dining chain restaurant
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properties that have a history of profitable operations with a
remaining term on the current lease of at least five years. The
average remaining lease term for the Properties is nine years.
Management believes, based on its industry knowledge and experience,
that acquiring existing restaurant properties provides a higher
risk-adjusted rate of return to the Company than acquiring
newly-constructed restaurants.
- CONSOLIDATE SMALLER PORTFOLIOS. Management believes, based on its
industry knowledge and experience, that pursuing multiple transactions
involving smaller portfolios of restaurant properties (generally
having an acquisition price of less than $3 million) results in a more
attractive valuation because the size of such transactions generally
does not attract large institutional property owners. Smaller buyers
typically are not well capitalized and may be unable to compete for
such transactions. Larger transactions involving multiple properties
generally attract several institutional bidders, often resulting in a
higher purchase price and lower investment returns to the purchaser.
In certain circumstances, however, the Company has identified,
evaluated and pursued portfolios valued at up to $50 million that
present attractive risk/return ratios.
- MAINTAIN CONSERVATIVE CAPITAL STRUCTURE. The Company anticipates
maintaining its policy of limiting the ratio of total indebtedness to
50% or less of the greater of (i) the aggregate market value of all
issued and outstanding Units, if any, and Common Stock plus total
outstanding indebtedness or (ii) the original cost of all of the
Company's properties as of the date of such calculation. The Company,
however, may from time to time reevaluate its borrowing policies in
light of then-current economic conditions, relative costs of debt and
equity capital, market values of properties, growth and acquisition
opportunities and other factors.
THE CONVERSION
BACKGROUND OF THE CONVERSION
Management of the Managing General Partner initiated discussions with the
Board of Directors in April 1996 regarding the possibility of converting USRP
into REIT form. Management believed that the market capitalization of USRP did
not properly reflect its underlying asset values. In addition, management was
aware of the increasingly favorable market reaction to REITs as evidenced by
increases in share prices of existing REITs and successful initial public
offerings by newly-formed REITs. From April 1996 until December 1996,
management continued to analyze the advisability of converting to a self-advised
REIT structure. Management made several presentations to the Board of Directors
during this time period regarding the information gathered from its analysis.
The Board of Directors deliberated several times with respect to the Conversion
at which time outside advisors were consulted with respect to both the
advantages of the Conversion and the possible disadvantages, both legal and
financial, to the Unitholders. In order for this conversion to
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happen, the Managing General Partner would need to withdraw as managing
general partner of the Partnerships. Such withdrawal, and the resulting
compensation to be paid to the Managing General Partner, created a conflict of
interest for management. Accordingly, on December 16, 1996, the Board of
Directors appointed the Special Committee to establish the Acquisition Price.
The Special Committee was authorized to negotiate on behalf of the Unitholders
the Acquisition Price with applicable related parties and to retain legal
counsel. All expenses of the Special Committee, including the fee of Morgan
Keegan, are payable by USRP. See "--Analysis of the Special Committee" and
"--Costs of the Conversion."
Based on the recommendation of the Special Committee as to the fairness of
the Acquisition Price, the Board of Directors approved the Conversion on
_____________, 1997 and determined that the Conversion is in the best interests
of, and on terms that are fair to, the Unitholders. The Managing General
Partner recommends approval and adoption of the Conversion by the Limited
Partners. The Board of Directors believes that the Conversion will result in
the benefits to the Unitholders described below under "--Advantages of the
Conversion." The Board of Directors believes that these advantages outweigh the
disadvantages of and risks associated with the Conversion described under "Risk
Factors" and "--Disadvantages of the Conversion." The Board of Director's
substantive recommendations and conclusions are based on the analysis of the
advantages and risks of converting from partnership to REIT form and making the
changes in operating format described herein.
DISADVANTAGES OF THE CONVERSION
The Board of Directors believes that the Conversion may have the following
disadvantages, which it believes are substantially outweighed by the advantages
described below:
POSSIBLE DISADVANTAGES RESULTING FROM REIT STATUS. The REIT Corporation
was organized and intends to conduct its operations so as to qualify for
taxation as a REIT under applicable provisions of the Code. A qualified REIT
may avoid paying federal income tax because it is allowed to deduct certain
dividends paid to its stockholders in computing its taxable income. To qualify
as a REIT, the REIT Corporation is required, among other things, to meet certain
stock ownership, income, asset and distribution rules and tests. Under certain
circumstances, the failure of the REIT Corporation to meet the qualifications
rules and tests could cause the REIT Corporation to be taxed as a corporation,
in which case dividends paid to the stockholders would not be deductible by the
REIT Corporation in computing its taxable income, subjecting the REIT
Corporation to entity level taxes to which USRP is not subject. Furthermore,
the REIT Corporation might not be eligible to elect to be taxed as a REIT for
five taxable years (including the year of disqualification). Under certain
other circumstances, if the REIT Corporation failed to meet certain
qualification rules and tests, the REIT Corporation would continue to qualify as
a REIT, but the REIT Corporation could be required to pay interest and federal
income and/or excise taxes. In order to minimize the chances that the REIT
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Corporation will violate stock ownership rules, in certain circumstances
transfer of shares of Common Stock will be limited or prohibited. In general, a
stockholder of the REIT Corporation would be taxed only on dividends paid to it
by the REIT Corporation, with such dividends being treated as ordinary income,
capital gains, tax-free recovery of its basis in its shares of Common Stock or
has gain from the sale or exchange of property, depending on the circumstances.
Unlike partners of USRP, stockholders of the REIT Corporation will not be deemed
to receive for tax purposes a proportional interest in the income and expenses
of the REIT Corporation.
LOSS OF SECTION 754 BENEFITS. A person who acquires Units is entitled to
certain benefits relating to basis adjustments under Section 754 of the Code
upon the sale or exchange of Units or the death of a Unitholder. There will be
no Section 754 adjustments upon the sale or exchange of shares of Common Stock
or the death of a stockholder of the REIT Corporation. The basis adjustments
attributable to Unitholders will become part of the REIT Corporation's basis for
its assets at the time of the Conversion. Unitholders who would have been
entitled to additional depreciation deductions attributable to such adjustments
will no longer be able to use such deductions to reduce their share of annual
income from distributions from the REIT Corporation. The REIT Corporation's
depreciation deductions will be allocated ratably among the stockholders of the
REIT Corporation in determining the portion of the distributions by the REIT
Corporation that will be taxable by the recipients thereof as ordinary
dividends. As a result, Unitholders with significant Section 754 adjustments
(generally those who purchased their Units at higher prices and on more recent
dates) will generally recognize somewhat greater amounts of taxable income each
year following the Conversion then if the Conversion had not occurred.
RESTRICTIONS ON TRANSFER OF SHARES OF COMMON STOCK. Certain provisions of
the Articles may have the effect of discouraging a third party from making an
acquisition proposal for the Company and may thereby inhibit a change in control
of the Company. In addition, the Articles prohibit ownership, either directly
or indirectly, under applicable attribution rules of the Code of more than 8.75%
of the shares of the Common Stock by any stockholder, subject to certain
exceptions. Such ownership limit may have the effect of preventing an
acquisition of control of the Company without the approval of the REIT Board.
Finally, under the MGCL, certain business combinations between a Maryland
corporation and an "Interested Stockholder" (as hereinafter defined) are
prohibited for five years from the most recent date on which the Interested
Stockholder became an Interested Stockholder. The existence of these
contractual and statutory prohibitions on the transfer of stock and the
acquisition of control may inhibit a change of control of the Company. Under
circumstances that could give the holders of shares of Common Stock the
opportunity to realize a premium over the then-prevailing market prices. The
Master Partnership Agreement does not contain any such provisions, and USRP, as
a Delaware limited partnership, is not subject to the same statutory
prohibitions on business combinations.
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MODIFICATION OF INVESTING AND FINANCING POLICIES. The investment and
financing policies of the Company following the Conversion will be determined by
the REIT Board. These policies may be amended or revised at any time and from
time to time at the discretion of the REIT Board without a vote of the
stockholders or partners of the Company. Under the terms of the Master
Partnership Agreement, any changes to the powers of the managing general partner
or changes in the business to be conducted by USRP require the consent of a
majority in interest of the Unitholders.
ADVANTAGES OF THE CONVERSION
ADVANTAGES TO UNITHOLDERS
The Board of Directors is recommending that the Limited Partners consent to
the Conversion because it believes that the Conversion will result in the
following advantages to the Unitholders: (i) the potential for improved market
value of the Common Stock as compared to the Units; (ii) greater access by the
Company to public and private sources of debt and equity capital; (iii) the
ability to issue various classes of securities; (iv) the reduction in the costs
of managing the Properties; (v) the ability to retain the operating partnership
structure; and (vi) savings in administrative costs relating to federal income
tax reporting and administration for the Unitholders. These factors, each of
which is more fully described below, are closely inter-related, and relative
weights were not assigned to them. The Board of Directors believes that none of
these advantages can be fully realized in the current format.
TERMINATION OF OPERATING PARTNERSHIP GENERAL PARTNER INTEREST EXPECTED TO
BE ACCRETIVE TO UNITHOLDERS. As part of the Conversion, the Managing General
Partner will be effecting the Termination. Accordingly, the REIT Corporation
will become self-advised and will, as a result of the termination of all
management fees, have additional cash for distribution to its stockholders. For
the year ended December 31, 1996, the Managing General Partner was paid $2.5
million with respect to the Operating Partnership General Partner Interest and
the USRP Interest. In addition, because the fee which would be payable to the
Managing General Partner pursuant to the Operating Partnership General Partner
Interest increases by at least 1% of the value of new acquisitions, the savings
to the Company from the Termination will continue to grow as the Company
acquires additional properties. In order for the Termination to be accretive
(I.E. increase the cash available for distribution per Unit or share relative to
USRP remaining as an advised entity) to the Unitholders on a cash available for
distribution per Unit basis, the Company needs to acquire an additional $55
million of properties, assuming the acquired properties produce the same rate of
return as the historical rate of return on the Company's properties. As of
March 28, 1997, the Company had approximately $73 million worth of properties
under binding contract. Accordingly, on a pro forma basis, after giving effect
to the Termination and the acquisition of such additional properties, as of
December 31, 1996, the cash available for distribution per Unit for 1996 would
have increased from $2.57 to $2.62. There can be no assurance that all of such
properties will be acquired or that additional properties will be available at
prices acceptable to the Company. Additionally, pro forma
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results are not necessarily indicative of what the Company's financial
position would have been had such transactions occurred on the assumed date.
See "Risk Factors--Acquisition and Expansion Risks," "Selected Historical and
Pro Forma Financial Information and Other Data" and "Price Range of Units and
Distribution Policy." These initial savings in the first year are partially
offset by the one-time costs of completing the Conversion (all of which are
payable by USRP), currently estimated to be $580,000. See "--Costs of the
Conversion."
THE POTENTIAL FOR IMPROVED MARKET VALUE. The greater number of investors
that currently consider investments in REITs as compared to partnerships, may
affect the market price per share of Common Stock versus the market price per
Unit. Management also believes that certain institutional investors in real
estate, such as mutual funds, restrict virtually all of their investments to
REITs and generally do not invest in partnerships. The Conversion may,
therefore, expand the potential investment base of the Company to include
institutional and other investors that do not typically invest in partnership
equity securities because of various tax and administrative reasons. This, in
turn, could result in a more active and diversified trading market for the
Common Stock than currently exists for the Units. In addition, the Board of
Directors anticipates that the Common Stock (as compared to the Units) will
receive increased market interest through expanded review and evaluation by
research analysts.
POTENTIALLY GREATER ACCESS TO EQUITY AND DEBT MARKETS. Because certain
types of investors do not typically invest in limited partnership securities,
the Company, as a REIT, may have greater access to the public and private equity
capital markets than it now has, potentially enabling the Company to raise
capital on more favorable terms than are now available. Management believes
that certain investment bankers will only provide financial services to real
estate entities that have adopted the REIT structure. Accordingly, following
the Conversion, the Company may be able to attract greater interest from a
larger number of investment bankers thereby increasing the Company's financing
options. Additionally, it is management's experience that rating agencies look
more favorably on real estate entities that are self-advised. Because the
Company's strategy is to continue to acquire properties to increase earnings,
the ability to access more, lower cost capital should enable the Company to grow
at a more rapid rate. No assurance can be given that the Company will be able
to issue additional equity or debt securities after the Conversion, or that the
Conversion will result in any increase in the Company's investor base or the
receipt of any additional investor interest or a reduction in the cost of
capital.
ISSUANCE OF VARIOUS CLASSES OF SECURITIES. Following the Conversion, the
Company will be able to raise additional capital through the issuance of various
classes of securities (including preferred stock) which may not be dilutive to
holders of Common Stock.
NEW STRUCTURE RETAINS OPERATING PARTNERSHIP. Following the Conversion, the
Operating Partnership will remain in existence and will continue to own the
Properties. As a result, the REIT Corporation will be an UPREIT, thereby
permitting the Company to continue to be able
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to effect certain tax-free property acquisitions through the issuance of
Operating Partnership interests to sellers of such properties that are
partnerships. The Company has acquired a significant portion of the
Properties through such exchanges and management believes future acquisitions
will be similarly structured.
COST SAVINGS RESULTING FROM THE SIMPLIFICATION OF TAX REPORTING. USRP's
organization as a limited partnership makes the preparation of tax returns by
Limited Partners and USRP complex, expensive and burdensome. The Board of
Directors believes that the cost of complying with the partnership reporting
requirements at the USRP level is significantly greater than the cost of
complying with the reporting requirements applicable to the REIT Corporation.
In this regard, the Board of Directors believes that the Company, following the
ultimate completion of the Conversion, will realize annual savings of
administrative costs of approximately $200,000. Further, the ownership of
Common Stock rather than Units will greatly simplify tax reporting with respect
to an investment in the Company for each Limited Partner's individual federal
tax returns in future years. These savings are partially offset by the costs of
the Conversion. See "--Costs of the Conversion."
ADVANTAGES TO THE MANAGING GENERAL PARTNER/MANAGEMENT
In addition to the advantages described above, which apply to all
Unitholders (including the Managing General Partner following the Termination),
the Managing General Partner and management thereof will realize the following
benefits from the Conversion:
RECEIPT OF ACQUISITION PRICE. As a result of the Termination, the Managing
General Partner will receive shares of Common Stock, Units and/or an interest in
the Operating Partnership. Receipt of the Acquisition Price enables the
Managing General Partner to immediately realize the present value of the
projected payments otherwise payable to it pursuant to the Operating Partnership
General Partner Interest.
MANAGEMENT EMPLOYMENT ARRANGEMENTS. Each of Messrs. Stetson and Margolin,
the President and Chief Executive Officer and the Chairman of the Board and
Treasurer, respectively, of the Managing General Partner, will be employed by
the REIT Corporation in similar capacities for compensation commencing at
$250,000 per year, subject to increase (up to a maximum annual salary of
$300,000 until the end of the year 2000) at the discretion of the REIT Board,
and will be eligible to receive annual incentive bonuses and stock options.
The advantages of the Conversion should be considered by the Limited
Partners in light of the disadvantages of and the risks associated with the
Conversion described herein. See "Risk Factors" and "--Disadvantages of the
Conversion."
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THE MERGER ALTERNATIVE
If a satisfactory Ruling is received from the IRS, the Conversion, if
approved by the Limited Partners, would be effected by the Merger Alternative.
The Merger Alternative would be implemented through the Merger of USRP with the
REIT Corporation, as described below. The Merger will be effected pursuant to
the terms and conditions of the Merger Agreement. In accordance with the terms
of the Merger Agreement, the REIT Sub would be merged with and into USRP with
USRP being the surviving entity. The Operating Partnership will remain in
existence following the Merger, with USRP, the REIT Corporation and one or more
of the REIT Corporation's corporate subsidiaries as the sole partners thereof
following consummation of the Merger.
Pursuant to the terms of the Merger Agreement, the Unitholders will receive
in exchange for their Units one share of Common Stock for each Unit held by them
prior to the Conversion, or an aggregate of 7,012,585 shares of Common Stock
(99% of all shares of Common Stock to be outstanding following the Conversion)
on account of the Unitholders' aggregate 99% percentage interest in USRP. The
Managing General Partner will initially receive 70,834 shares of Common Stock
(1% of all shares of Common Stock to be outstanding following the Conversion) as
part of the Acquisition Price on account of the Termination. See "--Termination
of Operating Partnership General Partner Interest" and "--Allocation of Shares
of Common Stock Among Unitholders and the Managing General Partner."
THE MERGER AGREEMENT.
If the Conversion is effected by the Merger (I.E., a favorable Ruling is
received), the Merger will be effected pursuant to the terms and conditions of
the Merger Agreement. A vote in favor of the Merger Alternative will constitute
a vote approving the Merger Agreement. The Merger Agreement provides that,
subject to the conditions thereof, the REIT Corporation will indirectly acquire
the operations of USRP through the merger of the REIT Sub with and into USRP
with USRP as the surviving entity and, as a result, becoming a subsidiary of the
REIT Corporation. Concurrently with the Merger, the Managing General Partner
will withdraw as managing general partner of USRP and, pursuant to the terms of
the Merger Agreement, a corporate subsidiary of the REIT Corporation will be
substituted as managing general partner of USRP. The following is a summary of
certain provisions of the Merger Agreement. Such summary is qualified in its
entirety by reference to the Merger Agreement which is attached hereto as
APPENDIX A.
EFFECTIVE TIME. The Merger will become effective after all of the
conditions to consummation of the Merger have been satisfied or on such later
date as the parties may mutually agree (the "Effective Time"), by filing with
the Secretary of State of the State of Delaware a certificate of merger as
required by applicable Delaware law. See "--Conditions to the Merger" below.
It is presently anticipated that the Effective Time of the Merger will be 11:59
p.m. on ______________, 1997.
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AGREEMENTS OF THE REIT CORPORATION AND USRP. The Merger Agreement
provides, among other things, that (i) USRP will use its best efforts to obtain
the approval of the Merger Agreement by Limited Partners holding a majority of
the outstanding Units on the Record Date, and (ii) the REIT Corporation will use
its best efforts to obtain approval to list the shares of Common Stock on the
NYSE subject to notice of issuance.
The Merger Agreement provides that the Company shall indemnify and hold
harmless, and advance expenses to, the Managing General Partner and, as
applicable, each officer, director, partner or other person controlling either
the Managing General Partner or any affiliate of it against any costs or
expenses (including reasonable attorney's fees, judgments, fines, losses,
claims, damages or liabilities) incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to the transactions contemplated by
the Merger Agreement, whether asserted or claimed prior to, at or after the
Effective Time, to the fullest extent permitted by law. In addition, the Merger
Agreement provides that the Company shall assume and agree to comply with USRP's
indemnity obligations under the Master Partnership Agreement with respect to
liabilities arising out of actions or omissions occurring prior to the Effective
Time.
CONDITIONS TO THE MERGER. The obligations of each party to effect the
Merger are subject, among other things, to the following conditions: (i) the
approval and adoption of the Merger Agreement and transactions contemplated
thereby by the affirmative vote of the holders of a majority of the outstanding
Units; (ii) no statute, rule or regulation having been enacted or promulgated by
any governmental authority which prohibits the exchange of Units for Common
Stock or consummation of the Merger; (iii) no order or injunction of a United
States or state court of competent jurisdiction in effect prohibiting the
exchange of Units or consummation of the Merger; (iv) the receipt by USRP of an
opinion of counsel to the effect that the Merger will be treated as part of a
transaction described in Section 351 of the Code; (v) the receipt of a favorable
Ruling from the IRS as to treatment of the Merger as part of a transaction
described in Section 351 of the Code; (vi) the receipt of all permits,
qualifications and other governmental approvals as are required under applicable
law in connection with the Merger and other transactions contemplated by the
Merger Agreement; (vii) the approval of the Common Stock for listing on the NYSE
upon official notice of issuance; and (viii) the approval of the amendments to
the Partnership Agreements by the affirmative vote of the holders of a majority
of the Units outstanding as of the Record Date. These conditions may not be
waived by USRP.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains
representations and warranties as to (i) the due organization and good standing
of each of the parties thereto; (ii) the authority of each of the parties
thereto to enter into the Merger Agreement and to perform the transactions
contemplated thereby; and (iii) the absence of conflicts with the execution of
the Merger Agreement by each of the parties thereto and the performance by each
of the parties thereto of the transactions contemplated thereby.
TERMINATION AND AMENDMENT. The Merger Agreement may be terminated at any
time prior to the consummation of the Merger by mutual written consent of the
REIT Corporation
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and USRP. In the event of such termination of the Merger Agreement, the
Merger Agreement will become void and have no effect.
At any time before or after approval and adoption of the Merger Agreement
by the Limited Partners, the Merger Agreement may be amended in any manner
(except the right of Unitholders to receive one share of Common Stock in
exchange for every Unit) as may be determined in the judgment of the REIT Board
and the Board of Directors to be necessary, desirable or expedient in order to
clarify the intention of the parties thereto or to effect or facilitate the
purposes and intent of the Merger Agreement. If any amendment to the Merger
Agreement is material to the Limited Partners' decision to vote for or against
its approval and adoption, the Company will distribute to the Limited Partners
information regarding the amendment prior to the expiration of the solicitation
period and the solicitation period will be extended to the extent necessary to
allow Limited Partners to consider fully the implications of such amendment. A
revised fairness opinion will be obtained from Morgan Keegan if a material
amendment to the Merger Agreement is made.
AMENDMENTS TO THE PARTNERSHIP AGREEMENTS.
In order to effect the Conversion, whether through the Merger Alternative
or the Exchange Alternative, and to provide greater operating flexibility
following the Conversion, certain amendments to the Partnership Agreements are
proposed to be made. The proposed amendments to the Partnership Agreements (i)
establish the Acquisition Price to be paid in connection with the Termination
(which shall occur at such time as the Managing General Partner ceases to be the
managing general partner of the Partnerships, whether by transfer of interest,
withdrawal or removal (other than for "cause")) and the procedure to be followed
by both Partnerships at the time of the Termination; (ii) permit the issuance of
Operating Partnership interests with terms comparable to preferred stock which
may, from time to time, be issued by the REIT Corporation; (iii) expand the
powers of the Partnerships to enable them to originate loans secured by real
estate and to acquire properties not exclusively used by restaurants; (iv)
permit the admission of new limited partners of the Operating Partnership at the
discretion of the managing general partner; and (v) provide a mechanism to
permit holders of interests in the Operating Partnership and/or Units to
exchange such interests for shares of Common Stock. Copies of the material
amended provisions of the Master Partnership Agreement and the Operating
Partnership Agreement are attached hereto as APPENDIX C and APPENDIX D,
respectively, and are incorporated herein by reference. A vote in favor of
either the Merger Alternative or the Exchange Alternative will constitute a vote
approving each of the amendments to the Partnership Agreements described below.
The Master Partnership Agreement requires the Limited Partners to approve by a
majority vote any amendment to the Operating Partnership Agreement if such an
amendment to the corresponding provision of the Master Partnership Agreement
would require a majority vote of the Limited Partners. Each of the proposed
amendments to the Partnership Agreements requires such a vote. If the
Conversion effected by the Merger Alternative, USRP will be merged into the REIT
Sub and the Master Partnership Agreement would no longer have any force or
effect.
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The definition of "Other Restaurant Properties" has been amended and a new
definition of "Retail Properties" has been added in both Partnership Agreements
to provide for the acquisition of properties to be built out or leased to other
food vendors, such as convenience stores, whose revenues are not exclusively
derived from food sales, and retail outlets.
Article III and Section 7.2 of the Partnership Agreements will be amended
to expressly grant to the Partnerships and the managing general partner of the
Partnerships on behalf of the Partnerships, respectively, the power and
authority to originate loans or otherwise provide financing, whether through
guarantees, letters of credit or otherwise, secured by liens on real estate to
borrowers who meet the Partnerships' underwriting criteria, which shall be
established by the managing general partner of the Partnership.
Section 5.2 of the Operating Partnership Agreement will be amended to allow
the issuance of additional interests in the Operating Partnership ("Operating
Partnership Interests"). Such Operating Partnership Interests may be issued in
one or more classes, or one or more series of any such classes, with such
designations, preferences and relative, participating, optional or other special
rights powers and duties, including rights, powers and duties senior to other
Operating Partnership Interests, all as may be determined by the managing
general partner of the Operating Partnership in its sole and absolute
discretion. Additional Operating Partnership Interests may not be issued to
USRP or the REIT Corporation unless either (i) the additional Operating
Partnership Interests are issued in connection with the grant, award or issuance
of Units or shares of capital stock of the REIT Corporation, which Units or
shares have designations, preferences and other rights such that the economic
interests attributable to such Units or shares are substantially similar to the
designations, preferences and other rights of the additional Operating
Partnership Interests issued to USRP or the REIT Corporation and (ii) USRP or
the REIT Corporation shall make a capital contribution to the Operating
Partnership in an amount equal to the proceeds, if any, raised in connection
with the issuance of such Units or shares of capital stock, or the additional
Operating Partnership Interests are issued to all partners in proportion to
their respective percentage interests in the Operating Partnership.
Following the date of execution of the amended Operating Partnership
Agreement, neither USRP nor the REIT Corporation may grant, award or issue
additional Units or shares of capital stock, or rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase such Units or shares of capital stock (collectively "New Securities"),
other than to all holders of such Units or shares of capital stock unless (i)
the Managing General Partner shall cause the Operating Partnership to issue to
USRP or the REIT Corporation Operating Partnership Interests or rights, options,
warrants or convertible or exchangeable securities of the Operating Partnership
having designations, preferences and other rights, all such that the economic
interests are substantially the same as those of the New Securities, and (ii)
USRP or the REIT Corporation makes a capital contribution to the Operating
Partnership of the proceeds from the grant, award or issuance of such New
Securities and from the exercise of rights contained in such New Securities.
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A new Section 5.4 will be added to the Operating Partnership Agreement and
a new Section 5.14 will be added to the Master Partnership Agreement to permit
the exchange of interests in the Partnerships for shares of Common Stock based
on the exchange ratio provided therein, which initially will be one Partnership
unit for one share of Common Stock. Both Partnership Agreements will prohibit
the transfer of the units to third parties unless previously exchanged for
shares of Common Stock. The exchange ratio is subject to adjustment, however,
upon the occurrence of certain events such as the declaration of a dividend by
the REIT Corporation in shares of Common Stock, the subdivision of the
outstanding shares of Common Stock or the combination of outstanding shares of
Common Stock into a smaller number of shares. The exchange may only be effected
with respect to a minimum of 1,000 partnership units (in the case of the
Operating Partnership and 100 Units in the case of USRP) or, if the holder holds
fewer than 1,000 units (or 100 Units, as applicable) all such units. In
addition, the exchange right may not be exercised if issuing the shares of
Common Stock in the exchange would be prohibited under the REIT Corporation's
Articles. The Operating Partnership Agreements will permit such exchange to
occur at anytime, and the Master Partnership Agreement will not permit such
exchange right to occur until the Common Stock is listed on the NYSE.
Section 9.1 of the Partnership Agreements, relating to the compensation of
the managing general partner of the Partnerships, will be amended to provide for
the conversion of the Operating Partnership General Partner Interest at such
time as the Managing General Partner ceases to be the managing general partner
of the Partnerships, whether as a result of transfer, withdrawal or removal
(other than for cause). Section 9.1 will also be amended to cause the successor
managing general partner to issue to the Managing General Partner the
Acquisition Price (less the value of the number of shares of Common Stock
received as part of the Acquisition Price). See "--Termination of the Operating
Partnership General Partner Interest."
Section 9.3 of the Partnership Agreements will be amended to provide for
the payment of fees to the Managing General Partner (prior to the Termination)
for the origination of mortgage loans on generally the same terms and conditions
as apply to the acquisition of restaurant properties.
A new Section 9.4 will be added to the Partnership Agreements to provide,
following the Termination, that the sole compensation for services rendered by
all subsequent general partners of the Partnerships shall be the reimbursement
by the Operating Partnership on a monthly basis of expenses incurred by any such
general partner in connection with the applicable Partnership's business or for
the benefit of the applicable Partnership.
Section 13.1 of the Operating Partnership Agreement and Section 14.1 Master
Partnership Agreement will be amended to provide that once the Termination has
been effected, the REIT Corporation, or an affiliate of the REIT Corporation,
shall automatically succeed as managing general partner of the Partnerships.
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EXCHANGE ALTERNATIVE
If the Ruling is not obtained from the IRS, the Conversion, if approved by
the Limited Partners, would be effected through the admission of the REIT
Corporation as a limited partner of the Operating Partnership and the exchange
of Units for shares of Common Stock by the Unitholders from time to time, at
their discretion, pursuant to the exchange rights to be provided for in the
amended Master Partnership Agreement, as described above. The Exchange
Alternative will be implemented only if USRP does not receive a favorable Ruling
from the IRS.
If the Conversion is effected pursuant to the Exchange Alternative,
Unitholders will not be required to exchange their Units for shares of Common
Stock until such time as they want to sell their Units, which exchange right
would only become effective at such time as the Common Stock is listed on the
NYSE and would require such an exchange to take place prior to the sale of the
Units to a third party. Additionally, in order to effect the Exchange
Alternative, each of the other amendments proposed to be made to the Master
Partnership Agreement described above under "--The Merger
Alternative--Amendments to the Partnership Agreements" would become effective.
A vote in favor of the Exchange Alternative will constitute a vote approving the
amendments to the Master Partnership Agreement described above.
TERMINATION OF THE OPERATING PARTNERSHIP GENERAL PARTNER INTEREST
GENERAL
As noted above, one of the amendments to the Partnership Agreements being
proposed in order to effect the Conversion is the establishment of the
Acquisition Price to be paid for the Operating Partnership General Partner
Interest and the USRP Interest. If the Conversion is effected by the Merger
Alternative, the Managing General Partner will withdraw as managing general
partner of the Partnerships effective as of August 31, 1997 (unless extended by
the Special Committee on its sole discretion) and, pursuant to the terms of the
Merger Agreement, a corporate subsidiary of the REIT Corporation will be
substituted as managing general partner of the Partnerships. It is currently
contemplated that, if the Exchange Alternative is adopted, the Managing General
Partner will withdraw as the managing general partner of the Partnerships
effective as of August 31, 1997 (unless extended by the Special Committee, in
its sole discretion) and, pursuant to the terms of the Partnership Agreements, a
corporate subsidiary of the REIT Corporation would be substituted as managing
general partner of the Partnerships. It is anticipated that the withdrawal
process will be completed within 45 days. In conjunction with either such
withdrawal, the Managing General Partner will (i) convert the Operating
Partnership General Partner Interest (if the Conversion is effected through the
Merger Alternative) or assign such interest to USRP (if the Conversion is
effected through the Exchange Alternative) pursuant to the terms of the
Partnership Agreements and (ii) convert the USRP Interest pursuant to the terms
of the Merger Agreement and/or the Master Partnership Agreement, as applicable,
for the
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Acquisition Price. As a result of the Termination, the Company would become
self-advised and no fees would be payable to a third party manager.
OPERATING PARTNERSHIP GENERAL PARTNER INTEREST AND USRP INTEREST
The Acquisition Price is being paid for the conversion or assignment
(depending on how the Conversion is effected) of the Operating Partnership
General Partner Interest (consisting of the Managing General Partner's interest
in (i) its allocable share of income, profits, loss and distributions of the
Operating Partnership, as general partner thereof (the "OP Interest") and
(ii) fees and disbursements payable by the Operating Partnership for the
acquisition and management of the Operating Partnership's properties and the
conversion of the USRP Interest (the "Management Fees"). In May 1994, an
investor group, led by Messrs. Stetson and Margolin, acquired all of the
outstanding stock of QSV, the managing general partner of the Partnerships, for
$3.0 million, and as a result acquired the Operating Partnership General Partner
Interest and the USRP Interest. The USRP Interest is a 1% interest in USRP and
the OP Interest is a .99% interest in the Operating Partnership, which in the
aggregate represents a 1.98% interest in the distributions of the Operating
Partnership.
PAYMENTS TO THE MANAGING GENERAL PARTNER. The Managing General Partner is
paid a non-accountable (no support is required for payment) annual allowance
designed to cover the costs that the Managing General Partner incurs in
connection with the management of the properties (other than reimbursements for
out-of-pocket expenses paid to third parties). The allowance is adjusted
annually to reflect any cumulative increases in the Consumer Price Index
occurring after January 1, 1986, and was $1,175,000 for the year ended
December 31, 1996. The allowance is paid quarterly, in arrears.
In addition, to compensate the Managing General Partner for its efforts and
increased internal expenses resulting from additional properties, the Managing
General Partner is paid with respect to each additional property purchased:
(i) a one-time acquisition fee equal to 1% of the purchase price for such
property and (ii) an annual fee equal to 1% of the purchase price for such
property, adjusted for increases in the Consumer Price Index. For 1996, the
aggregate one-time acquisition fees equaled $1,043,000 which was capitalized and
the increased annual fee equaled $495,000.
In addition, if the Rate of Return (as defined in the Operating Partnership
Agreement) on USRP's equity in all additional properties exceeds 12% per annum
for any fiscal year, the Managing General Partner will be paid an additional fee
equal to 25% of the cash flow received with respect to such additional
properties in excess of the cash flow representing a 12% rate of return thereon.
For 1996, the Managing General Partner received fees based on the Rate of Return
of $93,000. However, to the extent the Managing General Partner receives
distributions in excess of those provided by its 1.98% partnership interests,
such distributions will reduce the fee payable with respect to such excess cash
flow from any additional properties. Except as provided above, such payments
are in addition
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to distributions made by the Partnership to the Managing General Partner in
its capacity as a partner of USRP.
PARTNERSHIP ALLOCATIONS. Net cash flow from operations of USRP that is
distributed is allocated 98.02% to the Unitholders and 1.98% to the Managing
General Partner until the Unitholders have received a simple (non-cumulative)
annual return for such year equal to 12% of the Unrecovered Capital per Unit (as
defined in the Master Partnership Agreement); such Unrecovered Capital is
currently $____________ per Unit; then any distributed cash flow for such year
is allocated 75.25% to the Unitholders and 24.75% to the Managing General
Partner until the Unitholders have received a total simple (non-cumulative)
annual return for such year equal to 17.5% of the Unrecovered Capital Per Unit;
and then any excess distributed cash flow for such year is allocated 60.4% to
the Unitholders and 39.6% to the Managing General Partner. USRP may retain
otherwise distributable cash flow to the extent the Managing General Partner
deems appropriate.
Net proceeds from financing and sales or other dispositions of USRP's
properties are allocated 98.02% to the Unitholders and 1.98% to the Managing
General Partner until the Unitholders have received an amount equal to the
Unrecovered Capital Per Unit plus a cumulative, simple return equal to 12% 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% to the Unitholders and
24.75% to the Managing General Partner until the Unitholders have received a
total cumulative, simple return equal to 17.5% of the Unrecovered Capital per
Unit; and then such proceeds are allocated 60.4% to the Unitholders and 39.6% to
the Managing General Partner. USRP may retain otherwise distributable net
proceeds from financing and sales or other dispositions of the Partnership's
properties to the extent the Managing General Partner deems appropriate.
THE ACQUISITION PRICE. The Acquisition Price consists of two components:
(i) the Initial Share Consideration and (ii) the Contingent Share Consideration.
The Acquisition Price consists of two components because of the Special
Committee's interest in protecting the stockholders of the REIT Corporation from
being diluted from the issuance of the Acquisition Shares and to establish a
price to be paid for the Property Management Contract and the Partnership
Interests which cannot be valued with certainty. The Initial Share
Consideration is equal to the value of 850,000 shares of Common Stock (subject
to adjustment in the event of certain dilutive events, as more fully described
below), and shall consist of shares of Common Stock, Units and/or an interest in
the Operating Partnership, depending upon how the Conversion is effected
(collectively, the "Initial Shares"). The Initial Shares shall be issued by
the REIT Corporation, USRP or the Operating Partnership, as applicable, as soon
as practicable following the date of the Termination, but in no event later than
30 days thereafter. At the time of the Termination, the officers and employees
of the Managing General Partner will become officers and employees of the REIT
Corporation, and the Managing General Partner will have no further obligation to
provide any management services to any of the REIT Corporation, USRP or the
Operating Partnership.
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The Contingent Share Consideration equal to the value of up to a maximum
number of 550,000 shares of Common Stock, and shall consist of Units and/or an
interest in the Operating Partnership, depending upon how the Conversion is
effected (collectively, the "Contingent Shares" and, together with the Initial
Shares, the "Acquisition Shares") (which number or classification shall be
adjusted to give effect to any dividend or distribution of shares of capital
stock, rights or warrants to the holders of Common Stock, any reclassification
or change of the shares of Common Stock, including, without limitation, a stock
split, or any merger or consolidation of the REIT Corporation or USRP or sale of
assets to another corporation, any which occurs after the date of the
Termination). The exact number of Contingent Shares to be issued will be
determined by dividing the (i) amount by which the MGP Net Income (as defined
below) for fiscal year 2000 of the Operating Partnership exceeds $3,612,500 by
(ii) $4.25, and rounding the resulting number up to the nearest whole number.
"MGP Net Income" means the dollar amount of fees and distributions which would
otherwise have been payable to the Managing General Partner in the year 2000 by
the Operating Partnership and USRP pursuant to the Property Management Contract
and the Partnership Interests had the Managing General Partner operated the
Operating Partnership on a continuous basis from the date of the Termination
through December 31, 2000, less $775,000.
For example, if the MGP Net Income for the year 2000 is $5,100,000 ($5.875
million revenues less $775,000 expenses) then the Contingent Share Consideration
would be an additional 350,000 Contingent Shares.
The Contingent Shares, if any, shall be issued by USRP or the Operating
Partnership, as applicable, as soon as practicable following the end of fiscal
year 2000, but in no event later than March 31, 2001. The Managing General
Partner will not receive any dividends with respect to the Contingent Shares, or
otherwise have any rights with respect thereto, until they are issued.
REIT CORPORATION OFFICER COMPENSATION. Each of Robert J. Stetson and Fred
H. Margolin shall enter into employment agreements with the REIT Corporation as
of the date of the Termination. These employment agreements will provide, among
other things, that each of them will have the same positions, responsibilities
and authority that each currently holds as an officer of the Managing General
Partner. Additionally, each employment agreement will specifically provide that
prior to December 31, 2000, neither Mr. Stetson nor Mr. Margolin will receive
cash compensation (I.E., excluding the value of any equity-based compensation,
such as stock options or shares of restricted stock) in excess of $300,000 per
year. See "Management--Employment Agreements."
WITHDRAWAL AGREEMENT. The Termination will be effected pursuant to an
agreement (the "Withdrawal Agreement") to be entered into by and among the
Managing General Partner, the REIT Corporation and the Operating Partnership.
Pursuant to the Withdrawal Agreement, the Managing General Partner will agree
not to sell the Initial Shares or the Contingent Shares for a period of two
years from the date of receipt thereof, as applicable. In addition, the terms
of the Withdrawal Agreement shall provide that in the event of a "change in
control" (as defined
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in the Withdrawal Agreement) of the REIT Corporation at any time prior to
December 31, 2000 all 550,000 Contingent Shares shall be issued to the
Managing General Partner.
CONFLICTS OF INTEREST. In considering the recommendation of the Managing
General Partner with respect to the Conversion, the Limited Partners should be
aware that a majority of the members of the Board of Directors thereof, by
virtue of their ownership interests in and/or positions or affiliations with the
Managing General Partner, were subject to conflicts of interest in determining
the Acquisition Price and the resulting consideration to be received by the
Managing General Partner with respect to the Operating Partnership General
Partner Interest and the USRP Interest. Accordingly, the Special Committee was
appointed to act on behalf of the Unitholders for purposes of reviewing and
making a recommendation with respect to the Acquisition Price.
ANALYSIS OF THE SPECIAL COMMITTEE
At the December 16, 1996 meeting of the Board of Directors, Messrs. Stetson
and Margolin ("Management") indicated that they planned to submit a proposal to
USRP pursuant to which either (i) the Unitholders would become stockholders of a
newly-formed self-advised REIT that would indirectly own the assets currently
owned by the Partnerships, or (ii) the Partnerships would become self-advised.
Management indicated that such proposal would address the consideration that the
Managing General Partner would receive in connection with its withdrawal as
managing general partner of the Partnerships and the conversion of the Operating
Partnership General Partner Interest and the conversion of the USRP Interest.
Because of the conflict of interest caused by the fact that four of the six
directors of the Managing General Partner are also stockholders of the Managing
General Partner, the Board of Directors appointed Gerald H. Graham and Eugene G.
Taper (the two directors who are not stockholders of the Managing General
Partner) to serve as members of a special committee (the "Special Committee") to
make a recommendation to the Board of Directors as to whether or not it
considered the Acquisition Price to be fair, from a financial point of view, to
the Limited Partners. The Board of Directors appointed Dr. Graham as Chairman
of the Special Committee, agreed to pay the members of the Special Committee
$5,000 each for serving as members of the Special Committee, authorized the
Special Committee to engage (at USRP's expense) legal counsel to represent the
Special Committee and a financial advisor to advise the Special Committee, and
agreed to reimburse the members of the Special Committee for expenses that they
incurred serving on the Special Committee. The Special Committee selected and
engaged legal counsel.
The Special Committee engaged Morgan Keegan as financial advisor to the
Special Committee. Morgan Keegan is an investment banking firm that regularly
renders valuations of businesses and securities in connection with mergers and
acquisitions, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for various purposes.
The Special Committee interviewed four investment banking firms as candidates to
be the financial advisor to the Special Committee. The Special Committee
selected Morgan Keegan because of its extensive experience with real estate
investment trusts, both as
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a managing underwriter of public securities offerings by REITs and mergers
and acquisitions involving REITs and because Morgan Keegan was familiar with
USRP and the Managing General Partner, having served as managing underwriter
in connection with USRP's June 1996 public offering and as a financial
advisor to USRP in connection with such offering.
On December 30, 1996, Management submitted a proposal to the Special
Committee that provided for a formula pursuant to which the Managing General
Partner would receive partnership units (i) upon the closing of the transaction
based on the net income of the Managing General Partner prior to the closing and
(ii) for each of the 10 quarters thereafter based on the growth in funds from
operations before interest of USRP for such 10 quarters. Morgan Keegan
indicated to the Special Committee that based on projections provided by
Management, the Managing General Partner would receive approximately 1,700,000
shares under such proposal if USRP were to meet its projections. The Special
Committee rejected this proposal.
On January 10, 1997, Management submitted a new proposal to the Special
Committee pursuant to which the Managing General Partner would withdraw as the
managing general partner of the Partnerships and convert the Operating
Partnership General Partner Interest and convert the USRP Interest in exchange
for 1,630,000 shares issued over time as follows: 640,000 shares on or before
September 30, 1997, 220,000 shares on or before January 1, 1998 and 110,000
shares for each of the next seven quarters.
The Special Committee held two meetings with its legal counsel and
financial advisor to consider the January 10, 1997 proposal. On January 15,
1997, the Special Committee rejected that proposal and submitted a proposal to
Management pursuant to which the Managing General Partner would convert the
Operating Partnership General Partner Interest and convert the USRP Interest in
exchange for 1,100,000 shares, of which 900,000 shares would be issued at the
closing and 200,000 shares would be issued if USRP (or the REIT Corporation)
achieved projected funds from operation per unit for the year ended December 31,
1998. The offer was made subject to the execution and delivery of documentation
that is satisfactory to the Special Committee to implement the Conversion and to
the condition that satisfactory arrangements are made so that a Unitholder who
wants to sell in the open market after the Conversion will be able to convert
his or her Units to Common Stock and sell such Common Stock with the same speed
he or she can presently sell Units (I.E., the conversion and subsequent sale
will be transparent to the Unitholder).
The Special Committee and Management then met on January 16, 1997 and
negotiated the terms of the proposal. Although the Special Committee and
Management did not agree upon terms at that meeting, they agreed to seek to
negotiate a proposal within the following framework: (i) a certain number of
shares would be issued at closing, and (ii) additional shares (up to a stated
maximum number) would be issued based on what the Managing General Partner would
have received based on the Operating Partnership General Partner Interest. The
discussions ranged between 1,300,000 shares and 1,600,000 shares and varied with
regard to timing, the number of shares that would be guaranteed and the number
of shares that would be contingent and the basis upon which contingent shares
would be issued. The Special Committee
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also introduced the concept of having the Managing General Partner agree not
to sell the shares received upon the closing of the Termination for a
two-year period after closing and Management's agreement that their cash
compensation as employees of the REIT Corporation would not exceed a certain
level for a certain period of time after the closing. Management introduced
the concept of providing a mechanism for the Managing General Partner's
receiving the contingent shares if the REIT Corporation were acquired prior
to the end of the period that would be used to determine the number of
contingent shares to be issued.
The Special Committee and Management continued negotiations for several
days, and on January 22, 1997, Management presented a proposal to the Special
Committee. The Special Committee requested additional detail with regard to
certain issues. On January 27, 1997, Management submitted a more detailed
proposal to the Special Committee and followed up in a telephone conference with
certain additional details (collectively, the "January 27, 1997 Proposal"), the
primary terms of which are as follows:
1. The Managing General Partner would convert the Operating Partnership
General Partner Interest and convert the USRP Interest at the earlier
of the effectiveness of the IPO by the REIT Corporation or August 31,
1997, unless a later date was agreed upon by the Special Committee and
the Managing General Partner.
2. The Managing General Partner would receive 850,000 Units (or, such
number of shares of Common Stock as a holder of 850,000 Units would
receive in the Conversion or an interest in the Operating Partnership
equal in value to 850,000 Units that would be convertible into or
exchangeable for such number of shares of Common Stock as a holder of
850,000 Units would receive in the Conversion, depending upon how the
Conversion is effected) for the conversion of the Operating
Partnership General Partner Interest and the conversion of the USRP
Interest.
3. The Managing General Partner might also receive additional
consideration equal in value to up to 550,000 Units (or, such number
of shares of Common Stock as a holder of 550,000 Units would receive
in the Conversion or an interest in the Operating Partnership equal in
value to 550,000 Units that would be convertible into or exchangeable
for such number of shares of Common Stock as a holder of 550,000 Units
would receive in the Conversion, depending upon how the Conversion is
effected) but only if the management/general partner fees and
distributions that the Managing General Partner would have received if
the arrangements that are currently in place had not been terminated,
reaches or exceeds certain levels in the year ending December 31,
2000. For every $4.25 of management/general partner fees and
distributions which would have been earned in the year ending December
31, 2000, the Managing General Partner would receive one Unit (or
share or interest in the Operating Partnership (or its equivalent
allowing for splits, etc.) less the Units (or shares or interests in
the
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Operating Partnership) already received (850,000) subject to a
maximum 550,000 additional Units. For the purposes of this
calculation, the management/general partner fees and distributions
will be the management/general partner revenues which would have been
received during the year ending December 31, 2000 as prescribed by the
Partnership Agreements less $775,000, which are the projected expenses
of the Managing General Partner in the year 2000 which would then be
incurred by the REIT Corporation or USRP. If the REIT Corporation or
USRP, as applicable, is acquired by an unrelated third party prior to
December 31, 2000 and pursuant to that acquisition there is a change
of control of the REIT or USRP, as applicable, the entire maximum
contingent share consideration would be issued to the Managing General
Partner at the time of such acquisition.
4. Messrs. Stetson and Margolin would agree not to receive annual cash
compensation as employees of the REIT Corporation or the Partnerships
of more than $300,000 each in each year up to and including the year
ending December 31, 2000.
5. The Managing General Partner would agree not to sell the 850,000 Units
(or shares or interests in the Operating Partnership) it receives as
the initial consideration until at least two years after receipt
thereof and not to sell any of the Contingent Shares until December
31, 2002.
6. The Managing General Partner indicated that the relevant documentation
to evidence the issuance of the Units (or shares or interests in the
Operating Partnership) to the Managing General Partner would be in
form that was satisfactory to the Special Committee, and that
satisfactory arrangements would be made to ensure that a Unitholder
who wants to sell in the open market after the closing of the
Conversion would be able to convert his or her Units to shares of
Common Stock (if applicable) and sell such shares of Common Stock with
the same speed he or she can presently sell partnership units (I.E.,
the conversion and subsequent sale would be transparent to the
Unitholder).
On February 5, 1997, the Special Committee met and Morgan Keegan made a
presentation and gave its oral opinion to the Special Committee that the
Acquisition Price set forth in the January 27, 1997 Proposal was fair, from a
financial point of view, to the Unitholders. At that February 5, 1997 meeting,
the Special Committee recommended to the Board of Directors of the Managing
General Partner that it considered the Acquisition Price set forth in the
January 27, 1997 Proposal to be fair, from a financial point of view, to the
Unitholders. The Special Committee conditioned its recommendation on the
issuance by Morgan Keegan of an additional fairness opinion on the date of this
Proxy Statement/Prospectus to the effect that as of the date of the Proxy
Statement/Prospectus the Acquisition Price proposed to be issued to the Managing
General Partner was fair, from a financial point of view, to the Unitholders.
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In addition to considering Morgan Keegan's fairness opinion in making its
recommendation, the Special Committee also considered the structure of the
Acquisition Price, in that the Managing General Partner would receive all or a
portion of the Contingent Shares if and only if the MGP Net Income for the year
ending December 31, 2000 reaches or exceeds certain levels. The Special
Committee concurred with Morgan Keegan's determination that the most appropriate
methodology to determine the fairness of the Acquisition Price was to determine
the present value to the Partnerships of the fees that it would have to pay to
the Managing General Partner but for the Termination. The Special Committee
recognized the difficulty of determining the present value to the Partnerships
of being relieved of their obligations under the Operating Partnership General
Partners Interest and the USRP Interest because the amounts that would be paid
under the Operating Partnership General Partner Interest and the USRP Interest
in the future depend, in large part, on the future growth and performance of the
Company. In determining the present value to the Partnerships of such fees and
distributions, the Special Committee looked at the historical level of fees and
distributions paid annually by the Partnerships to the Managing General Partner,
as well as management's projections for those fees and distributions. Because
of the uncertainty relating to actual amounts that would be payable in the
future under the Operating Partnership General Partner Interest and the USRP
Interest, the Special Committee considered favorably the Contingent Share
Consideration was based on the fees and distributions that would have been
payable to the Managing General Partner in the year ending December 31, 2000.
As such, the Contingent Share portion of the Acquisition Price provides a
mechanism for the consideration to be paid by the Company to correlate to the
obligations the Company is being relieved from its obligations under the
Operating Partnership General Partner Interest and the USRP Interest. The
Special Committee also considered favorably the facts that (i) there is a cap on
the maximum number of Contingent Shares that could be issued, and (ii) the base
year for considering the Contingent Shares is three years from now.
Additionally, the Special Committee considered the fact that the Managing
General Partner was being relieved of its obligation to provide management
services. The Special Committee considered favorably several factors that it
hoped would give Messrs. Stetson and Margolin additional incentive to achieve
superior long-term results for the Company including (i) the Contingent Share
issuance would be based on events occurring in the year 2000, (ii) and the
Managing General Partner agreed not to sell the Initial Shares until at least
two years after receipt thereof and not to sell any of the Contingent Shares
until December 31, 2002. The Special Committee also considered favorably that
each of Messrs. Stetson and Margolin agreed not to receive annual cash
compensation as employees of the REIT Corporation or the Partnerships of more
than $300,000 in each year up to and including the year ending December 31,
2000.
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FAIRNESS OPINION
MORGAN KEEGAN FAIRNESS OPINION. The Special Committee retained Morgan
Keegan to act as its financial advisor and to render its opinion concerning the
fairness to the Unitholders, from a financial point of view, of the Termination,
the transaction whereby the Managing General Partner will withdraw as managing
general partner of the Partnerships, and convert its Operating Partnership
General Partner Interest and convert the USRP Interest in exchange for the
Acquisition Price pursuant to the Withdrawal Agreement. Morgan Keegan did not
recommend to USRP that any specific consideration would constitute the
appropriate consideration to be paid.
At a meeting of the Special Committee held on February 5, 1997, Morgan
Keegan made a presentation and gave its oral opinion to the Special Committee
that the Acquisition Price is fair, from a financial point of view, to the
Unitholders. In addition, Morgan Keegan confirmed, in a written opinion dated
as of the date of this Proxy Statement/Prospectus that, as of such date, the
Acquisition Price is fair, from a financial point of view, to the Unitholders
(the "Fairness Opinion"). The Fairness Opinion addresses the transaction to
which it relates in the context of the information available on that date.
Events occurring after the date may materially affect the assumptions used in
preparing the Fairness Opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN KEEGAN, WHICH SETS FORTH THE
ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, THE MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN ARRIVING AT SUCH OPINION, THE
ASSUMPTIONS MADE AND THE LIMITS OF ITS REVIEW, IS ATTACHED HERETO AS APPENDIX B,
AND IS INCORPORATED HEREIN BY REFERENCE. UNITHOLDERS ARE URGED TO REACH SUCH
OPINION IN ITS ENTIRETY. MORGAN KEEGAN'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS TO THE UNITHOLDERS, FROM A FINANCIAL POINT OF VIEW, OF THE ACQUISITION
PRICE. THE FAIRNESS OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE
TRANSACTION OR RELATED REIT CONVERSION AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY UNITHOLDER AS TO HOW SUCH UNITHOLDER SHOULD VOTE AT THE SPECIAL MEETING.
THE SUMMARY OF THE OPINION OF MORGAN KEEGAN SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
EXPERIENCE OF MORGAN KEEGAN. Morgan Keegan is a nationally recognized
investment banking firm and is regularly engaged in the valuation of businesses
and securities in connection with mergers and acquisitions, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for various purposes. The Special Committee selected
Morgan Keegan as its financial advisor on the basis of such experience and
expertise in transactions similar to the Termination and Morgan Keegan's
familiarity with the real estate and REIT industries.
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SUMMARY OF MATTERS CONSIDERED. In arriving at its opinion, Morgan Keegan
reviewed (i) this Proxy Statement/Prospectus as originally filed with the
Commission on February 7, 1997, (ii) the Partnership Agreements (and the
proposed amendments thereto) and (iii) an unexecuted draft of the Withdrawal
Agreement (which, for purposes of its analysis, it assumed that any further
revisions, including the filling in of blank spaces and the attachment of final
exhibits and appendices, would not materially alter the terms and provisions of
such documents and that such documents would be executed as finalized) and
certain publicly-available financial information and internal financial analyses
concerning USRP and the Operating Partnership and internal financial analyses
concerning the Managing General Partner and held discussions with members of
senior management of USRP and the Managing General Partner regarding the
business and prospects of the companies and the business and prospects of the
USRP on a self-advised basis. In addition, Morgan Keegan reviewed the reported
price and trading volume of the Units since the Acquisition Price will be paid
in Units (or a proportional number of shares of Common Stock or a proportionate
ownership interest in the Operating Partnership, depending upon how the
Conversion is effected), and also compared certain financial information of the
Managing General Partner with similar information for certain selected companies
engaged in the real estate management industry whose securities are publicly
traded, reviewed the financial terms of selected recent business combinations,
reviewed certain pro forma analyses regarding the business and prospects of USRP
after the Termination and performed such other studies and analyses as Morgan
Keegan considered appropriate. Morgan Keegan was not asked to consider or
provide an opinion, and is not expressing any opinion, with respect to (i) the
fairness of the Conversion, other than the Acquisition Price, (ii) the fairness
of the Acquisition Price from any point of view other than from a financial
point of view, (iii) the fairness of any other alternative transaction or
structures available to USRP or the Operating Partnership with respect to the
acquisition or withdrawal of the Managing General Partner or any other
transaction involving the Managing General Partner, or (iv) the effect of
federal, state or other tax laws, rules or regulations on the USRP or any other
party to the Conversion arising from the Termination and Withdrawal Agreement
and related transactions.
SCOPE OF OPINION. The scope of Morgan Keegan's opinion was limited to the
fairness to the Unitholders, from a financial point of view, of the Acquisition
Price. Morgan Keegan did not undertake an analysis nor give an opinion with
respect to the fairness to the Unitholders, from a financial point of view, of
the Merger Alternative or the Exchange Alternative.
ASSUMPTIONS. In connection with its review and analysis and in arriving at
its opinion, Morgan Keegan assumed the accuracy, completeness and fairness of
any information provided to or otherwise reviewed by Morgan Keegan, including,
without limitation, this Proxy Statement/Prospectus, and relied upon such
information being complete and accurate in all respects. Morgan Keegan did not
independently verify any of such information. Morgan Keegan also assumed the
correctness of and relied upon the representations and warranties of all parties
contained in the Withdrawal Agreement. Morgan Keegan also relied upon the
judgment of the management of the Managing General Partner as to the
reasonableness and achievability of the financial and operating projections and
the assumptions and bases therefore provided to it, and
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assumed that such projections reflected the best currently available estimates
and judgment of the management of the Managing General Partner and that,
subject to reasonable discounts attributable to the likelihood of achieving
such results, such projections and forecasts would be realized in the amounts
and time period then estimated by the management of the Managing General
Partner. Morgan Keegan was not engaged to assess the achievability of such
projections or assumptions. Morgan Keegan was not engaged to, and did not
conduct a physical inspection or appraisal of any of the assets, properties or
facilities of either USRP, the Operating Partnership or the Managing General
Partner, nor was it furnished with any such evaluation or appraisal. Morgan
Keegan assumed that the conditions to the Termination and the Withdrawal
Agreement would be satisfied.
ANALYSIS AND CONCLUSION. The following is a summary of the financial and
comparative analyses performed by Morgan Keegan in connection with the
preparation of the Fairness Opinion:
The Termination is structured as the withdrawal of the Managing General
Partner as the managing general partner of the Partnerships and the amendment of
the Partnership Agreements to provide for the conversion of the Operating
Partnership General Partner Interest or the assignment of such interest to USRP
(depending upon how the Conversion is effected) and the conversion of the USRP
Interest. In consideration of the Managing General Partner's agreement to
withdraw as the general partner and to convert the Operating Partnership General
Partner Interest or assign such interest to USRP (depending upon how the
Conversion is effected) and convert the USRP Interest, the Managing General
Partner will initially receive the Initial Consideration of 850,000 Units (or
such number of shares of Common Stock as a holder of 850,000 Units would receive
in the Conversion or an interest in the Operating Partnership equal in value to
850,000 Units that would be convertible or exchangeable for such number of
shares of Common Stock as a holder of 850,000 Units would receive in the
Conversion, depending upon how the Conversion is effected). Additionally, the
Managing General Partner has the right to receive the Contingent Consideration,
of 550,000 Units (or such number of shares of Common Stock as a holder of
550,000 Units would receive in the Conversion or an interest in the Operating
Partnership equal in value to 550,000 Units that would be convertible or
exchangeable for such number of shares of Common Stock as a holder of 550,000
Units would receive in the Conversion, depending upon how the Conversion is
effected). Additionally, the Managing General Partner has the right to receive
the Contingent Consideration, of 550,000 shares of Common Stock and will consist
of shares of Common Stock, an interest in the Operating Partnership and/or Units
(depending upon how the Conversion is effected) (the "Contingent Shares") at
December 31, 2000, if certain cash flow targets are attained. Morgan Keegan
estimates the present value of the Acquisition Price to be between $28 million
and $34 million, giving effect to the restrictions on transfer applicable to the
units (or shares) being issued, the probability that the cash flow targets
necessary to earn the Contingent Shares will be attained and the fact that no
dividends will be paid on the Contingent Shares until they are earned.
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In determining the fairness of the Acquisition Price from a financial point
of view, to the Unitholders, Morgan Keegan endeavored to value the fees that
would be payable by the Partnerships to the Managing General Partner but for the
Termination. Because the Termination does not involve the acquisition of the
Managing General Partner, some of the traditional valuation methodologies were
less appropriate than others.
Morgan Keegan determined that the most appropriate methodology was to
determine the present value to the Partnerships of the fees that it would have
to pay to the Managing General Partner but for the Termination. In determining
the present value to the Partnerships of these fees, Morgan Keegan looked at the
historical level of fees paid annually by the Partnerships to the Managing
General Partner, as well as management's projections for those fees, which are
largely a function of the growth and performance of the Partnerships. In
addition to valuing the management fees payable to the Managing General Partner,
Morgan Keegan analyzed the likely effect on the Partnerships as a result of the
Termination in terms of funds from operations per share.
In performing its analysis, Morgan Keegan considered a variety of valuation
methodologies, including: (i) discounted cash flow analysis, (ii) comparable
company analysis, and (iii) comparable transaction analysis. Morgan Keegan
also analyzed the Termination utilizing a pro forma merger analysis and a
contribution analysis.
DISCOUNTED CASH FLOW ANALYSIS. Morgan Keegan used a discounted cash flow
analysis to value the future stream of fees that would have been payable to the
Managing General Partner had the Termination not occurred. Morgan Keegan
performed a discounted cash flow analysis of the projected cash flow (unlevered
net income) of the Managing General Partner for fiscal years 1997 through 2001,
based on operating projections provided by USRP and the Managing General
Partner. The Company's operating projections indicated projected cash flow of
the Managing General Partner for each of the fiscal years 1997 through 2001, of
approximately $2.3 million, $4.4 million, $6.6 million, $8.3 million and $9.9
million, respectively. In determining these amounts, Morgan Keegan took into
account certain expenses historically paid by the Managing General Partner that
would be paid by the REIT Corporation upon consummation of the Termination,
including salaries and general and administrative expenses. Using this
information, Morgan Keegan calculated a range of equity values for the Managing
General Partner based on the sum of (i) the present value of the free cash flows
of the Managing General Partner and (ii) the present value of the estimated
terminal value for the Managing General Partner assuming that it was sold at the
end of fiscal year 2001. In performing its discounted cash flow analysis,
Morgan Keegan assumed, among other things, discount rates ranging from 10% to
27.5% (depending on the predictability of the income from various fees under the
Property Management Contract) and terminal multiples of EBIT of 6.0x to 9.0x.
Those discount rates and terminal multiples reflect Morgan Keegan's qualitative
judgments concerning the specific risk associated with such an investment and
the historical and projected operating performance of the Managing General
Partner. This analysis resulted in a range of equity values for the Managing
General Partner of $33.9 million to $56.5 million. Morgan Keegan focused its
analysis on the midpoint of these discount rates and terminal multiples. Such
analysis
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implied an equity value range for the Managing General Partner of $40.3
million to $47.8 million.
COMPARABLE COMPANY ANALYSIS. Morgan Keegan also analyzed selected
publicly-traded real estate companies engaged primarily as managers and advisors
in the real estate business. Morgan Keegan considered the following companies:
CB Commercial Holdings, Grubb & Ellis Company, Hallwood Realty Partners, Inc.,
Insignia Financial Group, Inc. and NHP, Inc. Morgan Keegan compared the market
value of each, as determined by the closing price recorded for each company's
common stock, with each company's revenue, net income, EBITDA and EBIT. In
addition, Morgan Keegan determined the market value and the adjusted market
value of each comparable company and calculated trading multiples based on
revenue, EBITDA, EBIT and net income. Based on the median multiples of the
comparable companies, this analysis resulted in a range of equity values for the
Managing General Partner of $3.4 million to $47.0 million. Morgan Keegan
focused its analysis on EBIT and on EBITDA and determined a range of $20 million
to $50 million. No company used in this group of comparable companies was
similar to the Managing General Partner in terms of the fee structure and income
stream payable under the Operating Partnership General Partner Interest, and the
companies all are larger and more diversified than the Managing General Partner.
Accordingly, these comparable companies did not provide a meaningful method of
valuing the Managing General Partner.
COMPARABLE ACQUISITIONS. Morgan Keegan also compared the Termination with
acquisitions by selected public companies engaged primarily in the real estate
management, development and acquisition business. Under this approach, Morgan
Keegan considered, among others, the acquisitions of Security Management
Corporation, ConCap, O'Donnell Property Services, Allegiance Realty Group,
National Property Investors and Angeles Corporation by Insignia Group, Inc., the
acquisition of BT Venture Corporation by Boddie-Noell Properties, Inc. and the
consolidation of Franchise Finance Corporation of America with existing related
real estate limited USRPs. Morgan Keegan determined the multiples of market
value and adjusted market value to revenue, EBITDA, EBIT and net income for each
of these companies. Morgan Keegan then applied these multiples to the revenue,
EBITDA, EBIT and net income of the Managing General Partner. Morgan Keegan also
considered other financial and other operating characteristics of these
companies in its analysis.
Morgan Keegan also reviewed certain acquisitions of real estate advisory
and management companies by publicly traded REITs. This review included
calculating the multiples obtained by comparing the prices paid to acquire such
companies with the advisory fees earned by the acquired companies during the
last full fiscal year prior to the REIT's becoming self-advised. Under this
approach, Morgan Keegan considered Bradley Real Estate Trust, Boddie-Noell
Properties, Inc., Burnham Pacific Properties, Inc., Meditrust, Health Care REIT,
Inc., Storage Equities, Inc., Shurgard Storage Centers, Inc., Realty Income
Corporation, Mid-America Apartment Communities, Inc., Summit Properties,
Associated Estates Realty Corporation, Paragon Group, Inc. and Criimi Mae Inc.
Based on the multiples of revenue, EBITDA, EBIT, FFO and net income of the
comparable transactions, this analysis resulted in a range of values for the
Managing General Partner of $3.6 million to $70.8 million. Morgan Keegan
focused its
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analysis on the median range of values which resulted in a range of values for
the Managing General Partner of $15.0 million to $30.0 million. Morgan Keegan
also considered other financial and operating characteristics of these
companies in its analysis. No company or transaction was similar to the
Managing General Partner in terms of the fee structure and income stream
payable under the Partnership Agreements. Accordingly, these comparable
companies did not provide a meaningful method of valuing the Managing General
Partner.
PRO FORMA MERGER ANALYSIS. Morgan Keegan also analyzed the effect of the
Termination on the financial projections of the Partnerships based on the
Acquisition Price to be paid to the Managing General Partner pursuant to the
Withdrawal Agreement. USRP's stand alone projections for 1997 through 2000 were
compared with pro forma combined company projections for funds from operations
and other measures of profitability in order to determine the degree of
dilution, if any, to the Unitholders subsequent to the Termination. This
analysis indicated that the Termination should be accretive to pro forma
combined company's funds from operations for each year from 1997 through 2000.
For the purposes of this analysis, funds from operations were calculated in a
manner consistent with the Partnerships' current policy.
CONTRIBUTION ANALYSIS. Morgan Keegan analyzed the contribution of the
Partnerships and the Managing General Partner to the projected 1997 through 2000
operating results of the pro forma combined company. Morgan Keegan calculated
the percentage contribution for each entity relative to total income, EBIT, net
income and funds from operations of the pro forma combined company. Morgan
Keegan then calculated the percentage ownership on a post-transaction basis for
both existing Unitholders and the Managing General Partner. Morgan Keegan
concluded that from the Unitholders' perspective, the Managing General Partner's
percentage contribution to total income, EBIT, net income and funds from
operations compares favorably with its proposed percentage ownership of the pro
forma combined company.
Based on the foregoing, Morgan Keegan concluded that, based on various
assumptions and considerations, the Acquisition Price is fair, from a financial
point of view, to the Unitholders.
The summary set forth above does not purport to be a complete description
of the presentation by Morgan Keegan to the Special Committee or of the analyses
performed by Morgan Keegan. The preparation of a fairness opinion is not
necessarily susceptible to partial analysis or summary description. Morgan
Keegan believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses, without
considering all analyses, or of the above summary, without considering all
factors and analyses, would create an incomplete view of the process underlying
the analyses presented to the Special Committee set forth in Morgan Keegan's
fairness opinion. In addition, Morgan Keegan may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to represent the actual value of the payments to the Managing General
Partner or the combined company.
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In performing its analyses, Morgan Keegan made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the Partnerships or the
Managing General Partner. The analyses performed by Morgan Keegan are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Morgan Keegan's analysis of the
fairness, from a financial point of view, of the Acquisition Price and were
discussed with the Special Committee. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at the present time or at any time
in the future. In addition, as described above, Morgan Keegan's presentation to
Special Committee and its Fairness Opinion was one of many factors taken into
consideration by the Special Committee in making its determination to approve
the Acquisition Price.
COMPENSATION AND MATERIAL RELATIONSHIPS. The Special Committee has engaged
Morgan Keegan to provide investment banking advice and services in connection
with the Special Committee's review and analysis of the Termination. USRP
agreed to pay Morgan Keegan: (i) a fee of $50,000 upon execution of an
engagement letter, and (ii) a fee of $175,000 at the time of delivery of the
Fairness Opinion.
USRP has also agreed to reimburse Morgan Keegan for reasonable
out-of-pocket expenses, including fees and disbursements of counsel, incurred by
Morgan Keegan in carrying out its duties under the engagement letter, and to
indemnify Morgan Keegan for certain liabilities to which it may be subjected in
connection with its engagement.
In addition to rendering the opinion, Morgan Keegan has in the past
provided investment banking services to USRP, for which it received customary
fees. In June 1996, Morgan Keegan acted as the lead manager of the
Partnership's 1,800,000 Unit offering. In addition to the underwriting fees and
commissions of approximately $1.2 million, USRP paid Morgan Keegan a financial
advisory fee of $200,000. In May, 1996, an affiliate of Morgan Keegan provided
a $20 million mortgage warehouse facility to USRP in exchange for interest
payments on amounts outstanding thereunder at a rate of 300 basis points over
LIBOR. This facility was paid in full in January 1997. In the ordinary course
of its business, Morgan Keegan may trade the Units for its own account and for
the account of its customers and may at any time hold a short or long position
in such securities. Morgan Keegan has expressed no opinion as to the prices or
trading range at which the Units may trade following the date of its opinion or
upon completion of the Termination.
ANALYSIS OF ALTERNATIVES CONSIDERED
CONTINUATION OF USRP. In reaching its decision to recommend the Conversion
to the Unitholders, the Board of Directors considered the alternative of
continuing USRP in its current form as a master limited partnership. The Board
of Directors determined, however, that based on the reasons discussed above
under "--Advantages of the Conversion," proceeding with the Conversion would be
more beneficial to the Unitholders
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than the alternative of continuing USRP in is existing form. The Managing
General Partner believes these advantages outweigh the disadvantages
discussed under the caption "--Disadvantages of the Conversion." In reaching
its decision to recommend the Conversion, the Managing General Partner did
not consider any other alternative to the Conversion or any other means of
accomplishing the intended result thereof.
LIQUIDATION OF USRP. With respect to the alternative of liquidating USRP,
the Board of Directors concluded that, based on the anticipated liquidation
value per Unit ($20.00, determined as set forth below under "--Comparison of
Values"), such alternative was less favorable to the Unitholders than the
receipt of shares of Common Stock, assuming the Common Stock trades at a price
per share comparable to the current trading price per Unit ($27.00, at March 31,
1997, although no assurance can be given that such a trading price will result).
See "Risk Factors--Substitution of Trading of Common Stock for Units."
COMPARISON OF VALUES
A comparison of the value that will be received by the Unitholders upon
consummation of the Conversion as opposed to the value of the Units that would
be held if USRP continued as a partnership depends upon the relative market
prices of the Units and the shares of Common Stock. If the market price of the
Units and the shares of Common Stock is similar, then the market value of the
individual Unitholder's investment would be substantially similar if the
Conversion were completed or if USRP continued in its existing format. It is
impossible to determine the market's reaction to the Conversion and no
assurances can be given that the value of an individual Unitholder's investment
will not be materially adversely affected by the Conversion. If the shares of
Common Stock after the Conversion have a market value less than the Units before
the Conversion, then the market value of the Unitholder's investment would be
proportionately reduced. In addition, adverse tax consequences that may be
incurred by certain Unitholders as a result of the Conversion could affect the
calculation of comparative value for such Unitholders.
A comparison of the value that will be received by a Unitholder upon
consummation of the Conversion as opposed to the value of what a Unitholder
would receive upon a liquidation of USRP depends primarily upon the market price
of the shares of Common Stock and the net proceeds that could be realized from a
sale of the Company's properties. The value of the shares of Common Stock
received upon completion of the Conversion would be calculated by multiplying
the number of shares of Common Stock held by the market price of such shares.
The resulting amount would be the value received by the Unitholder as a result
of the Conversion. The Company does not regularly obtain appraisals of its
properties; consequently, for purposes of conducting a liquidation analysis, the
Managing General Partner aggregated the acquisition costs of each of the
Company's properties, which totalled $213 million. Based on such total value,
the Managing General Partner estimates that the distribution per Unit from the
sale of the Company's properties would equal approximately $213 million,
assuming assets, liabilities and contractual arrangements, as they existed at
December 31, 1996. The actual price at which the
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properties could be sold, however, cannot be determined. The actual amount
of the distribution per Unit would also depend upon costs incurred in
connection with the sale. The $20.00 per Unit value was calculated by
subtracting estimated transaction costs ($3 million) and debt ($69 million)
from the sum of the property costs ($213 million). The resulting amount was
multiplied by 98.02 to reflect the Unitholders' percentage interest in
operational distributions and divided by the number of outstanding Units
($6.9 million). The difference in value received upon consummation of the
Conversion as opposed to liquidation of the Partnership would be the market
price of the shares of Common Stock received as compared to such liquidation
value. Assuming the market price per share of Common Stock following the
Conversion is comparable to the market price per Unit ($27.00 at March 31,
1997), the per Unit distribution of $20.00 upon liquidation would be less
than the value of the shares of Common Stock received in the Conversion. In
addition, if the properties were to be sold, the Unitholders would not be
able to receive further distributions from the properties or any future real
estate investments by the Company.
ALLOCATION OF SHARES OF COMMON STOCK AMONG UNITHOLDERS AND THE MANAGING GENERAL
PARTNER
The Board of Directors determined, based on the fact that the REIT
Corporation will initially own the same assets as those held by USRP through its
ownership interest in the Operating Partnership, that it was appropriate for
each of the Unitholders to receive one share of Common Stock for each Unit held
by them immediately prior to the Conversion (or 7,012,585 shares of Common Stock
on account of their 99% percentage interest in USRP). Based on this analysis,
the Board of Directors concluded that the Managing General Partner should
receive 70,834 shares of Common Stock (if the Conversion is effected through the
Merger Alternative) and 1% of the outstanding Units immediately following the
Conversion (if effected through the Exchange Alternative).
In order to determine the number of shares of Common Stock (or the
equivalent interest in the Operating Partnership equivalent number of Units) to
be issued to the Managing General Partner in connection with the termination of
its Operating Partnership General Partner Interest, the Board of Directors
established the Special Committee to act on behalf of the Unitholders for
purposes of evaluating the Acquisition Price. The Managing General Partner
determined that a special committee was necessary due to the potential conflict
of interest between management of the Managing General Partner and the
Unitholders in determining the Acquisition Price. See "The Conversion--Analysis
of the Special Committee."
EXECUTIVE COMPENSATION
The compensation of the executive officers of the REIT Corporation is
expected to be as described under "Management--Executive Compensation." USRP
does not currently pay compensation to the executive officers of the Managing
General Partner. Instead it pays the Management Fees to the Managing General
Partner pursuant to the terms of the
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Partnership Agreements. The following table sets forth (i) the historical
Management Fees paid to the Managing General Partner for the fiscal year
ended December 31, 1994, 1995 and 1996 and (ii) the estimated payments which
would have been payable to management of the Managing General Partner for
such years had the Conversion been effected on January 1, 1994 (in thousands):
ESTIMATED
HISTORICAL POST-CONVERSION FEES(1)
-------------------- -----------------------
(Unaudited)
1994 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ----
Total Payments to Managing
General Partner............. $690 $852 $2,537 - - -
---- ---- ------ ---- ---- ----
---- ---- ------ ---- ---- ----
Post-Conversion
management expenses(2)...... - - - $750 $750 $750
---- ---- ------ ---- ---- ----
---- ---- ------ ---- ---- ----
- --------------------
(1) Assumes the Conversion was effected as of January 1, 1994.
(2) Includes annual salaries payable to each of Messrs. Stetson and Margolin of
$250. See "Management--Executive Compensation." Does not include
distributions which would have been payable to the Managing General Partner
on account of the Initial Shares, which (assuming the historical
distributions per Unit paid for fiscal years 1994, 1995 and 1996 would have
been the same after giving effect to the issuance of the Initial Shares)
would have equalled $1,369, $1,454, and $1,645 for each of 1994, 1995 and
1996, respectively.
NO DISSENTERS' APPRAISAL RIGHTS
Limited Partners who object to the Conversion will have no dissenters'
appraisal rights (I.E., the right, instead of receiving Common Stock, to seek a
judicial determination of the "fair value" of their Units and to compel USRP to
purchase Units for cash in that amount) under state law or the Master
Partnership Agreement, nor will such rights be voluntarily accorded to the
Limited Partners by the Company. Thus, approval of the Conversion by the
holders of a majority of all Units outstanding on the Record Date will bind all
Limited Partners, and objecting Limited Partners will have no alternative to
receipt of Common Stock other than selling their Units in the market. The Units
are currently listed on the NYSE under the symbol "USV." If the Conversion is
effected through the Merger, the Common Stock is expected to be listed on the
NYSE effective at the time the Merger is consummated. If the Conversion is
effected through the Partnership Alternative, the Common Stock is expected to be
listed on the NYSE at such time as the Company completes the IPO.
COSTS OF THE CONVERSION
The Managing General Partner estimates the total cost and expense of the
Conversion will be approximately $580,000, whether or not completed. Such costs
and expenses include registration fees, legal and accounting fees and expenses,
recording and filing expenses and printing fees and expenses. The costs of the
Conversion, whether or not successfully completed, will be paid by USRP.
Therefore, the Managing General Partner and the Unitholders will
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ultimately absorb the costs of the proposal to effect the Conversion, whether
or not the Conversion is approved or completed. The following is a statement
of certain estimated fees and expenses incurred in connection with the
Conversion:
Securities and Exchange Commission fees. . . . . . . . . . . $ 63,707
Legal fees and expenses. . . . . . . . . . . . . . . . . . . 100,000
Special Committee fees and expenses
(including fees to its financial and legal advisors). . 245,000
Accounting fees and expenses . . . . . . . . . . . . . . . . 50,000
Printing, engraving and mailing expenses . . . . . . . . . . 75,000
Miscellaneous (including solicitation costs) . . . . . . . . 46,293
-----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . $ 580,000
-----------
-----------
CONSEQUENCES IF CONVERSION IS NOT APPROVED
It is expected that, if the Conversion is not approved by the Limited
Partners, or if the Conversion is not consummated for any reason, the Company
will continue in its current form. No other transaction is currently being
considered by the Company as an alternative to the Conversion.
FIDUCIARY DUTIES
As general partner of a limited partnership, the Managing General Partner
owes the Unitholders, under Delaware law, the fiduciary duties of good faith,
fairness and loyalty in handling the affairs of USRP. This fiduciary duty, to
the extent not modified by the Master Partnership Agreement, may include a duty
to refrain from self-dealing to the advantage of the Managing General Partner at
the expense of USRP. The Master Partnership Agreement generally provides that
the Managing General Partner and its affiliates may enter into transactions with
USRP, provided that the price and terms of such transaction are fair to the
Partnership and are not less favorable to USRP than those generally prevailing
with respect to comparable transactions between unrelated parties. Thus, the
fiduciary duty of the Managing General Partner may be more limited than would
otherwise be the case, absent such provisions. The Managing General Partner
believes that it has satisfied its fiduciary duties to Unitholders in connection
with the proposal of the Conversion and the Termination. It was with due regard
to its fiduciary responsibilities to USRP and the Unitholders that the Managing
General Partner concluded that a Special Committee of the independent directors
of its Board of Directors be formed to represent properly the interests of the
Unitholders in connection with the Termination.
The Managing General Partner may also have obligations under securities and
state corporate laws to disclose all material information concerning USRP's
affairs at certain times. The Managing General Partner believes that through
quarterly and annual filings on Form 10-Q and 10-K, annual tax reporting on Form
K-1 and disclosing the information contained herein, it has satisfied its duties
to disclose all material information to Unitholders.
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Following consummation of the Conversion, the directors of the Managing
General Partner will serve as the directors of the REIT Corporation. As a
general matter (and except as modified by agreement), under Maryland law, a
director's fiduciary duties to stockholders of a Maryland corporation are
substantially similar to the fiduciary duties of a general partner of a Delaware
limited partnership to its limited partners. State law applicable to both
limited partnerships and corporations provides that the duties (including
fiduciary duties) and liabilities relating thereto of a general partner to a
limited partnership or its partners or of a director to a corporation or its
stockholders, may be expanded or restricted by provisions in the applicable
partnership agreement or charter instrument. In this regard, the Master
Partnership Agreement provides that the Managing General Partner shall not be
liable to USRP or to the Unitholders for any losses incurred as a result of any
act or omission of the Managing General Partner if the conduct did not
constitute actual fraud, willful misconduct or gross negligence and the Managing
General Partner acted in a manner it believed to be in, or not opposed to, the
interests of USRP. Further, the Master Partnership Agreement provides broad
indemnification rights in favor of the Managing General Partner so long as its
conduct meets the standard referenced in the preceding sentence. With respect
to the REIT Corporation, the Articles provide that a director of the REIT
Corporation shall not be liable for any act or omission in the director's
capacity as a director, except to the extent the director is found liable for
(i) an act or omission involving active and deliberate dishonesty or (ii) a
transaction in which the director received an improper personal benefit. The
directors are broadly indemnified and held harmless so long as the liability
otherwise to be indemnified for does not result from any act or omission of such
director that involves actual fraud or willful misconduct or a transaction from
which such director derived an improper benefit.
The nature of fiduciary duties is an evolving area of law and it is unclear
whether or to what extent there are differences in such fiduciary duties.
However, it is possible the fiduciary duties of a director of the REIT
Corporation to its stockholders could be less than those of the Managing General
Partner to the Unitholders. Unitholders who have questions concerning fiduciary
duties should consult their legal counsel.
ACCOUNTING TREATMENT
For financial accounting purposes, the Conversion will be treated as a
reorganization of affiliated entities, with the assets and liabilities recorded
at their historical costs, except for the Termination. The cost of converting
the Operating Partnership General Partner Interest payable by the Operating
Partnership or the REIT Corporation, as the case may be, will be charged to
expense at the time of the transaction and the costs of the reorganization will
be expensed as incurred.
THE SPECIAL MEETING
The Managing General Partner has established the close of business on
____________, 1997, as the Record Date for determining Limited Partners entitled
to notice of, and to vote at, the Special Meeting and at any adjournment
thereof. On that date, USRP had issued and
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outstanding ________ Units. No matters other than the Merger Alternative,
the Exchange Alternative and certain procedural matters may be discussed or
voted upon at the Special Meeting.
ELIGIBLE UNITS
The presence, in person or by proxy, of Limited Partners holding more than
50% of the total number of outstanding Units that Limited Partners hold will
constitute a quorum at the Special Meeting. A Limited Partner may hold such
Units as either the recordholder thereof or as the recordholder of a Depositary
Receipt with respect thereto. An assignee of Units that the Managing General
Partner has not admitted to USRP as a Limited Partner, however, will be unable
to vote at the Special Meeting. Such assignee's Units will also not be
considered outstanding for purposes of determining whether a quorum exists at
the Special Meeting or whether the requisite number of Limited Partners approve
the Conversion. Additional Units acquired by a Limited Partner with respect to
which the Managing General Partner has not admitted such Limited Partner to USRP
will also not be considered outstanding for purposes of the Special Meeting and
the Limited Partner will be unable to vote such Units.
If a person beneficially owns Units through a Depositary Receipt issued to
a broker or other nominee holder, such person must instruct such broker or
nominee holder how to vote the Units that such person beneficially owns. If
such person does not give such instructions, the broker or other nominee holder
will not vote such person's Units. Failure to vote any Units on whether to
approve the Conversion will have the same effect as voting against such proposal
because its approval requires a majority of the outstanding eligible Units to
vote in its favor.
The Managing General Partner has admitted to USRP as Limited Partners all
assignees of Units as of ____________, 1997. As of the Record Date, there were
________ Units held by Limited Partners that were eligible to vote at the
Special Meeting.
REQUIRED LEGAL OPINION
As required under the Partnership Agreements, before the Special Meeting
USRP will obtain an opinion from legal counsel that the proposed amendments to
the Partnership Agreements would not cause: (i) the loss of limited liability
of USRP under the Operating Partnership's exiting partnership agreement or of
the Limited Partners under the existing Master Partnership Agreement, and (ii)
USRP or the Operating Partnership to be treated as an association taxable as a
corporation for federal income tax purposes. The Managing General Partner has
requested USRP's legal counsel to render this opinion. Such legal counsel has
indicated that it will be able to render this opinion, subject to certain
qualifications that the Managing General Partner has determined are reasonable.
If for some reason such legal counsel cannot render the contemplated opinion
before the Special Meeting, the Managing General Partner would adjourn the
Special Meeting to a later date or cancel it.
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REQUIRED VOTE
As required under the Partnership Agreements, the Managing General Partner
has proposed the approval of the Merger Alternative and the Exchange Alternative
and approved them in writing. For the Merger Alternative and the Exchange
Alternative to take effect, the Limited Partners must vote more than 50% of the
total number of outstanding Units eligible to be voted in favor of each of the
Merger Alternative and the Exchange Alternative at the Special Meeting.
Limited Partners will possess one vote for each Unit eligible to be voted
that they hold. Limited Partners voting against the Merger Alternative and the
Exchange Alternative will not possess any appraisal rights with respect to their
Units. See "The Conversion--No Dissenters' Appraisal Rights."
ABSTENTIONS AND BROKER NON-VOTES
The Partnership Agreements provide that with respect to Depositary Receipts
that a person holds for the account of another person, such as Depositary
Receipts that a broker holds for its client, the person holding the Depositary
Receipts for the account of the other person must vote the respective Units
pursuant to the instructions of the person on whose behalf it holds them.
Moreover, under the rules of the NYSE, brokers holding Depositary Receipts on
behalf of their clients may not vote the respective Units on whether to approve
the Conversion without their clients' authorization. A broker therefore will
not vote any Units on whether to approve the Merger Alternative and the Exchange
Alternative without receiving instructions on how to vote from such broker's
client. Accordingly, there will be no broker non-votes to consider at the
Special Meeting.
With respect to the Conversion, abstentions, as well as broker non-votes,
will have the same effect as a vote against approval because more than 50% of
the total number of outstanding eligible Units must approve such proposal,
rather than just a majority of those eligible Units present at the Special
Meeting.
PROXIES
Proxyholders will vote the eligible Units represented by valid proxies at
the Special Meeting in accordance with the directions given on the proxy card
concerning whether to approve the Merger Alternative and the Exchange
Alternative. Moreover, the proxyholders intend to vote such Units on any
procedural matters coming before the Special Meeting in accordance with their
best judgment. Unless indicated to the contrary thereon, the directions given
on a Limited Partner's Proxy Card will be for all of such Limited Partner's
eligible Units.
IF A LIMITED PARTNER SIGNS AND RETURNS A PROXY CARD WITHOUT GIVING ANY
DIRECTIONS ON HOW TO VOTE ON THE CONVERSION, THE PROXYHOLDER WILL VOTE SUCH
LIMITED PARTNER'S ELIGIBLE UNITS FOR THE APPROVAL OF THE MERGER ALTERNATIVE AND
THE EXCHANGE ALTERNATIVE.
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REVOCATION OF PROXIES
A Limited Partner may revoke its proxy at any time prior to the
proxyholder's voting of the Units to which such proxy applies by: (i)
submitting a later dated proxy to D.F. King & Company or someone else who
attends the Special Meeting, (ii) attending the Special Meeting and delivering a
written notice of revocation of the proxy to the representative of D.F. King &
Company present at the Special Meeting, or (iii) delivering a written notice of
revocation of the proxy to D.F. King & Company at the address set forth herein,
which D.F. King & Company receives on or before ____________, 1997.
PROXY SOLICITOR
The Partnership has retained D.F. King & Company to distribute the attached
letter from the Managing General Partner, the attached notice of the Special
Meeting, this Proxy Statement/Prospectus and the Proxy Card and to collect
completed Proxy Cards. Pursuant to the requirements of the Partnership
Agreements, D.F. King & Company has mailed these documents to each Limited
Partner as of the Record Date. D.F. King & Company has also distributed them to
various banks, brokerage firms, and other custodians, nominees and fiduciaries
that may hold Depositary Receipts or Units on behalf of someone else
(collectively, the "Nominee Holders"). The Partnership will pay D.F. King &
Company a fee of approximately $__________ for such services and reimburse it
for its out-of-pocket expenses. The Partnership will also reimburse Nominee
Holders for the reasonable expenses that they incur when forwarding the attached
letter from the Managing General Partner, the attached notice of the Special
Meeting, this Proxy Statement and the Proxy Card to the beneficial owners of the
Units.
SOLICITATIONS BY THE MANAGING GENERAL PARTNER
The directors, officers and employees of the Managing General Partner may
solicit proxies in favor of the Conversion by mail, personal interview,
telephone, facsimile transmission or other means. They will receive no
additional compensation therefor.
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SELECTED HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION AND OTHER DATA
(DOLLARS AND UNITS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
<TABLE>
U.S. RESTAURANT
U.S. RESTAURANT PROPERTIES MASTER L.P. PROPERTIES, INC.
------------------------------------------------------ ----------------
YEARS ENDED DECEMBER 31,(1)
------------------------------------------------------
Pro Forma
1992 1993 1994 1995 1996 1996(2)
------- ------- ------- -------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Income:
Total revenues $ 8,489 $ 8,332 $ 8,793 $ 9,780 $ 18,324 $ 36,455
EXPENSES:
Rent 1,187 1,295 1,348 1,405 2,080 2,524
Depreciation and amortization 1,473 1,383 1,361 1,541 3,978 9,330
Taxes, general and administrative 1,097 1,008 1,144 1,419 2,461 1,935
Interest expense (income), net 60 44 (4) 192 2,364 10,823
Provision for write
down or disposition of properties 2,186 74 11 -- -- --
Total expenses 6,003 3,804 3,860 4,557 10,833 24,612
Gain on Sale of equipment 32 32
Net income $ 2,486 $ 4,528 $ 4,933 $ 5,223 $ 7,473 $ 11,875
Net income allocable to Unitholders $ 2,436 $ 4,437 $ 4,834 $ 5,119 $ 7,325 N/A
Weighted average
number of Units/Shares outstanding 4,635 4,635 4,635 4,638 6,107 8,145
Net income per Unit/Share $ 0.53 $ 0.96 $ 1.04 $ 1.10 $ 1.20 $ 1.46
Cash distributions declared per
Unit applicable to respective year $ 1.54 $ 1.48(3) $ 1.61 $ 1.71 $ 1.935 N/A
CASH FLOW DATA:
Cash flow from operating activities $ 7,366 $ 7,475 $ 6,990 $ 9,288 $ 13,852 $ 23,525
Cash flow from (used in) investing
activities $ -- 1,130 $ -- $(12,039) $(100,978) $(176,322)
Cash flow from (used in) financing
activities $(7,542) $(8,302) $(7,569) $ 2,077 $ 87,500 $ 164,429
</TABLE>
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<TABLE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
---------------------------------------------------
DECEMBER 31,(1) DECEMBER 31, 1996
--------------------------------------------------- -----------------
U.S. RESTAURANT
PROPERTIES, INC.
1992 1993 1994 1995 1996(1) PRO FORMA(2)
------- ------- ------- ------- -------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net investment in direct
financing leases $24,760 $22,910 $21,237 $19,371 $ 17,105 $ 16,888
Land 23,816 23,414 23,414 27,493 61,340 79,287
Buildings and leasehold
improvements, net 1,919 1,734 1,548 7,900 75,339 145,870
Equipment -- -- -- 224 2,980 2,980
Intangibles, net 17,123 15,503 14,317 13,161 12,263 12,094
Total assets 69,087 65.322 62.889 71,483 177,418 266,356
Line of credit and long term debt -- -- -- 10,931 69,486 146,416
Capitalized lease obligations 1,138 966 775 563 362 362
General partners' capital 1,429 1,357 1,308 1,241 1,163 --
Limited partners' capital 66,287 62,757 60,361 58,071 103,120 --
Stockholders' equity -- -- -- -- -- 115,711
OTHER DATA:
Number of properties 123 123 123 139 322 459
</TABLE>
______________
(1) The historical information for the years ended December 31, 1992, 1993,
1994, 1995 and 1996 was derived from USRP's audited consolidated financial
statements. USRP's audited consolidated financial statements as of
December 31, 1995 and 1996 and for each the three years in the period ended
December 31, 1996, are included elsewhere in this Proxy
Statement/Prospectus.
(2) The unaudited pro forma consolidated statement of income information for
the year ended December 31, 1996 is presented as if the following had
occurred as of January 1, 1996: (a) the purchase of 208 properties for
$121,230,000, including the value of 503,418 Units valued at $11,232,296,
completed since December 31, 1995, (b) the issuance of 1,800,000 Units in
June 1996 for net proceeds of $40,203,000, (c) the purchase of 16
properties from QSR Income Properties, Ltd. ("QSR") for 277,131 Units (at
$28.50 per Unit), (d) the purchase of 114 properties from other sellers
that as of March 28, 1997 are under binding contract for $64,758,000, (e)
the additional borrowings of $135,485,000 required to purchase the
properties acquired and under contract, (f) the sale of one property for
$1,175,000 and (g) the Termination. The unaudited pro forma balance sheet
data as of December 31, 1996 represents USRP's December 31, 1996 balance
sheet adjusted on a pro forma basis to reflect as of December 31, 1996: (a)
the purchase of 24 properties for $15,894,000 completed since December 31,
1996, including the value of 118,582 Units of $3,320,000, (b) the purchase
of 16 properties from QSR for 277,131 Units (at $28.50 per Unit), (c) the
purchase of 114 properties from other sellers that as of March 28, 1997 are
under binding contracts for $64,758,000, (d) the additional borrowings of
$76,930,000 required to purchase the properties acquired and under
contract, (e) the sale of one property for $1,175,000, (f) the
consolidation with the REIT Corporation and (g) the Termination. The
unaudited pro forma income statement and balance sheet information is not
necessarily indicative of what the actual financial position of USRP would
have been at December 31, 1996 or what the actual results of operations of
USRP for the year ended December 31, 1996 would have been had all of these
transactions occurred and such information does not purport to represent
the future financial position or results of operations of USRP. See the
pro forma balance sheet and statement of income included elsewhere in this
Proxy Statement/Prospectus.
(3) Excludes special capital transaction distributions of $.24 per Unit.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The Company derives its revenue from the leasing of the Company's
restaurant properties to operators on a "triple net" basis, which is a lease
that imposes on the tenant all obligations for real property taxes and
assessments, repairs and maintenance and insurance. To the extent the landlord
retains any of these responsibilities, the lease becomes less than "triple net."
The Company's leases provide for a base rent plus a percentage of the
restaurant's sales in excess of a threshold amount. Total restaurant sales, the
primary determinant of the Company's 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, by marketing, by new product programs, support by the franchisor and
by the general state of the economy.
Some of the leases of the Company's properties are treated as direct
financing leases, rather than operating leases, for purposes of generally
accepted accounting principles ("GAAP"); however, the leases do not grant the
lessees thereunder the right to acquire the properties at the expiration of such
leases. As a result, the lease is reflected as an asset on the Company's
balance sheet as net investment in direct financing leases, and the underlying
depreciable real property is not considered an asset of the Partnership for GAAP
purposes. Accordingly, the related depreciation is not reflected on the
Company's income statement; instead, there is a charge for amortization of the
investment in direct financing leases. For tax accounting purposes, however,
the depreciable real property is treated as being owned by the Company (and not
a direct financing lease) and the related charge for depreciation is reflected
on the Company's income statement. Primarily due to this treatment, GAAP
revenue and net income differ from gross rental receipts and net income, as
determined for tax purposes. The reconciliation between the GAAP and tax
treatment of these leases is described in Note 10 to the Company's audited
consolidated financial statements included elsewhere in the Proxy
Statement/Prospectus. Management believes that all acquisitions made by USRP
since December 31, 1996, as well as all future acquisitions and related leases,
will qualify as operating leases according to GAAP and, therefore, were not and
will not be recorded as a net investment in direct financing leases.
The following discussion should be read in conjunction with "Selected
Historical and Pro Forma Financial Information and Other Data" and all of the
financial statements and notes thereto included elsewhere in this
Prospectus/Proxy Statement.
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RESULTS OF OPERATIONS
Revenues in 1996 totaled $18,324,000 up 87 percent from the $9,780,000
recorded in 1995 and up 108 percent from the $8,793,000 recorded in 1994.
Revenues in 1995 were up 11 percent from the revenues recorded in 1994. The
increase in revenues is primarily due to the acquisition of 16 restaurant
properties throughout 1995 and 184 restaurant properties throughout 1996. No
additions were made to the portfolio in 1994. In addition, sales increased each
year as indicated below and the straight-lining of escalating rent in 1996
contributed to a 3 percent increase in total revenues. In 1995 and 1994
straight-lining of rents did not apply.
Total comparable sales in the restaurants located on the Company's real
estate were $133,556,000 in 1996, $129,100,000 in 1995, and $120,543,000 in
1994. The comparable store sales relate to the original Burger King portfolio
in which revenues are not only in the form of minimum base rents but also
percentage rents that are paid in relation to actual sales of each restaurant
property.
Taxes, general and administrative expenses totaled $2,461,000 up 73 percent
from the $1,419,000 recorded in 1995 and up 115 percent from the $1,144,000
recorded in 1994. An increase in the management fee of $585,000 and expenses
that directly correspond to the active growth of the Company were the primary
reasons for increased general and administrative expenses for the year ended
December 31, 1996 as compared to December 31, 1995. An increase in expenses
that directly corresponds to the active growth of the Company was the primary
reason for the increase in general and administrative expenses for the year
ended December 31, 1995 as compared to December 31, 1994.
Depreciation and amortization expenses totaled $3,978,000 up 158 percent
from the $1,541,000 recorded in 1995 and up 192 percent from the $1,361,000
recorded in 1994. These increases directly correlate to the property
acquisitions.
Rent expense totaled $2,080,000 up 48 percent from the $1,405,000 recorded
in 1995 and up 54 percent from the $1,348,000 recorded in 1994. The increase in
rent expense directly correlates to the property acquisitions. Twenty-seven
(27) of the 200 properties purchased in 1995 and 1996 were leasehold properties.
Interest expense, net of interest income, totaled $2,364,000 up from the
$192,000 in 1995 and up from the $(4) in 1994. The increase in interest expense
directly correlates to the additional property debt associated with the
acquisitions. No amounts were borrowed in 1994.
There was no write down of assets and intangible values relating to closed
properties during 1996 and 1995. A write down of $11,000 was made in 1994.
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A restaurant property was sold for $825,000 at a gain of $590,000. The
sales price consisted of $82,500 in cash plus a $742,500 note receivable. The
note receivable is due on November 1, 1998. The gain on sale has been deferred
and is being accounted for under the cost recovery method. In addition,
equipment located at a restaurant property was sold for $50,000 and a $32,000
gain was recognized.
Net income allocable to Unitholders in 1996 was $7,324,000 or $1.20 per
Unit, up 9 percent or $.10 per Unit from $5,119,000 or $1.10 per Unit achieved
in 1995. The 1995 results were up 6 percent or $.06 per Unit from the 1994
results. Excluding provisions for write down or dispositions of properties, net
income allocable to Unitholders was $1.20 in 1996, $1.10 in 1995 and $1.04 in
1994.
Regular cash distributions to the Unitholders for 1996 totaled $1.935 per
Unit with $.47 per Unit paid in the first quarter, $.48 per Unit paid in the
second quarter, $.485 per Unit paid in the third quarter, and $.50 in the fourth
quarter. Total cash distributions to Unitholders in 1995 and 1994 were $1.71
and $1.61 per Unit, respectively.
CASH FLOW FROM OPERATIONS BASED UPON TAXABLE INCOME
The Company generally considers "cash flow from operations based upon
taxable income" to be an appropriate measure of performance. "Cash flow from
operations based upon taxable income" is calculated as the sum of taxable income
plus charges for depreciation and amortization. All leases are treated as
operating leases for taxable income purposes which results in a reconciling item
from "cash flow from operating activities". In addition, "cash flows from
operations based upon taxable income" does not consider changes in working
capital items; as a result, cash flow from operations based upon taxable income
should not be considered as an alternative to net income determined in
accordance with generally accepted accounting principles as an indication of the
Company's performance or as an alternative to cash flow determined in accordance
with generally accepted accounting principles as a measure of liquidity. The
Company believes that "cash flow from operations based upon taxable income" is
important because taxable income flows through to the partners and it is the
most consistent indication of cash generated by operations and eliminates the
fluctuations of working capital. "Cash flow from operations based upon taxable
income" on a tax basis allocable to Unitholders in 1996 was $2.09 per Unit, up
$.31 per Unit from 1995. In 1995, "cash flow from operations based upon taxable
income" was $1.78 per Unit, up $.13 per Unit from the $1.65 achieved in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements is
rental revenues generated by the Company's properties. Cash generated by the
portfolio in excess of operating needs is used to reduce amounts outstanding
under the Company's credit agreements. Cash in excess of distributions is used
to cover payment of quarterly distributions to the Unitholders. Currently, the
Company's primary source of funding for acquisitions is its existing revolving
line
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of credit. The Company anticipates meeting its future long-term capital
needs through the incurrence of additional debt, the issuance of additional
equity, and a private placement of equity, along with cash generated from
internal operations.
As of March 19, 1997, the Company had approximately $48 million outstanding
under its $95 million line of credit with a syndicate of banks (excluding
$400,000 subject to letters of credit). This line of credit is secured by the
Company's real estate including its leasehold interests. The Company may
request advances under this line of credit to finance the acquisition of
restaurant properties, to repair and update restaurant properties and for
working capital. The banks will also issue standby letters of credit for the
account of the Company under this loan facility. This credit agreement expires
on December 28, 1998 and provides that borrowings thereunder bear interest at
180 basis points over the London Interbank Offered Rate (LIBOR). Interest
expense for 1996 and 1995 equaled $2,364,000 and $192,000, respectively. During
1996, the Company also had a $20 million mortgage warehouse facility from Morgan
Keegan Mortgage Company, Inc., which was secured by certain Company properties.
As of March 19, 1997, the balance due to Morgan Keegan Mortgage Company was zero
and there were no available draws. The borrowings thereunder beared interest at
the rate of 300 basis points over LIBOR. The proceeds from this facility were
used to finance the acquisition and purposed acquisition of various restaurant
properties owned by the U.S. Properties Business Trust I and II.
Pursuant to the Partnership Agreement, the Managing General Partner is
required to make available to the Company an unsecured, interest-free, revolving
line of credit in the principal amount of $500,000 to provide the Company 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 Company obtains other financing, whether for acquisitions, reinvestment,
working capital or otherwise. The Managing General Partner may make other loans
to the Company. Each loan must bear interest at a rate not to exceed the Morgan
Guaranty Trust Company of New York prime rate plus 1% or the highest lawful rate
(whichever is less), and in no event may any such loan be made on terms and
conditions less favorable to the Company than it could obtain from unaffiliated
third parties or banks for the same purpose. To management's knowledge, no
loans have ever been made pursuant to these arrangements and no loans were made
or outstanding at any time during each of the three years ended December 31,
1996.
The Company paid distributions in 1996 of $1.875 per Unit, which
represented 90% of cash flow from operations based upon taxable income. The
Company paid distributions for the first quarter of 1997 of $0.50 per Unit. The
Company has historically distributed from 75% to 95% of the estimated cash
generated from operations within the general objective of continued annual
growth in the distributions. In order to qualify as a REIT, the REIT
Corporation must make annual distributions to stockholders of at least 95% of
its REIT taxable income. Future distributions by the REIT Corporation will be
at the discretion of the REIT Board and will depend on actual results of
operations, the financial condition of the Company,
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capital requirements or other factors management deems relevant. During
1996, the Company distributed an aggregate of $11,167,000 to its partners.
See "Price Range of Units and Distribution Policy."
INFLATION
Some of the Company's leases are subject to adjustments for increases in
the Consumer Price Index, which reduces the risk to the Company of the adverse
effects of inflation. Additionally, to the extent inflation increases sales
volume, percentage rents may tend to offset the effects of inflation on the
Company. Because triple net leases also require the restaurant operators to pay
for some or all operating expenses, property taxes, property repair and
maintenance costs and insurance, some or all of the inflationary impact of these
expenses will be borne by the restaurant operators and not by the Company.
Operators of restaurants, in general, possess the ability to adjust menu
prices quickly. However, competitive pressures may limit a restaurant
operator's ability to raise prices in the face of inflation.
SEASONALITY
Fast food restaurant operations historically have been seasonal in nature,
reflecting higher unit sales during the second and third quarters due to warmer
weather and increased leisure travel. This seasonality can be expected to cause
fluctuations in the Company's quarterly unit revenue to the extent it receives
percentage rent.
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BUSINESS
GENERAL
The Company acquires, owns and manages income-producing properties that it
leases on a triple net basis to operators of fast food and casual dining
restaurants, primarily Burger King (the second largest restaurant chain in the
United States in terms of system wide sales), and other national and regional
brands including CHILI'S, DAIRY QUEEN, GRANDY'S, HARDEE'S, KFC, PIZZA HUT,
SCHLOTZSKY'S and TACO BELL. The Company acquires properties either from third
party lessors or from operators on a sale/leaseback basis. Under a triple net
lease, the tenant is obligated to pay all costs and expenses, including all real
property taxes and assessments, repairs and maintenance and insurance. Triple
net leases do not require substantial reinvestments by the property owner, and
as a result more cash from operations may be used for acquisitions and
distributions to the Company's stockholders and partners, if any.
The Company is one of the largest publicly owned entities in the United
States dedicated to acquiring, owning and managing restaurant properties. At
March 28, 1997, the Company's portfolio consisted of 345 restaurant properties
in 44 states, approximately 99% of which were leased. From the Company's initial
public offering in 1986 until March 31, 1995, the Company's portfolio was
limited to approximately 125 restaurant properties, all of which were leased on
a triple net basis to operators of Burger King restaurants. In May 1994, an
investor group led by Robert J. Stetson and Fred H. Margolin acquired the
Managing General Partner. In March 1995, the Managing General Partner proposed
and the Limited Partners adopted certain amendments to the Partnership
Agreements that authorized the Company to acquire additional properties not
affiliated with BKC.
Since adoption of the amendments, the Company has acquired 224 properties
for an aggregate purchase price of approximately $133 million, which includes
the value of 557,585 Units. In addition, the Company has entered into binding
contracts to acquire 114 additional restaurant properties (the "Acquisition
Properties") for an aggregate purchase price of approximately $73 million, which
includes the value of 277,131 Units. Upon acquisition of the Acquisition
Properties, the Company's portfolio will consist of an aggregate of 459
properties in 44 states consisting of 173 Burger King restaurants, eight CHILI'S
restaurants, 42 DAIRY QUEEN restaurants, 30 GRANDY'S restaurants, 30 HARDEE'S
restaurants, 20 PIZZA HUT restaurants, 10 SCHLOTZSKY'S restaurants, 78 ARBY'S
restaurants, 17 BRUEGGER'S BAGEL restaurants and 51 other restaurants, most of
which are regional brands.
In conjunction with the Conversion, the Operating Partnership Agreement is
being amended to provide the Company with increased flexibility to pursue other
investment opportunities that arise during the ordinary course of acquiring and
leasing restaurant properties and that compliment its existing strategy. In
particular, the amendments will permit the Company to acquire properties, build
out properties in conjunction with or lease
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properties directly to, (i) other food vendors, such as convenience stores,
whose revenues are not exclusively derived from food sales, and (ii) retail
outlets. In addition, the amendments will permit the Company, from time to
time, to make loans for the acquisition of real estate secured mortgages on
other security interests thereon instead of the acquisition of the
properties. Management believes that these amendments represent a logical
extension of the Company's existing business strategy and should offer
increased growth opportunities to the Company. See "--Investment Criteria."
INDUSTRY
The restaurant industry has grown significantly over the past 20 years as a
result of population growth, the influence of the baby boom generation, the
growth of two-income families and the growth in consumers' disposable income.
Total food service industry sales during 1995 have been estimated at
approximately $277 billion. The fast food segment, which offers value pricing
and convenience, is the largest segment in the restaurant industry with
projected 1996 sales of over $100 billion. In 1995, industry sources estimate
that fast food restaurants accounted for 71% of total restaurant traffic, 52% of
chain restaurant locations and 47% of consumers' restaurant dollars spent.
The growth of the fast food segment has exceeded that of the entire
restaurant industry for over 20 years. According to industry sources, fast food
restaurant sales have grown at a 6.9% compound annual growth rate with 1995
sales up 7.1% over 1994 levels. Fast food restaurant sales are anticipated to
have grown 6.7% in 1996 to over $100 billion.
Industry sources suggest that, in the fast food industry, operators are
increasingly moving toward leasing rather than owning their restaurants.
Currently, approximately two-thirds of fast food restaurant operators lease
their restaurant properties. Leasing enables a restaurant operator to reallocate
funds to the improvement of the restaurant, the acquisition of additional
restaurants or other uses.
Management believes, based on its industry knowledge and experience, that
the Company competes with numerous other publicly-owned entities, some of which
dedicate substantially all of their assets and efforts to acquiring, owning and
managing chain restaurant properties. The Company also competes with numerous
private firms and individuals for the acquisition of restaurant properties. In
addition, there are a number of other publicly owned entities that are dedicated
to acquiring, owning and managing triple net lease properties. The majority of
chain restaurant properties is owned by restaurant operators and real estate
investors. Management believes, based on its industry knowledge and experience,
that this fragmented market provides the Company with substantial acquisition
opportunities. Management also believes that the inability of most small
restaurant owners to obtain funds with which to compete for acquisitions as
timely and inexpensively as the Company provides the Company with a competitive
advantage when seeking to acquire a restaurant property.
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In addition to the Company's large number of leases to operators of Burger
King restaurants, the Company also leases more than 100 restaurant properties to
operators of DAIRY QUEEN, HARDEE'S, GRANDY'S and PIZZA HUT. Based on
publicly-available information, Burger King is the second largest fast food
restaurant system in the world in terms of system wide sales. According to
publicly-available information, there are approximately 6,500 Burger King
restaurant units in the United States.
INVESTMENT CRITERIA
Since the previously approved amendments to the Partnership Agreements, the
Company has acquired 200 restaurant properties. The Company intends to continue
acquiring properties, including closing the acquisition of the Acquisition
Properties currently under binding contracts. The Company will target the
acquisition of 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 rent on such properties has produced cash flow that after
deducting management fees, interest and debt amortization, or equity
issuance, would improve USRP's existing cash flow per Unit.
- The restaurants' annual sales would be in the highest 70% of the
restaurants in that chain.
- The restaurants would have historically generated at least the normal
profit for restaurants in that chain and be projected to continue to
generate a profit even if sales decreased by 10%.
- The properties would be located where the average per capita income
was stable or increasing.
- The restaurants' franchisees would possess significant net worth and
preferably operate multiple restaurants.
- The properties would be in good repair and operating condition.
Management receives acquisition proposals from a number of sources.
Management utilizes seven independent real estate professionals who assist the
Company in examining and analyzing proposed acquisitions. These professionals
are compensated principally upon the Company's closing of an acquisition of
property. There can be no assurance that management will be able to identify
properties that satisfy all or a significant number of the above criteria or
that, if identified, the Company will be able to purchase such restaurant
properties.
The Company believes that it can generate improved operating results as a
result of the acquisition of additional properties and by making loans to
tenants for the renovation and
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improvement of its properties. The Company also believes that expansion and
diversification of its property portfolio to include more balance among
restaurant brands will decrease its dependence on one chain.
Management anticipates that any loans originated by the Company would be
made based on the following general underwriting criteria: (i) all loans will
be used by borrowers to acquire real estate and/or construct improvements
thereon and will be secured by first liens on the real estate, (ii) in certain
circumstances, the loans will be guaranteed by the principals of the borrowers,
and (iii) the property's expected cash flow would be an amount equal to 140% of
the annual payment required to fully amortize the loan over 20 years. The
Company has not identified any potential borrowers at this time and no assurance
can be given that any borrowers will be identified in the future or that any
such borrowers will meet the Company's underwriting criteria. Management
believes that the increased flexibility provided by these amendments will enable
Company to take advantage of investment opportunities not currently available to
the Company.
PROPERTIES
The Company currently has 345 restaurant properties. Approximately 99.5%
of these properties are leased on a triple net basis to operators of fast food
and casual dining restaurants, primarily Burger King and other national and
regional brands, including CHILI'S, DAIRY QUEEN, GRANDY'S, HARDEE'S, ARBY'S,
PIZZA HUT, KFC, TACO BELL, SCHLOTZSKY'S and BRUEGGER'S BAGELS. In addition, the
Company has entered into binding contracts to acquire an additional 114
restaurant properties. Set forth below are summary descriptions of the
restaurant properties leased to the operators of various fast food and casual
dining restaurants.
BURGER KING. The Company currently owns 173 properties operated as Burger
King restaurants. These Burger King restaurant properties are operated by more
than 70 operators.
CHILI'S. The Company currently owns eight properties operated as CHILI'S
restaurants. These CHILI'S restaurant properties are operated by two operators.
DAIRY QUEEN. The Company currently owns 40 properties operated as DAIRY
QUEEN restaurants. These DAIRY QUEEN restaurant properties are operated by two
operators, the largest of whom operates 37 DAIRY QUEEN restaurants. In
addition, the Company has entered into a binding contract to acquire two
properties operated as DIARY QUEEN restaurants.
GRANDY'S. The Company currently owns 30 properties operated as GRANDY'S
restaurants. These GRANDY'S restaurant properties are operated by one operator.
HARDEE'S. The Company currently owns 26 properties operated as HARDEE'S
restaurants. These HARDEE'S restaurant properties are operated by two
operators, the larger of whom
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operates 24 HARDEE'S restaurants. In addition, the Company has entered into
binding contracts to acquire four properties operated as HARDEE'S
restaurants.
KFC. The Company currently owns two properties operated as KFC
restaurants. These KFC restaurant properties are operated by one operator. In
addition, the Company has entered into a binding contract to acquire ____
property operated as a KFC restaurant.
PIZZA HUT. The Company currently owns 14 properties operated as PIZZA HUT
restaurants. These PIZZA HUT restaurant properties are operated by one
operator. In addition, the Company has entered into binding contracts to
acquire six properties operated as PIZZA HUT restaurants.
SCHLOTZSKY'S. The Company currently owns eight properties operated as
Schlotzsky's restaurants. These SCHLOTZSKY'S restaurant properties are operated
by two operators. In addition, the Company has entered into binding contracts
to acquire two properties operated as SCHLOTZSKY'S restaurants.
TACO BELL. The Company currently owns one property operated as a TACO BELL
restaurant. In addition, the Company has entered into a binding contract to
acquire _____ property operated as a TACO BELL restaurant.
ARBY'S. The Company currently owns two properties operated as ARBY'S
restaurants. These ARBY'S restaurant properties are operated by one operator.
In addition, the Company has entered into a binding contract to acquire 76
properties operated as ARBY'S restaurants.
BRUEGGER'S BAGEL. The Company currently owns 16 properties operated as
BRUEGGER'S BAGEL restaurants. These BRUEGGER'S BAGEL restaurant properties are
operated by four operators. In addition, the Company has entered into a binding
contract to acquire one property operated as a BRUEGGER'S BAGEL restaurant.
OTHER PROPERTIES. The Company currently owns an additional 27 restaurant
properties, most of which are operated by franchisees of regional brand names.
In addition, the Company has entered into binding contracts to acquire an
additional 51 restaurant properties operated by franchisees of regional brand
names. From time to time, the Company may acquire restaurant properties
operated by franchisees of brand names of less established national and regional
franchisers. The Company, however, does not intend to acquire a significant
number of such properties.
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The Company currently owns 345 properties. The table below sets forth the
aggregate number of properties owned in each state and the franchise affiliation
of such properties.
<TABLE>
BURGER DAIRY PIZZA TACO BRUEGGER'S TOTAL
STATE KING CHILI'S QUEEN GRANDY'S HARDEE'S KFC HUT SCHLOTZSKY'S BELL ARBY'S BAGELS OTHER PROPERTIES
- ----- ---- ------- ----- -------- -------- --- --- ------------ ---- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama......... 1 1 1 3
Arizona......... 6 1 7
Arkansas........ 13 1 14
California...... 16 1 17
Colorado........ 3 3
Connecticut..... 3 3
Delaware........ 1 1
Florida......... 6 7 13
Georgia......... 7 23 1 31
Idaho........... 1 1
Illinois........ 1 1 2
Indiana......... 2 1 3
Iowa............ 2 3 5
Kansas.......... 2 2
Kentucky........ 3 3
Louisiana....... 2 2
Maine........... 4 4
Maryland........ 2 1 3
Massachusetts... 3 3
Michigan........ 4 4
Minnesota....... 1 5 6
Mississippi..... 2 2
Missouri........ 3 1 4
Montana......... 1 1
Nebraska........ 1 1 2
Nevada.......... 1 1
New Jersey...... 5 5
New Mexico...... 1 1 1 3
New York........ 5 5 10
North Carolina.. 9 4 3 16
Ohio............ 9 9
Oklahoma........ 3 7 1 1 12
Oregon.......... 5 5
Pennsylvania.... 13 1 14
South Carolina.. 7 2 1 10
Tennessee....... 3 2 5
Texas........... 10 2 40 22 2 2 3 1 2 13 97
Utah............ 1 1
Vermont......... 1 1
Virginia........ 1 1 1
Washington...... 7 7
West Virginia... 2 1 3
Wisconsin....... 5 5
Wyoming......... 1 1
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total...........173 8 40 30 26 2 14 8 1 2 16 25 345
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Percentage...... 50% 2% 12% 9% 8% 1% 4% 2% - % 1% 5% 7% 100%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
LEASES WITH RESTAURANT OPERATORS
The Company's strategy is to acquire operating properties rather than
developing new properties, although the Company has begun to acquire newly
constructed properties. Typically, the Company acquires a property that has been
operated as a fast food or casual dining restaurant and that is subject to a
lease with a remaining term of five to 20 years and a co-terminus franchise
agreement. Management believes, based on its experience, that this strategy
reduces the Company's financial risk because the restaurant operated on such
property has a proven operating record that mitigates the risk of default or
non-renewal under the lease. The Company's current properties have remaining
lease terms ranging from one to 28 years.
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Substantially all of the Company's existing leases are "triple net," which
means that the tenant is obligated to pay all costs and expenses, including all
real property taxes and assessments, repairs and maintenance and insurance. The
Company's leases provide for a base rent plus a percentage of the restaurant's
sales in excess of a threshold amount. The triple net lease structure is
designed to provide the Company with a consistent stream of income without the
obligation to reinvest in the property. For the year ended December 31, 1996,
base rental revenues and percentage rental revenues represented 67% and 33%,
respectively, of total gross rental revenues. Management intends to renew and
restructure leases to increase the percentage of total rental revenues derived
from base rental revenues and decrease the percentage of total revenues from
percentage rental revenues. In addition, to encourage the early renewal of
existing leases the Company has offered certain lessees remodeling financing.
To date, the Company has renewed 38 leases early under this program. Management
considers the grants to be prudent given the increased sales resulting at the
remodeled restaurants and the lower costs incurred because of the early lease
renewals.
The Company generally acquires properties from third party lessors or from
operators in a sale/leaseback transaction in which the operator sells the
property to the Company and enters into a long-term lease (typically 20 years).
A sale/leaseback transaction is attractive to the operator because it allows the
operator to realize the value of the real estate while retaining occupancy for
the long term. A sale/leaseback transaction may also provide specific
accounting, earnings and market value benefits to the selling operator. For
example, the lease on the property may be structured by the tenant as an
off-balance sheet operating lease, consistent with Financial Accounting
Standards Board rules, which may increase the operator's earnings, net worth and
borrowing capacity. The following table sets forth certain information regarding
lease expirations for the Company's current properties and properties under
binding contracts.
LEASE EXPIRATION SCHEDULE
NUMBER OF LEASES NET RENTAL
YEAR EXPIRING % OF TOTAL INCOME (1) % OF TOTAL
- ---- ---------------- ---------- ---------- ----------
1997............ 2 1 $ 119 1
1998............ 8 2 546 2
1999............ 23 7 1,750 7
2000............ 33 9 1,968 7
2001-05......... 94 27 7,449 29
2006-10......... 23 7 1,629 7
2011-15......... 27 8 2,408 9
2016-25......... 135 39 9,693 38
--- --- -------- ---
346 100% $ 25,563 100%
--- --- -------- ---
--- --- -------- ---
- ------------------------
(1) Net rental income (in thousands) equals the current annualized rentals
(including any percentage rents based upon sales in 1996), less annualized
ground rents.
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OWNERSHIP OF REAL ESTATE INTERESTS
Of the 345 restaurant properties that the Company owns as f\of March 28,
1997, the Company owns both the land and the restaurant building in fee simple
on 237 of such properties (the "Fee Properties"), the Company owns the land and
the tenant owns the building on 31 of such properties and the Company leases the
land, the building or both from a third-party lessor on 79 of such properties
(the "Leasehold Properties").
Of the 79 Leasehold Properties, 14 are properties on which the Company
leases from a third party both the underlying land and the restaurant building
and the other improvements thereon (the "Primary Leases") and then sublease the
property to the restaurant operator. Under the terms of the remaining 65
Leasehold Properties (the "Ground Leases"), the Company leases the underlying
land from a third party and owns the restaurant building and the other
improvements constructed thereon. In any event, upon expiration or termination
of a Primary Lease or Ground Lease, the owner of the underlying land generally
will become the owner of the building and all improvements thereon. The
remaining terms of the Primary Leases and Ground Leases range from one to 21
years. With renewal options exercised, the remaining terms of the Primary Leases
and Ground Leases range from five to 35 years, with the average remaining term
being 21 years.
The terms and conditions of each Primary Lease and each Ground Lease vary
substantially. Each Primary Lease and each Ground Lease, however, have certain
provisions in common, including that: (i) the initial term is 20 years or less,
(ii) the rentals payable are stated amounts that may escalate over the terms of
the Primary Leases and Ground Leases (and/or during renewal terms), but normally
are not based upon a percentage of sales of the restaurants thereon, and (iii)
the Company is required to pay all taxes and operating, maintenance and
insurance expenses for the Leasehold Properties. In addition, under
substantially all of the leases the Company may renew the term one or more times
at its option (although the provisions governing any such renewal vary
significantly and some renewal options are at a fixed rental amount while others
are at fair rental value at the time of renewal). Several Primary Leases and
Ground Leases also give the owner the right to require the Company, upon the
termination or expiration thereof, to remove all improvements situated on the
property.
Although the Company, as lessee under each Primary Lease and Ground Lease,
generally has the right to assign or sublet all of its rights and interests
thereunder without obtaining the landlord's consent, the Company is not
permitted to assign or sublet any of its rights or interests under 22 Primary
Leases and Ground Leases without obtaining the landlord's consent or satisfying
certain other conditions. In addition, approximately 20% of the Primary Leases
and Ground Leases require the Company to use such Leasehold Properties only for
the purpose of operating a Burger King restaurant or another type of restaurant
thereon. In any event, no transfer will release the Company from any of its
obligations under any Primary Lease or Ground Lease, including the obligation to
pay rent.
The Company leases or subleases 158 of its 345 existing restaurant
properties to a BKC franchisee under a lease/sublease, pursuant to which the
franchisee is required to operate a Burger King restaurant thereon in accordance
with the lessee's franchise agreement and to
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make no other use thereof. Upon its acquisition of such properties, the
Company assumed the rights and obligations of BKC under the leases/subleases.
Although the provisions of BKC's standard form of lease to franchisees have
changed over time, the material provisions of the leases/subleases generally are
substantially similar to BKC's current standard form of lease (except to the
extent that BKC has granted rent reductions or deferrals or made other lease
modifications 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 the opening of the restaurant
and do not grant the lessee any renewal or purchase options. The Company,
however, is required under the Partnership Agreements to renew a lease/sublease
if BKC renews or extends the lessee's franchisee agreement. The Company believes
that BKC's policy generally is to renew a franchise agreement if BKC determines
that economic and other factors justify renewal or extension and the franchisee
has complied with all obligations under the franchise agreement. The remaining
terms of all the leases/subleases currently range from one to 28 years, with the
average remaining term being nine years.
USE AND OTHER RESTRICTIONS ON THE OPERATION AND TRANSFER OF BURGER KING
RESTAURANT PROPERTIES
The Company was originally formed for the purpose of acquiring all of BKC's
interests in the original portfolio and leasing or subleasing them to BKC
franchisees under the leases/subleases. Accordingly, the Partnership Agreements
contain provisions that state, except as expressly permitted by BKC, that the
Company may not use such properties for any purpose other than to operate a
Burger King restaurant. In furtherance thereof, the Partnership Agreements: (i)
require the Company, 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) impose certain
restrictions and limitations upon the Company's ability to sell, lease or
otherwise transfer any interest in such properties. The Partnership Agreements
require the Company to provide BKC notice of default under a lease/sublease and
an opportunity to cure such default prior to taking any remedial action. The
Partnership Agreements also require the Company under certain circumstances to
provide tenants with assistance with remodeling costs. Such terms with respect
to such properties imposed on the Company by the Partnership Agreements may be
less favorable than those imposed upon other lessors of Burger King restaurants.
BKC has advised the Company that it intends to waive or not impose certain of
the restrictive provisions contained in the Partnership Agreements and the
Company is discussing BKC's position with BKC to clarify such provisions.
RESTAURANT ALTERATIONS AND RECONSTRUCTION
The Company believes that improving, expanding, rebuilding or replacing its
restaurant properties from time to time is important. In addition to normal
maintenance and repair requirements, each franchisee is required under BKC's
franchise agreement and lease/sublease,
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at its own cost and expense, to make such alterations to a Burger King
restaurant as may be reasonably required by BKC from time to time to modify
the appearance of the restaurant to reflect the then current image
requirements for Burger King restaurants. Most of the properties that are
operating as Burger King restaurants are 15 to 20 years old. The Company
believes that many of these properties require substantial improvements to
maximize sales and that their condition is below BKC's current image
requirements.
To encourage the early renewal of existing leases/subleases, the Company
recently established an "early renewal program" whereby the Company has offered
to certain tenants the right to renew existing leases/subleases for up to an
additional 20 years in consideration for remodeling financing. The purpose of
this program is to extend the term of existing leases/subleases prior to the end
of the lease term and enhance the value of the underlying property to the
Company. As a result of this program, the Company has extended the lease term
for 38 leases/subleases.
COMPETITION
The restaurants operated on the properties are subject to significant
competition, including competition from other national and regional fast food
restaurant chains, including other Burger King restaurants, local restaurants,
national and regional restaurant chains that do not specialize in fast food but
appeal to many of the same customers and other competitors such as convenience
stores and supermarkets that sell prepared and ready-to-eat foods. The success
of the Company depends, in part, on the ability of the restaurants operated on
the properties to compete successfully with such businesses. The Company does
not anticipate that it will seek to engage directly in or meet such competition.
Instead, the Company will depend upon the experience and ability of the lessees
operating the restaurants located on the properties and the particular franchise
system generally to compete with these other restaurants and similar operations.
The Company believes that the ability of its lessees to compete is affected by
their compliance with the image requirements at their restaurants.
Management believes, based on its industry knowledge and experience, that
the Company will compete with numerous other publicly-owned entities, some of
which dedicate substantially all of their assets and efforts to acquiring and
managing properties operated as fast food or casual dining restaurants. In
addition, the Company will compete with numerous private firms and individuals
for the acquisition of restaurant properties. Such investors may have greater
financial resources than the Company.
REGULATION
The Company, through its ownership of interests in and management of real
estate, is subject to various environmental, health, land-use and other
regulation by federal, state and local governments that affects the development
and regulation of restaurant properties. The Company's leases impose the primary
obligation for regulatory compliance on the operators of the restaurant
properties.
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ENVIRONMENTAL REGULATION. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain hazardous substances
released on or within its property. Such liability may be imposed without regard
to whether the owner or operator knew of, or caused the release of, the
hazardous substances. In addition to liability for cleanup costs, the presence
of hazardous substances on a property could result in the owner or operator
incurring liability as a result of a claim by an employee or another person for
personal injury or a claim by an adjacent property owner for property damage.
In connection with the Company's acquisition of a new property, a Phase I
environmental assessment is obtained. A Phase I environmental assessment
involves researching historical usages of a property, databases containing
registered underground storage tanks, and other matters, including an on-site
inspection to determine whether an environmental issue exists with respect to
the property. If the results of a Phase I environmental assessment reveal
potential issues, a Phase II assessment, which may include soil testing, ground
water monitoring, or borings to locate underground storage tanks, is ordered for
further evaluation. Depending upon the results of such assessment, the
transaction is either consummated or terminated.
The Company is not currently a party to any litigation or administrative
proceeding with respect to any property's compliance with environmental
standards. Furthermore, the Company is unaware of, and does not anticipate, any
such action, or the need to expend any of its funds in the foreseeable future in
connection with its operations or ownership of existing properties that would
have a material adverse effect upon the Company. See "Risk Factors--Real Estate
Investment Risks."
AMERICANS WITH DISABILITIES ACT. Under the ADA, all public accommodations,
including restaurants, are required to meet certain federal requirements
relating to physical access and use by disabled persons. A determination that
the Company or a property of the Company is not in compliance with the ADA could
result in the imposition of fines, injunctive relief, damages, or attorney's
fees. The Company's leases contemplate that compliance with the ADA is the
responsibility of the operator. The Company is not currently a party to any
litigation or administrative proceeding with respect to a claim of violation of
the ADA and does not anticipate any such action or proceeding that would have a
material adverse effect upon the Company.
LAND-USE AND SAFETY REGULATIONS. The Company and its restaurant operators
are required to operate the properties in compliance with various laws, land-use
regulations, fire and safety regulations, and building codes as may be
applicable or later adopted by the governmental body or agency having
jurisdiction over the property or the matter being regulated. The Company does
not believe that the cost of compliance with such regulations and laws will have
a material adverse effect upon the Company.
HEALTH REGULATIONS. The restaurant industry is regulated by a variety of
state and local departments and agencies concerned with the health and safety of
restaurant customers. These regulations vary by restaurant location and type
(I.E., fast food or casual dining). The Company's
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leases provide for compliance by the restaurant operator with all health
regulations and inspections and require the restaurant operator to obtain
insurance to cover liability for violation of such regulations or the
interruption of business due to closure caused by failure to comply. The
Company is not currently a party to any litigation or administrative
proceeding concerning compliance with health regulations and does not
anticipate any such action or proceeding that would have a material adverse
effect upon the Company.
INSURANCE
The Company requires its lessees to maintain adequate comprehensive
liability, fire, flood and extended loss insurance provided by reputable
companies with commercially reasonable and customary deductibles. The Company
also requires that it be named as an additional insured under such policies.
Certain types and amounts of insurance are required to be carried by each
restaurant operator under the leases with the Company, and the Company actively
monitors tenant compliance with this requirement. The Company intends to require
lessees of subsequently acquired properties to obtain similar insurance
coverage. There are, however, certain types of losses generally of a
catastrophic nature, such as earthquakes and floods, that may be either
uninsurable or not economically insurable, as to which the Company's properties
are at risk depending on whether such events occur with any frequency in such
areas. An uninsured loss could result in a loss to the Company of both its
capital investment and anticipated profits from the affected property. In
addition, because of coverage limits and deductibles, insurance coverage in the
event of a substantial loss may not be sufficient to pay the full current market
value or current replacement cost of the Company's investment. Inflation,
changes in building codes and ordinances, environmental considerations and other
factors also might make using insurance proceeds to replace a facility after it
has been damaged or destroyed infeasible. Under such circumstances, the
insurance proceeds received by the Company might be inadequate to restore its
economic position with respect to such property.
EMPLOYEES
The Company currently employs 17 individuals on either a full or part-time
basis. In addition, the Company retains, on an independent contract basis, other
parties in connection with the operation of the Company and its properties,
including auditing, legal, property origination and other services.
LEGAL PROCEEDINGS
The Company is not presently involved in any material litigation, nor to
its knowledge is any material litigation threatened against the Company or its
properties, other than routine litigation arising in the ordinary course of
business.
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the REIT Corporation's policies with
respect to investments, financings, affiliate transactions and certain other
activities. Such policies are a continuation of the policies currently being
employed by USRP. The REIT Corporation's policies with respect to these
activities have been established by management and may be amended or revised
from time to time at the discretion of the REIT Board without a vote of the
stockholders of the REIT Corporation. No assurance can be given that the
Company's investment objectives will be attained or that the value of the
Company will not decrease. As the sole general partner of the Operating
Partnership, the REIT Corporation will also determine the investment policies of
the Operating Partnership.
INVESTMENT POLICIES
INVESTMENTS IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The Company's
primary business objective is to maximize stockholder value by maintaining
long-term growth in cash available for distribution to its stockholders. The
Company intends to pursue this objective by continuing to acquire triple net
leased properties and structuring sale/leaseback transactions consistent with
its strategies prior to the Conversion. The Company's policy is to acquire or
develop assets where the Company believes that opportunities exist for
acceptable investment returns. See "The Company--Strategy."
The Company expects to pursue its investment objectives primarily through
the direct ownership of properties. The Company intends to invest in or develop
restaurant properties. As part of its strategy of expanding its restaurant
property portfolio, the Company intends to build-out properties in conjunction
with other food vendors, such as convenience stores, and retail outlets. All of
the Company's properties will be managed directly by the Company.
The Company may also participate with other entities in property ownership,
through joint ventures or other types of common ownership. Equity investments
may be subject to existing mortgage financing and other indebtedness which have
priority over the equity interests of the Company.
INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company intends to
emphasize equity real estate investments, it may, in its discretion, invest in
mortgages or other real estate interests consistent with its qualification as a
REIT. The Company may also invest in participating or convertible mortgages if
the REIT Board concludes that the Company and its stockholders may benefit from
the cash flow or any appreciation in the value of the subject property. Such
mortgages are similar to equity participations. The mortgages in which the
Company may invest may be either first mortgages or junior mortgages and may or
may not be insured by a governmental agency.
SECURITIES OF OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUERS. Subject to the percentage of ownership
limitations and gross income tests
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necessary for REIT qualification, the Company also may invest in securities
of entities engaged in real estate activities or securities of other issuers,
including for the purpose of exercising control over such entities, although
it does not intend to do so. See "--Certain Other Policies" and "Federal
Income Tax Considerations--Taxation of the REIT Corporation as a REIT."
PERIODIC REVIEW OF ASSETS. The Company has no current intention to dispose
of any of its Properties. Nevertheless, the Company reserves the right to
dispose of any of its Properties or any property that may be acquired in the
future if the Company determines that the disposition of such property is in the
best interests of the Company and its stockholders.
FINANCING POLICIES
As a general policy, the Company intends to maintain a ratio of total
indebtedness of 50% or less to the greater of total market capitalization (I.E.,
the market value of issued and outstanding shares of capital stock plus total
consolidated debt) or the original cost of all of the Company's properties as of
the date of such calculation. However, no assurance can be given that the
Company will be able to accomplish this objective. The debt ratio may be based
from time to time upon the stock market value of equity, and accordingly may
fluctuate with changes in the price of the shares.
On a pro forma basis at September 30, 1996, the Company had a ratio of
debt-to-total market capitalization of 23%. See "Capitalization." Assuming no
change in market value of issued and outstanding shares of Common Stock, the
Company would be able to incur approximately $180 million of additional
indebtedness and still maintain a ratio of debt-to-total market capitalization
of less than 50%. The Company, however, may from time to time reevaluate its
debt policy in light of current economic conditions, relative costs of debt and
equity capital, changes in the market capitalization of the Company, acquisition
opportunities and other factors, and may modify its debt financing policy and
may increase or decrease its debt ratio without a vote of its stockholders.
Neither the Articles nor the REIT Corporation's Bylaws contain any limitations
on the amount or percentage of indebtedness the Company may incur.
Indebtedness incurred by the Company may be in the form of bank borrowings,
purchase money obligations to the sellers of properties, publicly or privately
placed debt instruments or financing from institutional investors or other
lenders, any of which indebtedness may be unsecured or may be secured by
mortgages or other interests in properties owned by the Company. The recourse
of the holders of such indebtedness may be to all or any part of the properties
of the Company or may be limited to the particular property to which the
indebtedness relates. Subject to any contractual restrictions, the proceeds
from any borrowings by the Company may be used for the payment of dividends, for
working capital, to refinance existing indebtedness or to finance acquisitions
of new properties.
As another policy, the Company intends to generally not incur variable-rate
mortgage debt other than the indebtedness outstanding under its existing credit
facility. While the organizational documents of the Company do not contain any
prohibition against the use of variable rate
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mortgage loans, the Company believes that it is a more prudent and
conservative financing strategy to utilize only fixed rate mortgage loans for
all long-term indebtedness.
In the event that the REIT Board determines to raise additional equity
capital, the REIT Board has the authority, without stockholder approval, to
issue additional shares of Common Stock or shares of preferred stock in any
manner (and on such terms and for such consideration) it deems appropriate,
including in exchange for property, subject to the Maryland General Corporation
Law (the "MGCL"). Existing stockholders would have no preemptive right to
purchase such shares in any offering, and any such offering might cause a
dilution of a stockholder's investment in the Company. See "Description of
Capital Stock."
If the REIT Board determines to raise additional equity capital to fund
investments by the Operating Partnership, the Company will contribute such funds
to the Operating Partnership as a contribution to capital and purchase of
additional partnership interests. The Company may issue additional shares of
Common Stock in connection with the acquisition of interests in the Operating
Partnership that have been tendered to the Operating Partnership for redemption.
The REIT Board also has the authority to cause the Operating Partnership to
issue additional partnership interests in any manner (and on such terms and for
such consideration) as it deems appropriate, including in exchange for property.
Any such partnership interests will be redeemable at the option of the holder,
which redemption the Company intends to cause to be made in Common Stock
pursuant to the redemption rights.
AFFILIATE TRANSACTION POLICY
The Company has adopted a policy that it will not (i) acquire from or sell
to any director, officer or employee of the Company, or any entity in which a
director, officer or employee of the Company beneficially owns more than a 1%
interest, or, except for any property in which the Company owns an economic
interest, acquire from or sell to any affiliate of any of the foregoing, any
property or other assets of the Company, (ii) make any loan to or borrow from
any of the foregoing persons, or (iii) without the approval of a majority of the
independent directors, engage in any other transaction with any of the foregoing
persons. Currently, the Master Partnership Agreement does not restrict the
ability of the Managing General Partner or its principles from owning and/or
operating restaurants on Company properties or elsewhere.
CERTAIN OTHER POLICIES
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not
intend to (i) invest in the securities of other issuers for the purpose of
exercising control over such issuer, (ii) underwrite securities of other
issuers, or (iii) actively trade in loans or other investments.
The Company may make investments other than as previously described,
although it does not currently intend to do so. The Company has authority to
purchase or otherwise reacquire
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shares of Common Stock or any of its other securities in the open market or
otherwise and may engage in such activities in the future. The REIT Board
has no present intention of causing the Company to repurchase any shares of
Common Stock, other than pursuant to any dividend reinvestment plan, and any
such action would be taken only in conformity with applicable Federal and
state laws and the requirements for qualifying as a REIT under the Code.
The Company has previously made loans to third parties, and it may in the
future continue to make loans to third parties, including, without limitation,
loans to joint ventures in which it participates. The Company has not engaged
in trading, underwriting or agency distribution or sale of securities of other
issuers, and the Company does not intend to do so in the future. The Company's
policies with respect to such activities may be reviewed and modified from time
to time by the REIT Board without the vote of the stockholders.
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PRICE RANGE OF UNITS AND DISTRIBUTION POLICY
The Units are listed for trading on the NYSE under the ticker symbol "USV."
As of March 31, 1997, there were 7,042,582 Units outstanding and the record
number of Unitholders was 1,803. Set forth below are the high and low sale
prices for the Units as reported by the NYSE for the indicated periods and the
cash dividends declared in such periods (and paid in the subsequent period).
1994 HIGH LOW DISTRIBUTION
---- ---- --- ------------
1st quarter ............ $ 16 3/4 $ 15 7/8 $ .39
2nd quarter ............ 17 1/4 15 3/8 .39
3rd quarter ............ 17 1/2 16 3/4 .41
4th quarter ............ 17 3/8 13 .42
---------
$ 1.61
---------
---------
1995 HIGH LOW DISTRIBUTION
---- ---- --- ------------
1st quarter ............ $ 16 1/2 $ 14 1/4 $ .42
2nd quarter ............ 17 1/8 15 3/4 .42
3rd quarter ............ 18 7/8 16 3/4 .43
4th quarter ............ 20 1/4 18 .44
---------
$ 1.71
---------
---------
1996 HIGH LOW DISTRIBUTION
---- ---- --- ------------
1st quarter ............ $ 23 3/8 $ 19 1/2 $ .47
2nd quarter ............ 25 21 1/8 .48
3rd quarter ............ 25 3/8 21 1/2 .485
4th quarter ............ 28 1/4 22 5/8 .50
---------
$ 1.935
---------
---------
1997 HIGH LOW DISTRIBUTION
---- ---- --- ------------
1st quarter ............ $ 30 3/8 $ 27 $ -
In July 1995, USRP announced its intention to repurchase up to 300,000
units. At that time, management believed that the repurchase of the Units
represented a good investment value for USRP and the Unitholders. Through
September 30, 1996, USRP had purchased 30,000 Units. No further purchases have
been made or are currently contemplated because management currently believes
that a better investment value for the Company and the Unitholders is the
acquisition of additional restaurant properties.
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The Company intends to maximize the cash available for distributions and
enhance stockholder value by acquiring or developing additional restaurant
properties that meet its investment criteria. See "The Company--Strategy." In
connection therewith, the Company intends to make regularly quarterly
distributions to its stockholders. Currently, on an annualized basis, the
distributions made by the Company to its Unitholders is $2.00 per Unit. The
Company has historically distributed from 75% to 95% of its estimated cash
available for distribution. In order to qualify to be taxed as a REIT, the REIT
Corporation must make annual distributions to stockholders of at least 95% of
its REIT taxable income (determined by excluding any net capital gain). Under
certain circumstances, the REIT Corporation may be required to make
distributions in excess of cash available for distribution in order to meet such
distribution requirements. In such a case, the REIT Corporation may find it
necessary to arrange for short-term (or possibly long-term) borrowings or to
raise funds through the issuance of preferred stock or additional Common Stock.
Future distributions by the REIT Corporation will be at the discretion of
the REIT Board and will depend on the actual results of operation of the REIT
Corporation, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the REIT Board deems relevant. Subject to these restrictions, the
REIT Board intends to continue the distribution policy of USRP.
The Company may in the future implement a dividend reinvestment program
under which the stockholders may elect automatically to reinvest distributions
in shares of Common Stock. The Company may from time to time repurchase shares
of Common Stock in the open market for the purpose of fulfilling its obligations
under the program, if adopted, or may elect to issue additional shares of Common
Stock.
USE OF PROCEEDS
The REIT Corporation will not receive any cash proceeds from the issuance
of the Common Stock offered hereby. In consideration for issuing the Common
Stock, as contemplated in this Proxy Statement/Prospectus, the REIT Corporation
will receive in exchange Units in like amounts.
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CAPITALIZATION
The following table sets forth the capitalization of USRP as of December
31, 1996, and as adjusted to reflect as of December 31, 1996 (i) the purchase of
24 properties for $15,894,000 completed since December 31, 1996, including the
value of 118,582 Units of $3,320,000, (ii) the purchase of 16 properties from
QSR Income Properties, Ltd. ("QSR") for 277,131 Units (at $28.50 per Unit),
(iii) the purchase of 114 properties from other sellers that as of March 28,
1997 are under binding contracts for $64,758,000, (iv) the additional borrowings
of $76,930,000 required to purchase the properties acquired and under contract,
(v) the sale of one property for $1,175,000, (vi) the Managing General Partner's
conversion of the Operating Partnership General Partner Interest or on the
assignment thereof to USRP (depending upon how the Conversion is effected) and
converting its aggregate 1.98% partnership interest in the Partnerships into
850,000 shares of Common Stock or its equivalent in a limited partner interest
in the Operating Partnership or Units (depending upon how the Conversion is
effected) with the Common Stock valued at the current market price (assumed
$28.50 per share) and the related cost of the Conversion aggregating $580,000 as
if such transactions had occurred on such date, and (vii) consolidation with the
REIT Corporation. The information presented below should be read in conjunction
with the Pro Forma Balance Sheet of the Company (and the accompanying note
disclosures thereto) included elsewhere in this Proxy Statement/Prospectus.
COMPANY ON A PRO
FORMA BASIS
USRP ACTUAL AS ADJUSTED
----------- ----------------
Unaudited
(IN THOUSANDS, EXCEPT
UNIT AND SHARE DATA)
Line of credit and long term debt $ 69,486 $146,416
Obligations under capitalized lease 362 362
-------- --------
69,848 146,778
Equity of General Partners and Unitholders:
Interest of Managing General Partner 1,163
Interest of Unitholders:
6,894,003 Units issued and outstanding 103,120
Shares of capital stock, par value $.001 per
share; authorized; 10,000,000 shares of
Preferred Stock, 45,000,000 shares of
Common Stock, and 5,000,000 shares of
Excess Stock; issued and outstanding:
8,145,000 shares of Common Stock on a pro
forma basis(c) 8 (a)
Additional paid in capital 139,329 (a)
Accumulated deficit (23,626)(b)
-------- --------
104,283 115,711
-------- --------
Total Capitalization $174,131 $262,489
-------- --------
-------- --------
Capitalization allocable to unitholders $170,683 N/A
-------- --------
-------- --------
Book Value per Unit/Share $ 24.76 $ 32.22
-------- --------
-------- --------
_______________
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(a) Reflects conversion of the Managing General Partner's and limited partners'
units into shares of common stock of the REIT.
(b) Reflects the costs and fees as follows:
Cost of Conversion $ 580
Cost of property management contract 23,046
-------
$23,626
-------
-------
(c) Excludes 350,000 Units/Shares issuable upon exercise of options held by the
Managing General Partner.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company is currently managed by the Managing General Partner. Upon
consummation of the Conversion, the Company will be managed by members of the
REIT Board initially comprised of the current directors of the Managing General
Partner. It is anticipated that the REIT Board will be expanded in 1997 to
include additional independent directors. The REIT Board is divided into three
classes as nearly equal in number as possible, with the term of office of one
class expiring in each year. The directors will be responsible for electing the
Company's executive officers, who will serve at the discretion of the REIT
Board. Robert J. Stetson, President and Chief Executive Officer of the Managing
General Partner, will serve as the REIT Corporation's President and Chief
Executive Officer and Fred H. Margolin, Chairman of the Board of Directors of
the Managing General Partner, will serve as Chairman of the REIT Board. The
persons who will be directors, executive officers of the REIT Corporation
following consummation of the Conversion and the Termination are as follows:
POSITION(S) AND
NAME AGE OFFICES HELD
---- --- ---------------
Robert J. Stetson 46 Chief Executive Officer, President and Director
Fred H. Margolin 47 Chairman of the Board, Secretary, Treasurer
Gerald H. Graham 59 Director
David K. Rolph 48 Director
Darrel L. Rolph 59 Director
Eugene G. Taper 59 Director
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ROBERT J. STETSON. Mr. Stetson is the President, Chief Executive Officer
and a director of the REIT Corporation. Since 1978, Mr. Stetson has been
primarily engaged in restaurant chain management, including the acquisition and
management of restaurant properties. Prior to 1987, Mr. Stetson served in
several positions with PepsiCo Inc. and its subsidiaries, including Chief
Financial Officer of Pizza Hut. From 1987 until 1992, Mr. Stetson served as a
senior executive in restaurant and retailing subsidiaries of Grand Metropolitan
PLC, the ultimate parent corporation 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. Mr. Stetson is also a director of Bayport Restaurant Group,
a publicly-traded restaurant company. Mr. Stetson received a Bachelor of Arts
degree from Harvard College and an M.B.A. from Harvard Business School. Mr.
Stetson is 46 years old.
FRED H. MARGOLIN. Mr. Margolin is the Chairman, Secretary, Treasurer and a
director of the REIT Corporation. In 1977, Mr. Margolin founded Intercon
General Agency, a national insurance agency specializing in the development and
marketing of insurance products for 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 1989, 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 approximately $50,000,000. Mr. Margolin received a Bachelor
of Science degree from the Wharton School of the University of Pennsylvania and
an M.B.A. from Harvard Business School. Mr. Margolin is 47 years old.
GERALD H. GRAHAM. Mr. Graham is a director of the REIT Corporation. Mr.
Graham is a professor and the Dean of the Barton School of Business at Wichita
State University. Mr. Graham is 59 years old.
DAVID K. ROLPH. Mr. Rolph is a director of the REIT Corporation. Mr.
Rolph is the President of the Tex-Mex restaurant chain, "Carlos O'Kellys" and
the Vice President of Sasnak Management Corp., a restaurant management company,
positions he has held for the past five years. Mr. Rolph is 48 years old.
DARREL L. ROLPH. Mr. Rolph is a director of the REIT Corporation. Mr.
Rolph is the Secretary of "Carlos O'Kellys" and the President of the Sasnak
Management Corp., a restaurant management company, positions he has held for the
past five years. Mr. Rolph is 59 years old.
EUGENE G. TAPER. Mr. Taper is a director of the REIT Corporation. Mr.
Taper is a certified public accountant and a business consultant, since 1993.
Prior to 1993, Mr. Taper was a partner of Deloitte & Touche LLP, an
international public accounting firm. Mr. Taper is 59 years old.
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EXECUTIVE COMPENSATION
The REIT Corporation was incorporated in January 1997. Accordingly, the
REIT Corporation did not pay any cash compensation to its executive officers for
the year ended December 31, 1996. The following table sets forth the estimated
annualized base salary expected to be paid to each of the REIT Corporation's
executive officers for the 1997 fiscal year.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION(1)
------------------ -------- -------- ---------------
Robert J. Stetson
President and Chief Executive
Officer $250,000 - -
Fred H. Margolin
Chairman of the Board of
Directors and Secretary $250,000 - -
_____________________
(1) Any bonuses or other annual compensation paid to the REIT Corporation's
executive officers will be at the discretion of the REIT Board and will be
payable following the conclusion of the fiscal year.
EMPLOYMENT AGREEMENTS
Each of Messrs. Stetson and Margolin will enter into an employment
agreement (the "Employment Agreements") with the REIT Corporation on the date of
the Termination. Each of the Employment Agreements will expire on the third
anniversary of the date thereof. Pursuant to the Employment Agreements, Mr.
Stetson will serve as President and Chief Executive Officer of the REIT
Corporation and will be paid an annual base salary of $250,000 and Mr. Margolin
will serve as Chairman of the Board and Secretary of the REIT Corporation and
will be paid an annual base salary of $250,000. The Employment Agreements
provide for salary raises at the discretion of the REIT Board, provided that,
prior to December 31, 2000, neither Mr. Stetson nor Mr. Margolin will receive
cash compensation (I.E., excluding the value of any equity-based compensation,
such as stock options or shares of restricted stock) in excess of $300,000.
Under the terms of the respective Employment Agreements, if the covered
executive's employment with the REIT Corporation is terminated by the REIT
Corporation other than for "cause" (as defined in the Employment Agreement) or
by the covered executive for "good reason" (as defined in the Employment
Agreement), the terminated executive will be entitled to receive all salary,
accrued incentive bonuses and benefits payable pursuant to the Employment
Agreement for the remainder of the term of his Employment Agreement. The
Employment Agreements also provide that the covered executive may terminate his
employment for any reason upon six months' prior written notice. In the event
of such a termination, the REIT
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Corporation will be obligated to pay the executive the compensation due him
up to the effective date of termination.
INDEMNIFICATION AGREEMENTS
The REIT Corporation will enter into indemnification agreements requiring
the REIT Corporation to indemnify its officers and directors, and advance
expenses, to the maximum extent permitted by Maryland law. See "Certain
Provisions of Maryland Law and of the REIT Corporation's Articles and
Bylaws--Limitation of Liability and Indemnification."
INSURANCE
The REIT Corporation will have directors' and officers' liability insurance
in the aggregate amount of $____ million. Directors' and officers' liability
insurance generally insures (i) the directors and officers of the REIT
Corporation from any claim arising out of an alleged wrongful act by the
directors and officers in their respective capacities as directors and officers
and (ii) the REIT Corporation to the extent that it has indemnified a director
or officer for such loss.
CERTAIN TRANSACTIONS WITH RELATED PARTIES
In connection with the Termination, the Managing General Partner will
withdraw as the managing general partner of the Partnerships and assign the
Property Management Contract and convert the Partnership Interests for the
Acquisition Shares. See "The Conversion--Termination of Property Management
Contract and Partnership Interests."
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock by (i) each person who is expected to be a
stockholder of the REIT Corporation holding more than 5% of the outstanding
shares of Common Stock, (ii) each director and each executive officer and (iii)
all directors and executive officers of the REIT Corporation as a group. Except
as otherwise indicated, each person named in the table has sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such person after completion of the Conversion and the
Termination, assuming the Conversion is effected through the Merger.
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<PAGE>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER(1) BENEFICIALLY OWNED ALL SHARES
------------------- ------------------ -------------
Robert J. Stetson 484,137(2) 6.6%
Fred H. Margolin 498,102(2) 6.8%
David K. Rolph 507,637(2) 6.9%
Darrel L. Rolph 469,637(2) 6.4%
Eugene G. Taper 540 *
QSV Properties, Inc. 469,637(3) 6.4%
All directors and executive
officers as a group (6 persons) 551,142(2) 7.5
______________
* Less than 1%.
(1) The address of each of these persons and entities is 5310 Harvest Hill
Road, Suite 270, Dallas, Texas 75230.
(2) Includes 469,637 shares beneficially owned by QSV Properties, Inc., of
which Messrs. Stetson, Margolin, David Rolph and Darrel Rolph are the
stockholders and directors.
(3) Includes 69,637 shares to be issued as part of the Acquisition Price and
350,000 shares issuable upon the exercise of an option which is immediately
exercisable.
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF SECURITIES
The summary of the terms of the REIT Corporation's capital stock set forth
below does not purport to be complete and is subject to, and qualified in its
entirety by, reference to the Articles and the REIT Corporation's Bylaws, copies
of which have been filed as exhibits to the Registration Statement of which this
Proxy Statement/Prospectus constitutes a part. See "Available Information."
GENERAL
The Articles authorize the REIT Corporation to issue up to 45 million
shares of Common Stock, par value $.001 per share, 10 million shares of
preferred stock, par value $.001 per share ("Preferred Stock"), and five million
shares of excess stock, par value $.001 per share (the "Excess Stock"). Upon
completion of the Conversion, assuming the Merger Alternative is used,
___________ shares of Common Stock will be issued and outstanding. Under the
MGCL, stockholders generally are not liable for the corporation's debts or
obligations.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of the Preferred
Stock and any other shares or series of stock hereinafter designated by the
board of directors of the REIT Corporation, holders of shares of Common Stock
will be entitled to receive dividends on the stock if, as and when
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authorized and declared by the board of directors of the REIT Corporation out
of assets legally available therefor and to share ratably in the assets of
the REIT Corporation legally available for distribution to its stockholders
in the event of its liquidation, dissolution or winding-up after payment of,
or adequate provision for payment of, all known debts and liabilities of the
REIT Corporation. The REIT Corporation intends to pay regular quarterly
dividends.
Each outstanding share of Common Stock entitles the holder thereof to one
vote on all matters submitted to a vote of stockholders, including the election
of directors and, except as otherwise required by law or except as provided with
respect to any other class or series of stock, the holders of shares of Common
Stock will possess the exclusive voting power. There is no cumulative voting in
the election of directors, which means that the holders of a majority of the
outstanding shares of Common Stock can elect all of the directors then standing
for election and the holders of the remaining shares will not be able to elect
any directors. Holders of shares of Common Stock have no conversion, sinking
fund, redemption rights or preemptive rights to subscribe for any securities of
the REIT Corporation.
Shares of Common Stock will have equal dividend, distribution, liquidation
and other rights and will have no preference or exchange rights.
Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions unless approved by the holders of at
least two-thirds of the shares of stock entitled to vote on the matter unless a
lesser percentage (but not less than a majority of all of the votes to be cast
on the matter) is set forth in the corporation's charter. The Articles provide
for the vote of the holders of a majority of the shares of stock outstanding and
entitled to vote on the matter to approve any of such actions, except for
amendments to the Articles relating to the number of directors and the
classification of the board of directors of the REIT Corporation which require
approval of holders of at least two-thirds of the shares of stock entitled to
vote on the matter.
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time, in one or more
series, as authorized by the REIT Board. Prior to issuance of shares of each
series, the REIT Board is required by the MGCL and the Articles to fix for each
such series the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption, as are permitted by the MGCL. The REIT
Board could authorize the issuance of shares of Preferred Stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction in which holders of some, or a majority of, shares of Common Stock
might receive a premium for their shares of Common Stock over the
then-prevailing market price of those shares of Common
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Stock. No shares of Preferred Stock are outstanding and the REIT Corporation
has no present plans to issue any Preferred Stock.
RESTRICTIONS ON TRANSFER
For REIT Corporation to qualify as a REIT under the Code, it must meet
certain requirements concerning the ownership of its outstanding shares of
capital stock. Specifically, not more than 50% in value of the issued and
outstanding shares of capital stock of the REIT Corporation may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year, and the REIT
Corporation must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year.
Because the REIT Board believes it is essential for the REIT Corporation to
continue to qualify as a REIT, the Articles, subject to certain exceptions
described below, provide that no person may own, or be deemed to own by virtue
of the attribution provisions of the Code, more than (i) 8.75% of the number of
outstanding shares of Common Stock, except for QSV which may own initially no
more than 15.0% of the number of such outstanding shares, or (ii) 9.8% of the
number of outstanding shares of Preferred Stock of any series of Preferred Stock
(together, the "Ownership Limitation"). The Ownership Limitation with respect
to the shares of Common Stock will be increased, to a maximum of 9.8%, and the
ownership limit applicable to QSV will be decreased, subject to a minimum
percentage equal to the Ownership Limitation in proportion to any reduction in
QSV's direct or indirect percentage ownership of the REIT Corporation as a
result of additional issuances or dispositions of securities of the REIT
Corporation. Any transfer of Common Stock or Preferred Stock that would (a)
result in any person (other than QSV with respect to shares of Common Stock)
owning, directly or indirectly, Common Stock or Preferred Stock in excess of the
Ownership Limitation, (b) result in QSV owning directly or indirectly in excess
of 15.0% of the number of outstanding shares of Common Stock (or the decreased
percentage that may be applicable), (c) result in the Common Stock and Preferred
Stock being owned by fewer than 100 persons (determined without reference to any
rules of attribution), (iv) result in the REIT Corporation being "closely held"
within the meaning of Section 856(h) of the Code, or (v) cause the REIT
Corporation to own, directly or constructively, 10% or more of the ownership
interests in a tenant of the REIT Corporation's or the Operating Partnership's
real property, within the meaning of Section 856(d)(2)(B) of the Code, shall be
null and void, and the intended transferee will acquire no rights in such shares
of Common Stock or Preferred Stock.
Subject to certain exceptions described below, if any purported transfer of
Common Stock or Preferred Stock would (i) result in any person owning, directly
or indirectly, Common Stock or Preferred Stock in excess of the Ownership
Limitation, (ii) result in QSV owning directly or indirectly in excess of 15.0%
of the number of outstanding shares of Common Stock (or the decreased percentage
that may be applicable), (iii) result in the Common Stock and Preferred Stock
being owned by fewer than 100 persons (determined without reference to any rules
of attribution), (iv) result in the REIT Corporation being "closely held" within
the meaning of
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Section 856(h) of the Code, or (v) cause the REIT Corporation to own, directly
or constructively, 10% or more of the ownership interests in a tenant of the
REIT Corporation's or the Operating Partnership's real property, within the
meaning of Section 856(d)(2)(B) of the Code, the Common Stock or Preferred
Stock will be designated as "Excess Stock" and transferred automatically to a
trust (the "Trust") effective on the day before the purported transfer of
such Common Stock or Preferred Stock. The record holder of the shares of
Common Stock or Preferred Stock that are designated as Excess Stock (the
"Prohibited Owner") will be required to submit such number of shares of
Common Stock or Preferred Stock to the REIT Corporation for registration in
the name of the Trust. The Trustee of the Trust will be designated by the
REIT Corporation, but will not be affiliated with the REIT Corporation. The
beneficiary of the Trust (the "Beneficiary") will be one or more charitable
organizations that are named by the REIT Corporation.
Excess Stock will remain issued and outstanding shares of Common Stock or
Preferred Stock and will be entitled to the same rights and privileges as all
other shares of the same class or series. The Trust will receive all dividends
and distributions on the Excess Stock and will hold such dividends and
distributions in trust for the benefit of the Beneficiary. The Trustee will
vote all Excess Stock. The Trustee will designate a permitted transferee of the
Excess Stock, provided that the permitted transferee (i) purchases such Excess
Stock for valuable consideration and (ii) acquires such Excess Stock without
such acquisition resulting in a transfer to another Trust and resulting in the
redesignation of such shares of Common Stock or Preferred Stock as Excess Stock.
The Prohibited Owner with respect to Excess Stock will be required to repay
the Trust the amount of any dividends or distributions received by the
Prohibited Owner (i) that are attributable to any Excess Stock and (ii) the
record date for which was on or after the date that such shares became Excess
Stock. The Prohibited Owner generally will receive from the Trustee the lesser
of (i) the price per share such Prohibited Owner paid for the shares of Common
Stock or Preferred Stock that were designated as Excess Stock (or, in the case
of a gift or devise, the Market Price (as defined below) per share on the date
of such transfer) and (ii) the price per share received by the Trustee from the
sale of such Excess Stock. Any amounts received by the Trustee in excess of the
amounts to be paid to the Prohibited Owner will be distributed to the
Beneficiary.
The Excess Stock will be deemed to have been offered for sale to the REIT
Corporation, or its designee, at a price per share equal to the lesser of (i)
the price per share in the transaction that created such Excess Stock (or, in
the case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the REIT
Corporation, or its designee, accepts such offer. The REIT Corporation will
have the right to accept such offer for a period of 90 days after the later of
(i) the date of the purported transfer which resulted in such Excess Stock and
(ii) the date the Company determines in good faith that a transfer resulting in
such Excess Stock occurred.
"Market Price" means the average of the Closing Prices for the ten
consecutive trading days immediately preceding the relevant date. "Closing
Price" on any day shall mean the last
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sale price, regular way on such day, or, if no such sale takes place on that
day, the average of the closing bid and asked prices, regular way, in either
case as reported on the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the NYSE, or if
the affected class or series of capital stock is not so listed or admitted to
trading, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange (including the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System) on which the affected
class or series of capital stock is listed or admitted to trading or, if the
affected class or series of capital stock is not so listed or admitted to
trading, the last quoted price or, if not quoted, the average of the high bid
and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System
or, if such system is no longer in use, the principal automated quotation
system then in use or, if the affected class or series of capital stock is
not so quoted by any such system, the average of the closing bid and asked
prices as furnished by a professional market maker selected by the REIT Board
making a market in the affected class or series of capital stock, or, if
there is no such market maker or such closing prices otherwise are not
available, the fair market value of the affected class or series of capital
stock as of such day, as determined by the REIT Board in its discretion.
Any person who acquires or attempts to acquire shares of Common Stock or
Preferred Stock in violation of the foregoing restrictions, or any person who
owned shares of Common Stock or Preferred Stock that were transferred to a
Trust, will be required (i) to give immediate written notice to the REIT
Corporation of such event and (ii) to provide to the REIT Corporation such other
information as the REIT Corporation may request in order to determine the
effect, if any, of such transfer on the REIT Corporation's status as a REIT.
The Articles require all persons who own, directly or indirectly, more than
5% (or such lower percentages as required pursuant to regulations under the
Code) of the outstanding shares of Common Stock and Preferred Stock, within 30
days after January 1 of each year, to provide to the REIT Corporation a written
statement or affidavit stating the name and address of such direct or indirect
owner, the number of shares of Common Stock and Preferred Stock owned directly
or indirectly, and a description of how such shares are held. In addition, each
direct or indirect shareholder shall provide to the REIT Corporation such
additional information as the REIT Corporation may request in order to determine
the effect, if any, of such ownership on the REIT Corporation's status as a REIT
and to ensure compliance with the Ownership Limitation.
The Ownership Limitation generally will not apply to the acquisition of
shares of Common Stock or Preferred Stock by an underwriter that participates in
a public offering of such shares. In addition, the REIT Board, upon receipt of
a ruling from the IRS or an opinion of counsel and upon such other conditions as
the REIT Board may direct, may exempt a person from the Ownership Limitation
under certain circumstances. However, the REIT Board may not grant an exemption
from the Ownership Limit to any proposed transferee whose ownership, direct or
indirect, of shares of beneficial interest of the REIT Corporation in excess of
the Ownership Limit would result in the termination of the REIT Corporation's
status as a REIT. The foregoing
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restrictions will continue to apply until (i) the REIT Board determines that
it is no longer in the best interests of the REIT Corporation to attempt to
qualify, or to continue to qualify, as a REIT and (ii)there is an affirmative
vote of a majority of the votes entitled to be cast on such mater at a
regular or special meeting of the stockholders of the Company.
All certificates representing shares of Common Stock or Preferred Stock
will bear a legend referring to the restrictions described above.
The Ownership Limitation could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of shares of
Common Stock might receive a premium for their shares over the
then-prevailing market price or which these holders might believe to be
otherwise in their best interest.
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE REIT CORPORATION'S ARTICLES AND BYLAWS
The following discussion summarizes certain provisions of the MGCL and the
Articles and the REIT Corporation's Bylaws. This summary does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Articles and the REIT Corporation's Bylaws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus constitutes a
part. See "Additional Information."
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Bylaws provide that the number of directors of the REIT Corporation
shall be as set forth in the Articles or as may be established by the board of
directors of the REIT Corporation but may not be fewer than three nor more than
15. Any vacancy will be filled, at any regular meeting or at any special
meeting called for that purpose, by a majority of the directors then in office.
The stockholders may elect a director to fill a vacancy on the REIT Board which
results from the removal of a director. Pursuant to the terms of the Articles,
following the IPO, the directors will be divided into three classes. One class
will hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1998, another class will hold office initially for a
term expiring at the annual meeting of stockholders to be held in 1999 and
another class will hold office initially for a term expiring at the annual
meeting of stockholders to be held in 2000. As the term of each class expires,
directors in that class will be elected for a term of three years. The REIT
Corporation believes that classification of the REIT Board will help to assure
the continuity and stability of the REIT Corporation's business strategies and
policies as determined by the REIT Board.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the REIT Corporation,
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even though such an attempt might be beneficial to the REIT Corporation and
its stockholders. At least two annual meetings of stockholders, instead of
one, will generally be required to effect a change in a majority of the REIT
Board. Thus, the classified board provision could increase the likelihood
that incumbent directors will retain their positions. Further, holders of
shares of Common Stock will have no right to cumulative voting for the
election of directors. Consequently, at each annual meeting of stockholders,
the holders of a majority of shares of Common Stock will be able to elect all
of the successors of the class of directors whose term expires at that
meeting.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Articles limit the liability of the REIT Corporation's directors and
officers to the REIT Corporation and its stockholders to the fullest extent
permitted from time to time by the MGCL. The MGCL presently permits the
liability of directors and officers to a corporation or its stockholders for
money damages to be limited, except (i) to the extent that it is proved that the
director or officer actually received an improper benefit or profit or (ii) to
the extent that a judgment or other final adjudication is entered adverse to the
director or officer in a proceeding based on a finding that the director's or
officer's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. This provision does not limit the ability of the REIT Corporation
or its stockholders to obtain other relief, such as an injunction or rescission.
The Articles require the REIT Corporation to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by the MGCL. The MGCL permits a corporation, subject to certain
exceptions, to indemnify its directors, officers and certain other parties
against judgments, penalties, fines, settlements and reasonable expenses,
including attorneys' fees, actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service to or at
the request of the corporation, unless it is established that (i) the act or
omission of the indemnified party was material to the matter giving rise to the
proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) the indemnified party actually received an improper
personal benefit, or (iii) in the case of any criminal proceeding, the
indemnified party had reasonable cause to believe that the act or omission was
unlawful. Indemnification may be made against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by the director or officer
in connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made with
respect to any proceeding in which the director or officer has been adjudged to
be liable to the corporation. In addition, a director or officer may not be
indemnified with respect to any proceeding charging improper personal benefit to
the director or officer in which the director or officer was adjudged to be
liable on the basis that personal benefit was improperly received. The
termination of any proceeding by conviction, or upon a plea of nolo contendere
or its equivalent, or an entry of any order of probation prior to judgment,
creates a rebuttable presumption that the director or officer did not meet the
requisite standard of conduct required for indemnification to be permitted. It
is the position of the Commission that indemnification of directors and officers
for liabilities
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arising under the Securities Act is against public policy and is unenforceable
pursuant to Section 14 of the Securities Act.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate or associate of the
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then-outstanding voting stock of the corporation (an "Interested
Stockholder") or an affiliate thereof, are prohibited for five years after
the most recent date on which the Interested Stockholder became an Interested
Stockholder. Thereafter, any such business combination must be recommended
by the board of directors of such corporation and approved by the affirmative
vote of at least (i) 80% of the votes entitled to be cast by holders of
outstanding voting shares of the corporation voting together as a single
voting group and (ii) two-thirds of the votes entitled to be cast by holders
of outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom the business combination is to be effected,
unless, among other things, the corporation's stockholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of the MGCL do not apply,
however, to business combinations that are approved or exempted by the board
of directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The Bylaws of the REIT
Corporation contain a provision exempting from these provisions of the MGCL
any business combination involving QSV (or its affiliates) or any other
person acting in concert as a group with any of the foregoing persons.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquirer, by officers or by directors who
are employees of the corporation. "Control shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
such person, or in respect of which such person is able to exercise or direct
the exercise of voting power, would entitle the acquirer to exercise voting
power in electing directors within one of the following ranges of voting power:
(i) one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority, or (iii) a majority. Control shares do not include shares the
acquiring person is then entitled to vote as a result of having previously
obtained stockholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
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A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares.
If no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the MGCL, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for control shares, as of the date of the last control share
acquisition or of any meeting of stockholders at which the voting rights of such
shares are considered and not approved. If voting rights for control shares are
approved at a stockholders meeting and the acquirer becomes entitled to vote a
majority of the shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquiring person in the control share acquisition, and certain limitations
and restrictions otherwise applicable to the exercise of dissenters' rights do
not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
AMENDMENT TO THE ARTICLES
The Articles may be amended by the affirmative vote of the holders of a
majority of all shares entitled to be voted on the matter, except for the
provision relating to the classification of the REIT Board which may be amended
only by the affirmative vote of the holders of not less than two-thirds of all
shares entitled to be voted on the matter.
DISSOLUTION OF THE COMPANY
The Articles permit the dissolution of the REIT Corporation by (i) the
affirmation or vote of a majority of the entire REIT Board declaring such
dissolution to be advisable and directing that the proposed dissolution be
submitted for consideration at an annual or special meeting of stockholders and
(ii) upon proper notice, stockholder approval by the affirmative vote of the
holders of not less than a majority of all of the votes entitled to be cast on
the matter or the written consent of all the votes entitled to be cast on this
matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The REIT Corporation's Bylaws provide that with respect to an annual
meeting of stockholders, nominations of persons for election to the REIT Board
and the proposal of business to be considered by stockholders may be made only
(i) by, or at the direction of, a majority of
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the REIT Board or (ii) by a stockholder who is entitled to vote at the meeting
and has complied with the advance notice procedures set forth in the REIT
Corporation's Bylaws.
The provisions in the Articles on classification of the REIT Board, the
business combination and control share acquisition provisions of the MGCL and
the advance notice provisions of the REIT Corporation's Bylaws could have the
effect of discouraging a takeover or other transaction in which holders of some,
or a majority, of the shares of Common Stock might receive a premium for their
shares of Common Stock over the then prevailing market price or which such
holders might believe to be otherwise in their best interests.
MEETINGS OF STOCKHOLDERS
Beginning in 1998, an annual meeting of the stockholders for the election
of directors and the transaction of any business within the powers of the REIT
Corporation shall be held on __________________ or at such other time as set by
the REIT Board.
Subject to the rights, if any, of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, special
meetings of the stockholders may be called by the Chairman of the REIT Board by
the Chief Executive Officer of the REIT Corporation, by the President of the
REIT Corporation or by the REIT Board pursuant to a resolution adopted by a
majority of all directors and by the Secretary of the REIT Corporation upon the
written request of the holders of 25% or more of the outstanding voting stock.
Such request shall state the purpose or purposes of such meeting and the matters
proposed to be acted upon at such meeting.
COMPARATIVE RIGHTS OF UNITHOLDERS AND STOCKHOLDERS
GENERAL
USRP is organized as a Delaware limited partnership and the REIT
Corporation is organized as a corporation under the laws of the State of
Maryland. As a Delaware limited partnership, USRP is subject to the Delaware
Revised Uniform Limited Partnership Act (the "Delaware RULPA"). As a Maryland
corporation, the REIT Corporation is subject to the MGCL.
The discussion of the comparative rights of Unitholders of the Partnership
and stockholders of the REIT Corporation set forth below does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Delaware RULPA and the MGCL and also to the Master Partnership Agreement of USRP
and the Articles and Bylaws of the REIT Corporation. Copies of these documents
have been filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
The REIT Corporation has been organized under the MGCL pursuant to Articles
of Incorporation filed January 29, 1997.
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MANAGEMENT
The Master Partnership Agreement of USRP provides that, with certain
limited exceptions, the Managing General Partner has exclusive discretion to
manage and control the business and affairs of the Partnership. The Managing
General Partner may be removed for cause upon the affirmative vote of more than
fifty percent (50%) of the total number of all outstanding Units held by all
Limited Partners of record. "Cause," for purposes of the Master Partnership
Agreement, means actual fraud, gross negligence, or willful or wanton
misconduct. The Managing General Partner may be removed without cause upon the
affirmative vote of more than eighty percent (80%) of the total number of all
outstanding Units held by all Limited Partners of record. The directors of the
Managing General Partner are elected by the stockholders of the Managing General
Partner.
Pursuant to the MGCL, the business and affairs of a corporation are managed
by or under the direction of its board of directors. The MGCL further provides
that the board of directors may be divided into classes. In accordance with
this authority, the Articles provides for three classes of directors. The
Articles provide that the number of directors of the REIT Corporation cannot be
less than three (3) nor more than fifteen (15). Under the Articles, the
directors are divided in three classes, as nearly equal in number as possible,
with the term of one class expiring at each annual meeting of stockholders. At
each annual meeting of stockholders, one class of directors will be elected for
a term of three years and the directors in the other two classes will continue
in office. Under the Articles, a director may be removed, for cause only, at a
meeting of stockholders called for that purpose, by the holders of not less than
two-thirds of the outstanding Common Stock entitled to vote in the election of
directors. "Cause," for purposes of the Articles, means acts or omissions
constituting active and deliberate dishonesty established by a final judgment or
actual receipt of an improper benefit or profit in money, property or services.
Any vacancy (including a vacancy created by an increase in the number of
directors) will be filled, at any regular meeting or any special meeting of the
directors called for that purpose, by a majority of the REIT Board.
VOTING RIGHTS
Under the Master Partnership Agreement, Limited Partners have voting rights
with respect to (i) the removal and replacement of the General Partners; (ii)
the merger of USRP; (iii) the sale of substantially all of USRP's assets; (iv)
the dissolution of USRP or the Operating Partnership; and (v) material
amendments to the Partnership Agreement. Each Unit entitles the Limited Partner
to cast one vote on all matters presented to the Limited Partners. Generally,
approval of matters submitted to the Limited Partners requires the affirmative
vote of Limited Partners owning more than 50% of the Units then outstanding.
Certain limited matters require the approval of a specified super-majority of
the Units then outstanding.
The Articles provide that the stockholders of the REIT Corporation shall be
entitled to vote only on the following matters: (i) election or removal of
directors; (ii) amendment of the Articles (except as described below under
"--Amendment of Partnership Agreement and Articles
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of Incorporation"); (iii) termination of the REIT Corporation's existence;
(iv) reorganization of the REIT Corporation; and (v) merger, consolidation or
share exchange of the REIT Corporation, or the sale or disposition of
substantially all of the REIT Corporation's assets. Generally, matters
submitted to the stockholders require the affirmative vote of stockholders
holding a majority of the outstanding Common Stock present in person or by
proxy entitled to vote thereon at a duly convened meeting of stockholders.
The Bylaws of the REIT Corporation require notice at least 60 days and not
more than 90 days before the anniversary of the prior annual meeting of
stockholders in order for a stockholder (a) to nominate a director or (b) to
propose new business other than pursuant to notice of the meeting. The Bylaws
contain a similar notice requirement in connection with the nomination of
directors at a special meeting of stockholders called for the purpose of
electing one or more directors. Accordingly, failure to act in compliance with
the notice provisions will make stockholders unable to nominate directors or
propose new business. There is no similar provision in the Master Partnership
Agreement.
SPECIAL MEETINGS
Special meetings of Limited Partners may be called by the Managing General
Partner or by Limited Partners owning at least 20% of the outstanding Units.
Under the REIT Corporation's Bylaws, a special meeting of stockholders may be
called by the Chairman of the REIT Board, the Chief Executive Officer or
President of the REIT Corporation or a majority of the REIT Board.
Subject to the rights, if any, of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, special
meetings of the stockholders may be called by the Chairman of the REIT Board by
the Chief Executive Officer of the REIT Corporation, by the President of the
REIT Corporation or by the REIT Board pursuant to a resolution adopted by a
majority of all directors and by the Secretary of the REIT Corporation upon the
written request of the holders of 25% or more of the outstanding voting stock.
Such request shall state the purpose or purposes of such meeting and the matters
proposed to be acted upon at such meeting.
AMENDMENT OF MASTER PARTNERSHIP AGREEMENT AND ARTICLES OF INCORPORATION
The Master Partnership Agreement may be amended solely by action of the
Managing General Partner to reflect: (i) a change to effect or maintain the
qualification of the REIT Corporation as a REIT under the Code; (ii) a change
in the name of the REIT Corporation or the location of the principal place of
business of the REIT Corporation; (iii) a change that is (a) of an
inconsequential nature and does not adversely affect the Limited Partners in any
material respect; (b) necessary or desirable to cure any ambiguity, to correct
or supplement any provision of the Master Partnership Agreement, that would be
inconsistent with any other provision of the Master Partnership Agreement or to
make any other provision with respect to matters or questions arising under the
Partnership Agreement that will not be inconsistent with the
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provisions of the Partnership Agreement; (c) necessary or desirable to
satisfy any requirements, conditions or guidelines contained in any opinion,
directive, order, ruling or regulation of any Federal, state or local agency
or contained in any Federal, state or local law; (d) necessary or desirable
to facilitate the trading of the Units or comply with any rule, regulation,
guideline or requirement of any securities exchange on which the Units are or
will be listed for trading, compliance with any of which the Managing General
Partner deems to be in the interest of the REIT Corporation and the Limited
Partners; or (e) required or contemplated by the Master Partnership
Agreement; or (iv) any other amendments similar to the foregoing. In all
other cases, an amendment to the Master Partnership Agreement must generally
be approved by Limited Partners holding a majority of the Units then
outstanding. In certain limited circumstances, a proposed amendment to the
Master Partnership Agreement may only be effected by a specified
super-majority vote of the Limited Partners. Even in cases where Limited
Partner approval is required, no amendment may be effected without the
approval of the Managing General Partner.
An amendment to the Articles (other than the provision relating to the
classification of the REIT Board) requires the recommendation of the REIT Board
and the affirmative vote of a majority of the outstanding Common Stock present
in person or by proxy entitled to vote at a duly convened meeting of
stockholders. An amendment to the provision of the Articles relating to the
classification of the REIT Board requires the recommendation of the REIT Board
and the affirmative vote of two-thirds of all shares of Common Stock entitled to
be voted on the matter.
LIMITED LIABILITY
Pursuant to the Delaware RULPA, Limited Partners are not liable for the
obligations of USRP unless they are also a general partner or, in addition to
the exercise of rights and powers as a Limited Partner, they participate in the
control of USRP. However, if a Limited Partner does participate in the control
of USRP, he is liable only to persons who transact business with USRP reasonably
believing, based upon the Limited Partner's conduct, that the Limited Partner is
a general partner.
Pursuant to the MGCL and the Articles, the personal liability of the
stockholders of the REIT Corporation is limited to the fullest extent permitted
from time to time by the MGCL.
While Delaware law and Maryland law, respectively, afford Limited Partners
in USRP and stockholders in the REIT Corporation protection against personal
liability for obligations of USRP and the REIT Corporation, certain
jurisdictions may not recognize limitations on personal liability to the extent
such claims are not satisfied by USRP or the REIT Corporation. The Board of
Directors believes that any risk of personal liability would generally be
limited to situations in which USRP's or the REIT Corporation's public liability
insurance coverage would be insufficient to satisfy claims. See "Description of
Common Stock--General."
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DISSOLUTION OF THE PARTNERSHIP AND THE REIT CORPORATION AND TERMINATION OF
REIT STATUS
Under the terms of the Master Partnership Agreement, the Limited Partners
may compel the dissolution of USRP prior to the expiration of its term on
December 31, 2035 by the affirmative vote of more than fifty percent (50%) of
the total number of all outstanding Units held by all Limited Partners of
record. USRP is subject to dissolution upon a sale of all or substantially all
of USRP's properties, which sale may be made with the approval of the Managing
General Partner and a majority in interest of the Limited Partners.
The MGCL permits the voluntary dissolution of the REIT Corporation by the
affirmative vote of the holders of not less than two-thirds of the outstanding
Common Stock at a meeting of stockholders called for that purpose. A merger,
consolidation or sale of substantially all of the assets of the REIT Corporation
must be approved by the affirmative vote of the holders of not less than a
majority of the outstanding Common Stock at a meeting of stockholders called for
that purpose.
The Articles permit the REIT Board to terminate the status of the REIT
Corporation as a REIT under the Code at any time. Consequently, although both
Limited Partners and stockholders have voting rights with regard to the
dissolution of USRP and of the REIT Corporation, respectively, such voting
rights differ in limited respects.
LIQUIDATION RIGHTS
In the event of liquidation of USRP, holders of all Units and the Managing
General Partner would be entitled to share ratably, in accordance with their
percentage interests, in any assets remaining after the satisfaction of
obligations to creditors.
In the event of liquidation of the REIT Corporation, the holders of Common
Stock would be entitled to share ratably in any assets remaining after
satisfaction of obligations to creditors and any liquidation preferences on any
series of Preferred Stock that may then be outstanding.
LIMITATIONS OF LIABILITY OF GENERAL PARTNERS AND TRUSTEES
The Master Partnership Agreement provides that the Managing General
Partner, its affiliates and all officers, directors, employees and agents of the
Managing General Partner and its affiliates shall not be liable to USRP or the
Limited Partners for losses sustained or liabilities incurred as a result of any
acts or omissions of the Managing General Partner or such other persons if the
conduct of the applicable person did not constitute acts of actual fraud, gross
negligence, or willful or wanton misconduct and the applicable person acted in
good faith and in a manner it believed to be in, or not opposed to, the
interests of the Partnership.
The Articles contain a provision eliminating the personal liability of a
director to the REIT Corporation or its stockholders for monetary damages to the
fullest extent permitted by Maryland statutory or decisional law, as amended or
interpreted.
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INDEMNIFICATION
The Master Partnership Agreement provides that USRP shall indemnify and
hold harmless the Managing General Partner, its affiliates and all officers,
directors, employees and agents of the Managing General Partner and its
affiliates to the maximum extent permitted by law provided that the indemnitee's
conduct did not constitute actual fraud, gross negligence, or willful or wanton
misconduct and provided further that the indemnitee acted in good faith and in a
manner it believed to be in, or not opposed to, the interests of USRP, and, with
respect to any original proceeding, had no reasonable cause to believe its
conduct was unlawful.
The Articles provide that the REIT Corporation shall provide any
indemnification permitted by the laws of the State of Maryland and shall
indemnify directors, officers, agents and employees as follows: (i) the REIT
Corporation shall indemnify its directors and officers, whether serving the REIT
Corporation or at its request and any other entity, to the full extent required
or permitted by the General Laws of the State of Maryland now or hereafter in
force, including the advance of expenses under the procedures and to the full
extent permitted by law and (ii) the REIT Corporation shall indemnify other
employees and agents, whether serving the REIT Corporation or at its request any
other entity, to such extent as shall be authorized by the REIT Board or the
REIT Corporation's Bylaws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled.
DERIVATIVE ACTIONS
The Delaware RULPA allows a Limited Partner to institute legal action on
behalf of the USRP (a derivative action) to recover damages from a third party
or from a general partner where the general partner has failed to institute the
action. In addition, a Limited Partner may institute legal action on behalf of
himself and other similarly situated Limited Partners (a class action) to
recover damages from a General Partner for violations of his fiduciary duties to
the Limited Partners. Limited Partners may also have rights to bring actions in
Federal court to enforce Federal rights.
Under the MGCL, a stockholder may bring an action on behalf of the REIT
Corporation to recover a judgment in its favor (a derivative action) where the
directors have failed to institute the action. The provisions of the MGCL
relating to derivative actions are substantially similar to the provisions of
the Delaware RULPA relating to such actions.
INSPECTION OF BOOKS AND RECORDS
Upon twenty (20) days prior written notice, at his own expense and for a
valid business purpose related to the conduct of USRP's business, a Limited
Partner may have access to non-confidential, non-proprietary information
regarding USRP, including tax returns, a current list of the name and last known
business, residence or mailing address of each partner, a copy of USRP's
governing instruments, and certain other information regarding the affairs of
USRP.
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The foregoing is subject to the Managing General Partner's right to keep
confidential from Limited Partners, for such period of time as the Managing
General Partner deems reasonable, any information which the Managing General
Partner reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the Managing General Partner in good faith
believes is not in the best interests of USRP or could damage USRP or its
business.
Similarly, upon written request, at a stockholder's own expense and for a
proper purpose reasonably related to that stockholder's interest as a
stockholder in the REIT Corporation, any person who is a stockholder of record
of the REIT Corporation will be granted the right to examine and copy relevant
books, minutes and stock transfer records, including a list of stockholders of
the REIT Corporation.
DISTRIBUTIONS AND DIVIDENDS
Distributions and dividends on the Units and the Common Stock may be paid
if, as and when declared by the Managing General Partner or the REIT Board, as
applicable, in its discretion.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
considerations affecting the Unitholders as a result of the Conversion. This
discussion is directed principally at Unitholders who are United States citizens
or residents or domestic corporations, and does not address in all material
respects considerations that might adversely affect the treatment of Unitholders
who are subject to special treatment under the tax laws (such as insurance
companies, cooperatives, financial institutions, broker-dealers, tax exempt
organizations or foreign investors). The discussion in this section is based on
existing provisions of the Code, existing and proposed Treasury regulations,
existing court decisions and existing rulings and other administrative
interpretations. There can be no assurance that future Code provisions or other
legal authorities will not alter significantly the tax consequences described
below. No rulings have been obtained from the IRS concerning any of the matters
discussed in this section. Because the following represents only a summary, it
is qualified in its entirety by the applicable provisions of the Code and
regulations, court decisions and IRS rulings and other IRS pronouncements.
Each Unitholder is advised to consult his own tax advisor about the
federal, state, local, foreign and other tax consequences relating to the
Conversion.
A. THE MERGER ALTERNATIVE
1. QUALIFICATION AS NONRECOGNITION TRANSACTION
It is a condition precedent to the consummation of the Merger that the
Managing General Partner shall have received a favorable ruling from the IRS and
an opinion of Winstead Sechrest & Minick P.C., as tax counsel, to the effect
that the Merger will be treated as part of a
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transaction described in Section 351 of the Code. The ruling generally would
hold that, if the REIT Corporation elects and qualifies as a REIT for the
taxable year of the Merger, (i) the Conversion will be treated for federal
income tax purposes as a transfer of assets from USRP to the REIT Corporation
in exchange for Common Stock followed by a distribution of the Common Stock
to the Unitholders and the Managing General Partner in liquidation of USRP,
and (ii) USRP will not recognize gain for federal income tax purposes under
Section 351(a) of the Code on its transfer of assets to the REIT Corporation
in exchange for Common Stock and the REIT Corporation's assumption of and
taking subject to USRP's liabilities, except to the extent (if any) that the
sum of the liabilities assumed by the REIT Corporation plus the amount of
liabilities to which the transferred assets are subject exceeds the total
adjusted basis of the assets transferred. Further, the deemed distribution
of the Common Stock would be tax-free to the Unitholders and the Managing
General Partner under Section 731 of the Code.
Section 351 (a) of the Code sets forth the general rule that no gain or
loss will be recognized by one or more persons transferring assets to a
corporation solely in exchange for the corporation's stock if, immediately after
the exchange, the transferors are "in control" of the transferee corporation.
"Control" is defined as the ownership of stock possessing at least 80 percent of
the total combined voting power of all classes of stock entitled to vote and at
least 80 percent of the total number of shares of all other classes of stock of
the corporation. For purposes of the ruling request and its tax opinion, tax
counsel will assume that not more than 20% of the Common Stock transferred to
the Unitholders and the Managing General Partner pursuant to the Merger will
subsequently be sold pursuant to plans or arrangements entered into prior to the
Merger. Neither USRP nor the Managing General Partner is aware of any plans or
arrangements that have been or will be entered into prior to the Merger which
would make this assumption incorrect. The IRS has taken the position in a
revenue ruling that the distribution by a partnership of the stock received in a
Section 351 exchange to its partners in liquidation of the partnership will not
violate the control requirement.
Even in the case of a qualified Section 351 exchange, gain will be
recognized by the transferor if and to the extent that the amount of the
liabilities assumed and taken subject to by the transferee exceeds the aggregate
adjusted basis of the property transferred in the exchange. Gain recognized, if
any, must be reported as ordinary income, long-term capital gain, or short-term
capital gain according to the nature and the holding period of the transferred
property. It is likely that any gain recognized by the Partnership under this
provision would be treated as long-term capital gain. However, based on the
most recent available information, USRP's liabilities are not expected to exceed
the basis of its assets at the time of the Merger. Consequently, no gain is
expected to be recognized by USRP as a result of the Merger.
USRP elected pursuant to Section 754 of the Code to adjust the basis of
partnership property with respect to transferee partners in the case of a sale
or exchange or a transfer upon the death of a partner of a partnership interest.
See "--Exchange Alternative--Tax Treatment of Operations--Section 754 Election."
Although there is some uncertainty as to the impact of these basis adjustments
at USRP level, USRP will treat these amounts as part of USRP's aggregate
adjusted basis in its assets for purposes of determining whether gain is
recognized upon
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the Merger. USRP can only estimate the amount of these adjustments because
of the imprecise information available concerning transfers of Units in the
context of a publicly-traded partnership. It is estimated, however, that
such adjustments in the aggregate are substantial and that if the adjustments
are excluded from USRP's adjusted basis in its assets, there is a risk that
USRP would recognize gain in the Merger. See "--The Merger Alternative--Tax
Consequences to Unitholders--Potential Gain Recognition" and "--The Merger
Alternative--Tax Consequences to USRP."
Section 351(a) does not apply to transfers of property to an investment
company. A REIT is an investment company if the transfer results, directly or
indirectly, in "diversification" of the transferors' interests. The purpose of
this restriction is to prevent the tax-free pooling of investment assets by more
than one transferor. The Ruling from the IRS and the opinion of tax counsel
will assume the accuracy of the Managing General Partner's representations that
at the time of the Merger there will not be an existing plan or arrangement (i)
to achieve diversification of USRP's (or the Unitholders') interests in one or
more additional nonrecognition transactions, (ii) to issue additional Common
Stock except pursuant to the Company's dividend reinvestment plan, if any, and
pursuant to compensatory stock options that may be granted by the REIT
Corporation to key service providers, or (iii) to acquire any additional
specific property.
If the REIT Corporation were to be treated as an investment company or for
some other reason Section 351 did not apply to the Merger, USRP would recognize
taxable gain or loss in an amount equal to the difference between the total
value of the consideration received (the amount of liabilities assumed and taken
subject to by the REIT Corporation in the Merger plus the fair market value of
the Common Stock received by the Partnership in the exchange) and USRP's
adjusted basis in the assets transferred to the REIT Corporation. Generally,
the gain recognized by USRP would be allocated among the partners in accordance
with their interests in USRP. See "--The Merger Alternative--Tax Consequences
to Unitholders--Potential Gain Recognition." Neither USRP nor the Unitholders
would recognize gain or loss upon the deemed distribution of the Common Stock by
USRP.
2. TAX CONSEQUENCES TO USRP
NONRECOGNITION AND TERMINATION. If the Merger is treated as a
nonrecognition transaction under Section 351, USRP will not recognize gain upon
the transfer of its assets to the REIT Corporation except to the extent (if any)
that the liabilities to which the transferred property is subject plus the
liabilities assumed by the REIT Corporation in connection with the exchange
exceed the total adjusted basis of the property transferred. It is expected
that USRP's aggregate adjusted basis in its assets will exceed the sum of such
liabilities at the time of the Merger. However, this is subject to change prior
to the Merger. See "--The Merger Alternative--Qualification as Nonrecognition
Transaction."
For Federal income tax purposes, USRP will be deemed to have received the
Common Stock and distributed it to its partners pursuant to a liquidation of
USRP. USRP will not
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recognize gain or loss in the deemed liquidation and will terminate upon the
distribution of the Common Stock pursuant to the Merger.
HOLDING PERIOD. To the extent transferred assets constitute capital assets
or Section 1231 assets in the hands of USRP immediately prior to the transfer,
USRP will have a holding period in the Common Stock which will include its
holding period in the transferred assets. As to any portion of such Common
Stock which represents the value of transferred assets which are not capital
assets or Section 1231 assets in the hands of USRP, USRP will not be entitled to
include its prior holding period in such assets. Therefore, a portion of each
share of Common Stock may have a holding period of more than one year, a portion
may have a holding period of less than one year, and a portion may have an
entirely new holding period commencing on the day after the Merger.
PRE-MERGER TAX TERMINATION OF THE PARTNERSHIP. Section 708 of the Code
provides that if 50% or more of the capital and profits interests in a
partnership are sold or exchanged within a single twelve-month period, the
partnership will be deemed to terminate for tax purposes. It is possible that
Units representing 50% or more of the capital and profits interests in USRP have
been or might be sold or exchanged within a single twelve-month period prior to
the Merger. The foregoing discussion of tax consequences to USRP of the Merger
assumes that no such termination has occurred or will occur prior to the Merger.
Upon a termination of USRP for tax purposes, it would be deemed to have
distributed its assets on the date of such termination to the Managing General
Partner and the Unitholders who would then be deemed to have contributed such
assets to a new partnership. The new partnership would have a new basis in its
assets (other than money) equal to the aggregate basis of the Managing General
Partner and the Unitholders in their interests in USRP, less any cash deemed
distributed to such persons in connection with the termination. Accordingly, if
the total basis of the Managing General Partner and Unitholders in their
interests in USRP were greater or less than USRP's aggregate basis in its assets
immediately prior to the termination, the new partnership's basis in its assets
after the termination would be increased or reduced correspondingly. Moreover,
the new partnership's basis in its assets following the termination might have
to be reallocated among the various assets to reflect the relative fair market
values of those assets at the time of termination, which may be less favorable
than the previous allocation of basis made in connection with USRP's original
acquisition of such assets. A termination of USRP could also cause USRP or its
assets to become subject to unfavorable changes in the Federal income tax law
made prior to the termination (E.G., a lengthening of the period over which
assets are depreciated) but previously not applicable to USRP or its assets
because of protective transition rules. Elections made by the terminated
partnership would not be applicable to the reconstituted partnership, including
the election made by USRP under Section 754 of the Code. USRP would incur
additional accounting and administrative costs with respect to the filing of a
tax return for the year ending on the date of a technical termination. See
"--Exchange Alternative--Tax Treatment of Operations."
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3. TAX CONSEQUENCES TO UNITHOLDERS
GENERAL NONRECOGNITION. It is a condition precedent to consummation of the
Merger that the IRS issue a favorable ruling as to treatment of the Merger as
part of a transaction described in Section 351 of the Code. As a result of the
treatment of the Merger as a nonrecognition transaction under Section 351, the
Merger will generally be tax-free to the Unitholders except as described below.
See "--Potential Gain Recognition." The Unitholders will not recognize gain or
loss upon the receipt of Common Stock in the Merger. Such Common Stock will be
deemed to be received as a tax-free property distribution in a complete
liquidation of USRP under Section 731 of the Code.
POTENTIAL GAIN RECOGNITION. If the Merger qualifies for nonrecognition
treatment under Section 351, the Partnership will recognize gain only to the
extent (if any) that USRP's aggregate adjusted basis in its assets is less than
the liabilities assumed or taken subject to by the REIT Corporation in the
exchange. It is expected that USRP's aggregate adjusted basis in its assets
will exceed the sum of such liabilities so that USRP itself should not recognize
gain upon the Merger. Any gain recognized by USRP would be allocated to the
Unitholders and the Managing General Partner. See "--The Merger
Alternative--Qualification as Nonrecognition Transaction."
If for any reason the Merger did not qualify for nonrecognition treatment
under Section 351, USRP would recognize gain or loss on the transfer of its
assets to the REIT Corporation as if USRP had sold the assets for an amount
equal to the value of the Common Stock received by the Unitholders and Managing
General Partner in the Merger, plus the amount of liabilities assumed or taken
subject to by the REIT Corporation in the Merger. Such gain recognized would be
allocated among the Unitholders and the Managing General Partner. Each
Unitholder's basis in the Common Stock received would be increased (or reduced)
by the gain (or loss) recognized, and each Unitholder's holding period in the
Common Stock received would begin on the day after the Merger.
Certain Unitholders may recognize gain on the Merger even if USRP does not
recognize any gain, as follows:
(a) Upon the Merger, Unitholders will be deemed to receive a cash
distribution equal to their share of USRP's nonrecourse indebtedness, which
generally will be offset by the inclusion of that share of indebtedness in
their adjusted basis in their Units. Any Unitholder, however, whose
adjusted basis in his Units at the time of the Merger is less than his
share of such indebtedness (I.E., a Unitholder who has a deficit capital
account for tax purposes after reflecting any basis adjustments under
Section 754 of the Code) will recognize gain to the extent of this
difference.
(b) USRP has elected pursuant to Section 754 of the Code to adjust
the basis of partnership property with respect to transferee partners upon
the sale or exchange or transfer upon death of a partner of a partnership
interest. If as a result of such adjustments, a Unitholder's share of
USRP's liabilities assumed by the REIT Corporation
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exceeds his tax basis in his share of USRP's assets, the Unitholder will
recognize gain to the extent of the excess. This result is unlikely for
most Unitholders of USRP. See "--Exchange Alternative--Tax Consequences
of Unit Ownership."
ALLOCATION OF GAIN RECOGNIZED. If any gain were to be recognized by USRP
in the Merger, the gain (determined without regard to Section 754 adjustments)
generally would be allocated among the partners until their capital accounts
were equal to the fair market value of the Common Stock to be received in the
Merger.
SUSPENDED DEDUCTIONS. Any loss previously allocated to a Unitholder in
prior years or during the tax year of the Merger that has not been used because
of the at-risk or basis limitations can be used only to the extent of any income
or gain recognized on the Merger. Generally, Unitholders subject to the passive
activity loss limitations would be able to utilize suspended passive losses from
USRP to offset gain that they might be required to recognize on the Merger. Any
passive losses not so used may not be available until the Unitholder disposes of
his entire interest in the REIT Corporation.
TAX BASIS IN COMMON STOCK. A Unitholder's aggregate tax basis in all
Common Stock received in the Merger will equal his aggregate basis in Units
minus his share of partnership liabilities, after adjustment for operations
during the taxable year of the Merger and any gain or loss recognized on the
Merger, but in any case not less than zero. This basis will be prorated among
all Common Stock received by the Unitholder.
HOLDING PERIOD IN COMMON STOCK. The holding period required for long-term
capital gains treatment is more than one year. For holding period purposes,
each share of Common Stock will be divided into two parts. One part will be the
portion of the value of the Common Stock that is attributable to any ordinary
income assets transferred by USRP in the Merger; its holding period will begin
on the day following the Merger. The remaining part will be the portion of the
value of the Common Stock that is attributable to capital assets or Section 1231
property (generally property used in a trade or business which has been held for
more than one year and is subject to an allowance for depreciation or is real
property, other than inventory or property held primarily for sale to customers
in the ordinary course of the taxpayer's trade or business) transferred in the
Conversion; such part will have a holding period which will include the holding
period of the Partnership in the Common Stock distributed. USRP's holding
period in the Common Stock will include the period the assets transferred were
held by USRP, provided the assets were capital assets or Section 1231 property
on the date of the exchange. Thus, a portion of each share of Common Stock
distributed to a Unitholder will have a holding period in the hands of the
Unitholder which will include the holding period of USRP in certain assets
transferred to the REIT Corporation, while another portion of each such share of
Common Stock in the hands of the Unitholder will have a holding period which
will commence with the date following the Merger. As a result, a sale or
disposition of any such Common Stock by the Unitholder within one year and one
day after the date of the Merger will generate both long-term and short-term
capital gain or loss, as the case may be, to the Unitholder.
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4. TAX CONSEQUENCES TO THE REIT CORPORATION
NONRECOGNITION. The REIT Corporation will not recognize gain or loss on
its receipt of USRP's assets in exchange for the Common Stock. Following the
Merger, substantially all the assets and liabilities formerly owned by USRP will
be owned by the REIT Corporation through the Operating Partnership.
TAX BASIS AND HOLDING PERIOD IN ASSETS. The aggregate tax basis of the
REIT Corporation in its assets following the Merger should equal USRP's
aggregate tax basis in its assets on the date of the Merger increased by any
gain recognized by USRP on the Merger. The REIT Corporation's holding period in
the assets will include USRP's holding period.
DEPRECIATION DEDUCTIONS. The REIT Corporation will depreciate the
transferred assets over their remaining lives at the same rate and using the
same method as used by USRP with respect to such assets. The REIT Corporation's
basis in its assets will generate future tax deductions to the REIT Corporation.
Although Unitholders with relatively higher bases in their Units may be viewed
(through USRP's Section 754 election) as having a greater share of such basis
than other Unitholders, no consideration has been given to the expected future
tax benefits or detriments in arriving at the number of shares of Common Stock
to be received by each Unitholder.
REPORTING REQUIREMENTS
Pursuant to Section 1.351-3(a) of the Regulations, USRP will be required to
file with its income tax return for the tax year of the Merger, a statement
which includes a description of (i) the assets transferred, (ii) the Common
Stock received in the exchange, and (iii) any liabilities of USRP assumed by the
REIT Corporation pursuant to the Merger.
5. TAX CONSEQUENCES OF THE REIT CORPORATION'S QUALIFICATION AS A REIT
The REIT Corporation will elect to be treated as a REIT for federal income
tax purposes and the following is a summary of the material federal income tax
considerations affecting the REIT Corporation as a REIT and the Unitholders as
its stockholders:
REIT QUALIFICATION. Entities like the REIT Corporation that invest
principally in real estate and that otherwise would be taxed as regular
corporations may elect to be treated as REITs when they satisfy certain detailed
requirements imposed by the Code. If the REIT Corporation qualifies for
taxation as a REIT, it generally will not be subject to corporate income tax to
the extent the REIT Corporation currently distributes its REIT taxable income to
its stockholders. This treatment effectively eliminates the "double taxation"
(I.E., taxation at both the corporate and stockholder levels) imposed on
investments in most regular corporations. A qualifying REIT, however, may be
subject to certain excise and other taxes, as well as to normal corporate tax on
taxable income that is not currently distributed to its stockholders. See "--
Taxation of the REIT Corporation as a REIT." In addition, if the REIT
Corporation fails to qualify as a REIT in any
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taxable year, it will be subject to federal income tax at regular corporate
rates on all of its taxable income. The current maximum federal tax rate for
corporations is 35%, but that rate may increase.
The REIT Corporation will elect to be treated as a REIT for federal income
tax purposes commencing with its taxable year ended December 31, 1997, and for
each subsequent taxable year. The rules governing REITs are highly technical
and require ongoing compliance with a variety of tests that depend, among other
things, on future operating results. While the REIT Corporation expects to
satisfy these tests, and will use its best efforts to do so, no assurance can be
given that the REIT Corporation will qualify as a REIT for any particular year,
or that the applicable law will not change and adversely affect the REIT
Corporation and its stockholders. See " --Failure to Qualify as a REIT."
GENERAL QUALIFICATION REQUIREMENTS. The REIT Corporation must be organized
as an entity that would, if it does not maintain its REIT status, be taxable as
a regular corporation. It cannot be a financial institution or an insurance
company. The REIT Corporation must be managed by one or more directors. The
REIT Corporation expects to meet, each of these requirements. The REIT
Corporation also expects to satisfy the requirements that are separately
described below concerning share ownership and reporting, the nature and amounts
of the REIT Corporation's income and assets and the levels of required annual
distributions.
SHARE OWNERSHIP; REPORTING. Beneficial ownership of the REIT Corporation
must be and is evidenced by transferable shares. The REIT Corporation's capital
stock must be held by at least 100 persons for approximately 92% of the days in
each taxable year. Not more than 50% of the value of the shares of capital
stock may be held, directly or indirectly, applying certain constructive
ownership rules, by five or fewer individuals at any time during the last half
of each of the REIT Corporation's taxable years. The REIT Corporation is not
required to satisfy these 100 person and 50% tests until its second taxable year
for which an election is made to be taxed as a REIT. The REIT Corporation
believes that its shares of Common Stock will be owned by a sufficient number of
investors and in appropriate proportions to permit it to continue satisfying
these requirements. To protect against violations of these requirements, the
Articles will provide that no person is permitted to own (applying certain
constructive ownership tests) more than 8.75% of the outstanding Common Stock
(except for QSV which can initially own up to 15% of the outstanding Common
Stock, subject to reduction under certain circumstances) or 9.8% of the
outstanding Preferred Stock. In addition, the Articles will contain
restrictions on transfers of capital stock, as well as provisions that
automatically convert shares of stock into nonvoting, non-dividend paying Excess
Stock to the extent that the ownership otherwise might jeopardize the REIT
Corporation's REIT status. Special rules for determining share ownership apply
to certain qualified pension and profit sharing trusts. See "--Taxation of Tax
Exempt Entities."
To monitor the REIT Corporation's compliance with the share ownership
requirements, the REIT Corporation is required to maintain records disclosing
the actual ownership of common shares. To do so, the REIT Corporation must
demand written statements each year from the record holders of certain
percentages of shares in which the record holders are to disclose the
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actual owners of the shares (I.E., the persons required to include in gross
income the REIT dividends). A list of those persons failing or refusing to
comply with this demand must be maintained as part of the REIT Corporation's
records. Stockholders who fail or refuse to comply with the demand must
submit a statement with their tax returns disclosing the actual ownership of
the shares and certain other information.
SOURCES OF GROSS INCOME. In order to qualify as a REIT for a particular
year, the REIT Corporation also must meet three tests governing the sources of
its income. These tests are designed to ensure that a REIT derives its income
principally from passive real estate investments. In evaluating a REIT's
income, the REIT will be treated as receiving its proportionate share of the
income produced by any partnership in which the REIT invests, and any such
income will retain the character that it has in the hands of the partnership.
The Code allows the REIT Corporation to own and operate a number of its
properties through wholly-owned subsidiaries which are "qualified REIT
subsidiaries." The Code provides that a qualified REIT subsidiary is not
treated as a separate corporation, and all of its assets, liabilities and items
of income, deduction and credit are treated as assets, liabilities and such
items of the REIT.
75% GROSS INCOME TEST. At least 75% of a REIT's gross income for each
taxable year must be derived from specified classes of income that principally
are real estate related. The permitted categories of principal importance to
the REIT Corporation are: (i) rents from real property; (ii) interest on loans
secured by real property; (iii) gain from the sale of real property or loans
secured by real property (excluding gain from the sale of property held
primarily for sale to customers in the ordinary course of the REIT Corporation's
trade or business, referred to below as "dealer property"); (iv) income from the
operation and gain from the sale of certain property acquired in connection with
the foreclosure of a mortgage securing that property ("foreclosure property");
(v) distributions on, or gain from the sale of, shares of other qualifying
REITs; (vi) abatements and refunds of real property taxes; and (vii) "qualified
temporary investment income" (described below). In evaluating the REIT
Corporation's compliance with the 75% income test (as well as the 95% income
test described below), gross income does not include gross income from
"prohibited transactions." A prohibited transaction is one involving a sale of
dealer property, not including foreclosure property and certain dealer property
held by the REIT Corporation for at least four years.
The REIT Corporation expects that substantially all of its operating gross
income will be considered rent from real property. Rent from real property is
qualifying income for purposes of the 75% income test only if certain conditions
are satisfied. Rent from real property includes charges for services
customarily rendered to tenants, and rent attributable to personal property
leased together with the real property so long as the personal property rent is
less than 15% of the total rent. The REIT Corporation does not expect to earn
material amounts in these categories. Rent from real property generally does
not include rent based on the income or profits derived from the property. The
REIT Corporation does not intend to lease property and receive rentals based on
the tenant's net income or profit. However, rent based on a percentage of gross
income is permitted as rent from real property and the REIT Corporation will
have
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leases where rent is based on a percentage of gross income. Also excluded is
rent received from a person or corporation in which the REIT Corporation (or
any of its 10% or greater owners) directly or indirectly through the
constructive ownership rules contained in Section 318 of the Code, owns a 10%
or greater interest. USRP, through such attribution rules, owns greater than
a 10% interest in one tenant which leases three (3) Burger King restaurant
properties from the Operating Partnership. However, such non-qualifying
income is less than 3.5% of total gross income of the Operating Partnership.
A third exclusion covers amounts received with respect to real property if
the REIT Corporation furnishes services to the tenants or manages or operates
the property, other than through an "independent contractor" from whom the
REIT Corporation does not derive any income. The obligation to operate
through an independent contractor generally does not apply, however, if any
services provided by the REIT Corporation are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are
not considered rendered primarily for the convenience of the tenant (applying
standards that govern in evaluating whether rent from real property would be
unrelated business taxable income when received by a tax exempt owner of the
property).
The REIT Corporation will, in most instances, directly operate and manage
its assets without using an "independent contractor." The REIT Corporation
believes that the only material services to be provided to tenants will be those
usually or customarily rendered in connection with the rental of space for
occupancy only. The REIT Corporation will not provide services that might be
considered rendered primarily for the convenience of the tenants, such as hotel,
health care or extensive recreational or social services. Consequently, the
REIT Corporation believes that substantially all of its rental income will be
qualifying income under the 75% income test, and that the REIT Corporation's
provision of services will not cause the rental income to fail to be included
under that test.
Upon the REIT Corporation's ultimate sale of properties, any gains realized
also are expected to constitute qualifying income, as gain from the sale of real
property (not involving a prohibited transaction).
95% GROSS INCOME TEST. In addition to earning 75% of its gross income from
the sources listed above, at least an additional 20% of the REIT Corporation's
gross income for each taxable year must come either from those sources, or from
dividends, interest or gains from the sale or other disposition of stock or
other securities that do not constitute dealer property. This test permits a
REIT to earn a significant portion of its income from traditional "passive"
investment sources that are not necessarily real estate related. The term
"interest" (under both the 75% and 95% tests) does not include amounts that are
based on the income or profits of any person, unless the computation is based
only on a fixed percentage of receipts or sales.
FAILING THE 75% OR 95% TESTS; REASONABLE CAUSE. As a result of the 75% and
95% tests, REITs generally are not permitted to earn more than 5% of their gross
income from active sources (such as brokerage commissions or other fees for
services rendered). This type of income will not qualify for the 75% test or
95% test but is not expected to be significant and such income and other
nonqualifying income are expected to be at all times less than 5% of the
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REIT Corporation's annual gross income. While the REIT Corporation does not
anticipate that it will earn substantial amounts of nonqualifying income, if
nonqualifying income exceeds 5% of the REIT Corporation's gross income, the
REIT Corporation could lose its status as a REIT. The REIT Corporation may
establish non-qualified REIT subsidiaries to hold assets generating
non-qualifying income. The gross income generated by these subsidiaries is
not included in the REIT Corporation's gross income. However, dividends from
such subsidiaries to the REIT Corporation are included in the REIT
Corporation's gross income and qualify for the 95% income test.
If the REIT Corporation fails to meet either the 75% or 95% income tests
during a taxable year, it may still qualify as a REIT for that year if (i) it
reports the source and nature of each item of its gross income in its Federal
income tax return for that year; (ii) the inclusion of any incorrect information
in its return is not due to fraud with intent to evade tax; and (iii) the
failure to meet the tests is due to reasonable cause and not to willful neglect.
However, in that case the REIT Corporation would be subject to a 100% tax based
on the greater of the amount by which it fails either the 75% or 95% income
tests for such year. See "-- Taxation of the REIT Corporation as a REIT."
30% INCOME TEST. The REIT Corporation also must earn less than 30% of its
gross income from the sale or other disposition of: (i) real property and loans
secured by real property held for less than four years (other than foreclosure
property and involuntarily conversions), (ii) stock or securities held by the
REIT Corporation for less than one year and (iii) property in a prohibited
transaction. The 30% income test does not have a reasonable cause exception as
do the 75% and 95% income tests. Consequently, a failure to meet the 30% income
test would terminate the REIT Corporation's status as a REIT automatically.
Because the REIT Corporation expects to hold its assets for long-term investment
and does not anticipate selling them within four years, the REIT Corporation
expects to comply with this requirement.
CHARACTER OF ASSETS OWNED. On the last day of each calendar quarter, the
REIT Corporation also must meet two tests concerning the nature of its
investments. First, at least 75% of the value of the total assets of the REIT
Corporation generally must consist of real estate assets, cash, cash items
(including receivables) and government securities. For this purpose, "real
estate assets" include interests in real property, interests in loans secured by
mortgages on real property or by certain interests in real property, shares in
other REITs and certain options, but exclude mineral, oil or gas royalty
interests. The temporary investment of new capital in debt instruments also
qualifies under this 75% asset test, but only for the one-year period beginning
on the date the REIT Corporation receives the new capital. Second, although the
balance of the REIT Corporation's assets generally may be invested without
restriction, the REIT Corporation will not be permitted to own (i) securities of
any one non-governmental issuer that represent more than 5% of the value of the
REIT Corporation's total assets or (ii) more than 10% of the outstanding voting
securities of any single issuer. A REIT, however, may own 100% of the stock of
a qualified REIT subsidiary, in which case the assets, liabilities and items of
income, deduction and credit of the subsidiary are treated as those of the REIT.
In evaluating a REIT's
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assets, if the REIT invests in a partnership, it is deemed to own its
proportionate share of the assets of the partnership.
The REIT Corporation anticipates that it will comply with these asset
tests. While some portion of its assets initially may be invested in qualifying
temporary debt investments, substantially all of the REIT Corporation's
investments will be in properties which should represent qualifying real estate
assets.
ANNUAL DISTRIBUTIONS TO STOCKHOLDERS. To maintain REIT status, the REIT
Corporation generally must distribute to its stockholders in each taxable year
at least 95% of its net ordinary income (capital gain is not required to be
distributed). More precisely, the REIT Corporation must distribute an amount
equal to (i) 95% of the sum of (a) its "REIT Taxable Income" before deduction of
dividends paid and excluding any net capital gain and (b) any net income from
foreclosure property less the tax on such income, minus (ii) certain limited
categories of "excess noncash income." REIT Taxable Income is defined to be the
taxable income of the REIT, computed as if it were an ordinary corporation, with
certain modifications. For example, the deduction for dividends paid is
allowed, but neither net income from foreclosure property, nor net income from
prohibited transactions, is included. In addition, the REIT may carry over, but
not carry back, a net operating loss for 15 years following the year in which it
was incurred.
A REIT may satisfy the 95% distribution test with dividends paid during the
taxable year and with certain dividends paid after the end of the taxable year.
Dividends paid in January that were declared during the last calendar quarter of
the prior year and were payable to stockholders of record on a date during the
last calendar quarter of that prior year are treated as paid on December 31 of
the prior year (for both the REIT Corporation and its stockholders). Other
dividends declared before the due date of the REIT Corporation's tax return for
the taxable year (including extensions) also will be treated as paid in the
prior year for the REIT Corporation if they are paid (i) within 12 months of the
end of such taxable year and (ii) no later than the REIT Corporation's next
regular distribution payment. Dividends that are paid after the close of a
taxable year and do not qualify under the rule governing payments made in
January that is described above will be taxable to the shareholders in the year
paid, even though they may be taken into account by the REIT Corporation for a
prior year. A nondeductible excise tax equal to 4% will be imposed on the REIT
Corporation for each calendar year to the extent that dividends declared and
distributed or deemed distributed before December 31 are less than the sum of
(a) 85% of the REIT Corporation's "ordinary income" plus (b) 95% of the REIT
Corporation's capital gain net income plus (c) income not distributed in earlier
years minus (d) distributions in excess of income in earlier years and (e) any
amount of REIT taxable income for such year.
The REIT Corporation will be taxed at regular corporate rates to the extent
that it retains any portion of its taxable income (E.G., if the REIT Corporation
distributes only the required 95% of its taxable income, it would be taxed on
the retained 5%). Under certain circumstances the REIT Corporation may not have
sufficient cash or other liquid assets to meet the distribution requirement.
This could arise because of competing demands for the REIT Corporation's funds,
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or due to timing differences between tax reporting and cash receipts and
disbursements (I.E., income may have to be reported before cash is received, or
expenses may have to be paid before a deduction is allowed). Although the REIT
Corporation does not anticipate any difficulty in meeting this requirement, no
assurance can be given that necessary funds will be available.
If the REIT Corporation fails to meet the 95% distribution requirement
because of an adjustment to the REIT Corporation's taxable income by the IRS,
the REIT Corporation may be able to cure the failure retroactively by paying a
"deficiency dividend" (as well as applicable interest and penalties) within a
specified period.
TAXATION OF THE REIT CORPORATION AS A REIT. The REIT Corporation will
adopt the calendar year for Federal income tax purposes, and will use the
accrual method of accounting. For each taxable year in which the REIT
Corporation qualifies as a REIT, it generally will be taxed only on the portion
of its taxable income that it retains (which will include undistributed net
capital gain), because the REIT Corporation will be entitled to a deduction for
its dividends paid to shareholders during the taxable year. A dividends paid
deduction is not available for dividends that are considered preferential within
any given class of shares or as between classes except to the extent such class
is entitled to such preference. The REIT Corporation does not anticipate that
it will pay any such preferential dividends. The Articles will provide for the
automatic exchange of outstanding shares for Excess Stock in circumstances in
which the REIT Corporation's REIT status might otherwise be put into jeopardy
(I.E., if a person attempts to acquire a block of shares that would be
sufficient to cause the REIT Corporation to fail the requirement that five or
fewer individuals may not own more than 50% of the value of the outstanding
shares). Because Excess Stock will represent a separate class of outstanding
shares, the fact that those shares will not be entitled to dividends should not
adversely affect the REIT Corporation's ability to deduct its dividend payments.
The REIT Corporation would be subject to tax on any income or gain from
foreclosure property at the highest corporate rate (currently 35%). A
confiscatory tax of 100% applies to any net income from prohibited transactions.
In addition, if the REIT Corporation fails to meet either the 75% or 95% source
of income tests described above, but still qualifies for REIT status under the
reasonable cause exception to those tests, a 100% tax would be imposed equal to
the amount obtained by multiplying (i) the greater of the amount, if any, by
which it failed either the 75% income test or the 95% income test, times (ii)
the ratio of the REIT Corporation's REIT Taxable Income to the REIT
Corporation's gross income (excluding capital gain and certain other items).
The REIT Corporation also will be subject to the minimum tax on items of tax
preference (excluding items specifically allocable to the REIT Corporation's
stockholders). Finally, under regulations that are to be promulgated, the REIT
Corporation also may be taxed at the highest regular corporate tax rate on any
built-in gain (I.E., the excess of value over adjusted tax basis) attributable
to assets that the REIT Corporation acquires in certain tax-free corporate
transactions, to the extent the gain is recognized during the first ten years
after the REIT Corporation acquires such assets.
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FAILURE TO QUALIFY AS A REIT. For any taxable year in which the REIT
Corporation fails to qualify as a REIT, it would be taxed at the usual corporate
rates on all of its taxable income. Distributions to its stockholders would not
be deductible in computing that taxable income, and distributions would no
longer be required. Any corporate level taxes generally would reduce the amount
of cash available to the REIT Corporation for distribution to its stockholders
and, because the stockholders would continue to be taxed on the distributions
they receive, the net after tax yield to the shareholders from their investment
in the REIT Corporation likely would be reduced substantially. As a result, the
REIT Corporation's failure to qualify as a REIT during any taxable year could
have a material adverse effect upon the REIT Corporation and its stockholders.
If the REIT Corporation loses its REIT status, unless certain relief provisions
apply, the REIT Corporation will not be eligible to elect REIT status again
until the fifth taxable year which begins after the first year for which the
REIT Corporation's election was terminated.
If, after forfeiting its REIT status, the REIT Corporation later qualifies
and elects to be taxed as a REIT again, the REIT Corporation may face
significant adverse tax consequences. Prior to the end of the year in which the
REIT Corporation sought to qualify again as a REIT, the REIT Corporation would
be required to make distributions sufficient to eliminate any earnings and
profits accumulated during its period of non-REIT status. Moreover, immediately
prior to the effectiveness of the election to return to REIT status, the REIT
Corporation would be treated as having disposed of all of its assets in a
taxable transaction, triggering taxable gain with respect to the REIT
Corporation's appreciated assets. In that event, however, the REIT Corporation
would be permitted to elect an alternative treatment under which those gains
would be taken into account only as and when they actually are recognized upon
sales of the appreciated property occurring within a ten-year period. The REIT
Corporation would be required to distribute at least 95% of any such recognized
gains, but it would not receive the benefit of a dividends paid deduction to
reduce those taxable gains. Thus, any such gains on appreciated assets would be
subject to double taxation (I.E., at the corporate level as well as the
stockholder level).
TAXATION OF STOCKHOLDERS. Distributions generally will be taxable to
stockholders as ordinary income to the extent of the REIT Corporation's earning
and profits. Dividends declared during the last quarter of a calendar year and
actually paid during January of the immediately following calendar year are
generally treated as if received by the stockholders on December 31 of the
calendar year during which they were declared. Distributions paid to
stockholders will not constitute passive activity income, and as a result
generally cannot be offset by losses from passive activities of a stockholder
who is subject to the passive activity rules. Distributions designated by the
REIT Corporation as capital gains dividends generally will be taxed as long term
capital gains to stockholders to the extent that the distributions do not exceed
the REIT Corporation's actual net capital gain for the taxable year. Corporate
stockholders may be required to treat up to 20% of any such capital gains
dividends as ordinary income. Distributions by the REIT Corporation, whether
characterized as ordinary income or as capital gains, are not eligible for the
70% dividends received deduction for corporations. Stockholders are not
permitted to deduct losses or loss carry-forwards of the REIT Corporation.
Future regulations may require
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that the stockholders take into account, for purposes of computing their
individual alternative minimum tax liability, certain tax preference items of
the REIT Corporation.
The REIT Corporation may generate cash in excess of its net earnings. If
the REIT Corporation distributes cash to stockholders in excess of the REIT
Corporation's current and accumulated earnings and profits (other than as a
capital gain dividend), the excess cash will be deemed to be a return of capital
to each stockholder to the extent of the adjusted tax basis of the shareholder's
shares. Distributions in excess of the adjusted tax basis will be treated as
gain from the sale or exchange of the shares of stock. A stockholder who has
received a distribution in excess of current and accumulated earnings and
profits of the REIT Corporation may, upon the sale of the shares, realize a
higher taxable gain or a smaller loss because the basis of the shares as reduced
will be used for purposes of computing the amount of the gain or loss.
Generally, gain or loss realized by a stockholder upon the sale of common
shares will be reportable as capital gain or loss. If a stockholder receives a
long-term capital gain dividend from the REIT Corporation and has held the
shares of stock for six months or less, any loss incurred on the sale or
exchange of the shares is treated as a long-term capital loss, to the extent of
the corresponding long-term capital gain dividend received.
In any year in which the REIT Corporation fails to qualify as a REIT, the
stockholders generally will continue to be treated in the same fashion described
above, except that no the REIT Corporation dividends will be eligible for
treatment as capital gains dividends, corporate stockholders will qualify for
the dividends received deduction and the stockholders will not be required to
report any share of the REIT Corporation's tax preference items.
BACKUP WITHHOLDING. The REIT Corporation will report to its stockholders
and the IRS the amount of dividends paid during each calendar year and the
amount of tax withheld, if any. If a stockholder is subject to backup
withholding, the REIT Corporation will be required to deduct and withhold from
any dividends payable to that stockholder a tax of 31%. These rules may apply
(i) when a shareholder fails to supply a correct taxpayer identification number,
(ii) when the IRS notifies the REIT Corporation that the stockholder is subject
to the rules or has furnished an incorrect taxpayer identification number or
(iii) in the case of corporations or others within certain exempt categories,
when they fail to demonstrate that fact when required. A shareholder that does
not provide a correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Any amount withheld as backup withholding may be
credited against the shareholder's Federal income tax liability. The REIT
Corporation also may be required to withhold a portion of capital gain
distributions made to stockholders who fail to certify their non-foreign status
to the REIT Corporation.
TAXATION OF TAX EXEMPT ENTITIES. In general, a tax exempt entity that is a
stockholder of the REIT Corporation will not be subject to tax on distributions
from the REIT Corporation or gain realized on the sale of shares. In Revenue
Ruling 66-106, the IRS specifically confirmed that a REIT's distributions to a
tax exempt employees' pension trust did not constitute unrelated business
taxable income. A tax exempt entity may be subject to tax, however, to the
extent that
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it has financed the acquisition of its shares with "acquisition indebtedness"
within the meaning of the Code. The Revenue Reconciliation Act of 1993 has
modified the rules for tax exempt employees' pension and profit sharing
trusts which qualify under Section 401(a) of the Code and are exempt from tax
under Section 501(a) of the Code ("qualified trusts") for tax years beginning
after December 31, 1993. Under the new rules, in determining the number of
stockholders a REIT has for purposes of the "50% test" described above under
"--REIT Qualification-- Share Ownership; Reporting," generally, any stock
held by a qualified trust will be treated as held directly by its
beneficiaries in proportion to their actuarial interests in such trust and
will not be treated as held by such trust. (This general rule will not apply
if certain persons related to the qualified trust ("disqualified persons")
hold in the aggregate more than 5% of the value of the REIT and the REIT has
accumulated earnings and profits attributable to any period for which it did
not qualify as a REIT; this exception is not expected to apply to the REIT
Corporation.)
A qualified trust owning more than 10% of a REIT must treat a percentage of
dividends from the REIT as unrelated business taxable income. The percentage is
determined by dividing the REIT's gross income (less direct expenses related
thereto) derived from an unrelated trade or business for the year by the gross
income of the REIT for the year in which the dividends are paid. However, if
this percentage is less than 5%, dividends are not treated as unrelated business
taxable income. These unrelated business taxable income rules apply only if the
REIT qualifies as a REIT because of the change in the 50% test discussed above
and if the trust is "predominantly held" by qualified trusts. A REIT is
predominantly held by qualified trusts if at least one pension trust owns more
than 25% of the value of the REIT or a group of pension trusts individually
holding more than 10% of the value of the REIT collectively owns more than 50%
of the value of the REIT.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Code, respectively, income from an investment in the REIT Corporation will
constitute unrelated business taxable income unless the organization is able to
deduct an amount properly set aside or placed in reserve for certain purposes so
as to offset the unrelated business taxable income generated by the investment
in the REIT Corporation. These prospective investors should consult their own
tax advisors concerning the "set aside" and reserve requirements.
TAXATION OF FOREIGN INVESTORS. The rules governing federal income taxation
of nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign stockholders (collectively, "Non-U.S. Stockholders") are complex
and no attempt will be made herein to provide more than a summary of such rules.
Prospective Non-U.S. Stockholders should consult with their own tax advisors to
determine the impact of federal, state and local income tax laws with regard to
an investment in common shares, including any reporting requirements, as well as
the tax treatment of such an investment under the laws of their home country.
Dividends that are not attributable to gain from sales or exchanges by the
REIT Corporation of United States real property interests and not designated by
the REIT Corporation
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as capital gain dividends will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and
profits of the REIT Corporation. Such dividends ordinarily will be subject
to a withholding tax equal to 30% of the gross amount of the dividend unless
an applicable tax treaty reduces or eliminates that tax. However, if income
from the investment in the common shares is treated as effectively connected
with the Non-U.S. Stockholder's conduct of a United States trade or business,
the Non-U.S. Stockholder generally will be subject to a tax at graduated
rates, in the same manner as U.S. stockholders are taxed with respect to such
dividends (and may also be subject to the 30% branch profits tax in the case
of a stockholder that is a foreign corporation). The REIT Corporation
expects to withhold United States income tax at the rate of 30% on the gross
amount of any such dividends paid to a Non-U.S. Stockholder unless (i) the
Non-U.S. Stockholder files on IRS Form 1001 claiming that a lower treaty rate
applies or (ii) the Non-U.S. Stockholder files an IRS Form 4224 with the REIT
Corporation claiming that the dividend is effectively connected income.
Dividends in excess of current and accumulated earnings and profits of the
REIT Corporation will not be taxable to a stockholder to the extent that they
do not exceed the adjusted basis of the stockholder's shares, but rather will
reduce the adjusted basis of such shares. To the extent that such dividends
exceed the adjusted basis of a Non-U.S. Stockholder's shares of stock, they
will give rise to tax liability if the Non-U.S. Stockholder would otherwise
be subject to tax on any gain from the sale or disposition of his shares, as
described below. If it cannot be determined at the time a dividend is paid
whether or not such dividend will be in excess of current and accumulated
earnings and profits, the dividends will be subject to such withholding. The
REIT Corporation does not intend to make quarterly estimates of that portion
of the dividends that are in excess of earnings and profits, and as a result,
all dividends will be subject to such withholding. However, the Non-U.S.
Stockholder may seek a refund of such amounts from the IRS.
For any year in which the REIT Corporation qualifies as a REIT, dividends
that are attributable to gain from sales or exchanges by the REIT Corporation of
United States real property interests will be taxed to a Non-U.S. Stockholder
under the provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, those dividends are taxed to a Non-U.S. Stockholder
as if such gain were effectively connected with a United States business.
Non-U.S. Stockholders would thus be taxed at the normal capital gain rates
applicable to U.S. stockholders (subject to applicable alternative minimum tax
and a special alternative minimum tax in the case of nonresident alien
individuals). Also, dividends subject to FIRPTA may be subject to a 30% branch
profits tax in the hands of a foreign corporate shareholder not entitled to
treaty exemption. The REIT Corporation is required by the Code and applicable
Treasury Regulations to withhold 35% of any dividend that could be designated by
the REIT Corporation as a capital gain dividend. This amount is creditable
against the Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the REIT Corporation is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the shares was held directly
or indirectly by foreign persons. It is currently anticipated that
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the REIT Corporation will be a "domestically controlled REIT," and therefore
the sale of shares will not be subject to taxation under FIRPTA. If the
shares are publicly traded, however, no assurance can be given that the REIT
Corporation will remain a "domestically controlled REIT." However, gain not
subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i) investment
in the shares of stock is effectively connected with the Non-U.S.
Stockholder's United States trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as U.S. stockholders with
respect to such gain (and may also be subject to the 30% branch profits tax
in the case of a shareholder that is a foreign corporation), or (ii) the
Non-U.S. Stockholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and has a "tax
home" in the United States, in which case the nonresident alien individual
will be subject to a 30% tax on the individual's capital gains. If the gain
on the sale of shares were to be subject to taxation under FIRPTA, the
Non-U.S. Stockholder will be subject to the same treatment as U.S.
stockholders with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals and may also be subject to the 30% branch profits tax in
the case of a stockholder that is a foreign corporation).
Upon the death of a foreign individual stockholder, the investor's shares
will be treated as part of the investor's U.S. estate for purposes of the U.S.
estate tax, except as may be otherwise provided in an applicable estate tax
treaty.
STATE AND LOCAL TAXES. The REIT Corporation and its stockholders may be
subject to state or local taxation in various state or local jurisdictions,
including those in which it or they transact business or reside. Consequently,
prospective stockholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in the REIT Corporation.
B. EXCHANGE ALTERNATIVE
If the Conversion is effected pursuant to the Partnership Alternative, no
gain or loss should be recognized by the Unitholders as a result of the
amendments to the Partnership Agreements and the admission of the REIT
Corporation as a partner in the Operating Partnership. A Unitholder's eventual
exchange of Units for shares of Common Stock will be a taxable event. See
"--Exchange Alternative--Disposition of Units: Exchange for Shares in the REIT
Corporation." Prior to such exchange, the Unitholders generally will continue
to be taxed in the same manner as they were taxed preceding the admission of the
REIT Corporation as a limited partner of the Operating Partnership, summarized
as follows:
1. PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income tax
liability. Each partner is required to take into account in computing his
federal income tax liability his allocable share of income, gains, losses,
deductions and credits of the partnership, regardless of whether
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cash distributions are made. Distributions by a partnership to a partner are
generally not taxable unless the distribution is in excess of the partner's
tax basis in his partnership interest.
Counsel is of the opinion that under present law, and subject to the
conditions and qualifications set forth below, for federal income tax purposes,
the Partnerships will be treated as partnerships. Counsel's opinion as to the
partnership status of the Partnerships is based principally upon its
interpretation of the factors set forth in Treasury Regulations under Section
7701 of the Code, its interpretation of Section 7704 of the Code, and upon
certain representations made by the Managing General Partner.
Section 7704 of the Code provides that publicly-traded partnerships shall,
as a general rule, be taxed as corporations despite the fact that they are not
classified as associations taxable as corporations under Section 7701. It is
not clear whether USRP will continue to be a "publicly traded partnership" for
purposes of Section 7704 of the Code after the Units are no longer listed on the
NYSE. Section 7704 of the Code provides an exception to this general rule (the
"Real Property Rent Exception") for a publicly traded partnership if 90% or more
of its gross income for every taxable year consists of "qualifying income."
"Qualifying income" includes real property rental income and gain from the sale
or other disposition of real property and gains from the sale or other
disposition of capital assets held for the production of income that otherwise
constitutes "qualifying income."
Real property rent is defined, under Section 7704 of the Code, as amounts
which would qualify as rent from real property under Section 856(d) of the Code
(the provisions of the Code dealing with REITs). Although substantially all of
the income of USRP consists of qualifying rental income, USRP currently engages
in activities that give rise to non-qualifying rental income and may enter into
other such transactions in the future. Rental income of USRP may not qualify as
real property rent pursuant to Section 856 of the Code if USRP, directly or
indirectly through the constructive ownership rules contained in Section 318 of
the Code, owns more than 10% of the capital or profits interest in any tenant
leasing real property from USRP. USRP, through such attribution rules, owns
greater than a 10% interest in one tenant which leases three (3) Burger King
restaurant properties from the Operating Partnership. However, such
non-qualifying income is less than 3.5% of total gross income. With respect to
other transactions in which the Managing General Partner has or may acquire an
ownership interest in any tenant, the Managing General Partner has represented
that it and its affiliates will not acquire, or allow any Unitholder owning more
than 5% of total Units outstanding to acquire, greater than a 10% ownership
interest in such tenant.
Additionally, USRP has purchased items of personalty and equipment and
leased such items to tenants in conjunction with real property leases. To the
extent that the rental income attributable to such equipment exceeds 15% of
total rental income for the real property and equipment, such rental income
would not qualify as real property rent. USRP generally separately allocates
rental income between equipment and real property, and the equipment component
of such rental income is generally less than 15% of the total rental income.
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Assuming that such allocation is valid, no portion of the rental income
attributable to equipment and personal property should constitute non-qualifying
income.
USRP estimates that a total of 3.5% of its gross income for taxable year
1997 will not constitute qualifying income, and estimates that less than 3.5% of
its gross income for each subsequent taxable year will not constitute qualifying
income.
If USRP fails to meet the Real Property Rent Exception to the general rule
of Section 7704 of the Code (other than a failure determined by the IRS to be
inadvertent which is cured within a reasonable time after discovery), USRP will
be treated as if it had transferred all of its assets (subject to liabilities)
to a newly-formed corporation (on the first day of the year in which it fails to
meet the Real Property Rent Exception) in return for stock in such corporation,
and then distributed such stock to the Unitholders in liquidation of their
interest in USRP.
In rendering its opinion that neither of the Partnerships will be treated
as a corporation for federal income tax purposes, counsel has relied on the
following factual representations by the Managing General Partner as to the
Partnerships:
1. Each of the Partnerships will be operated in accordance with
applicable state partnership statutes, its Partnership Agreement and the
statements and representations made in this Proxy Statement/Prospectus.
2. Except as otherwise required by Section 704(c) of the Code, the
general partner of each Partnership will have at least a 0.99% interest in each
material item of income, gain, loss, deduction and credit of its respective
Partnership.
3. For each taxable year, less than 10% of each Partnership's gross
income will be derived from sources other than (i) real property rental income
and gain from the sale or other disposition of real property, or (ii) other
items of "qualifying income" within the meaning of Section 7704(d) of the Code.
4. The Managing General Partner will act independently of such
Partnership's limited partners.
If either Partnership was taxable as a corporation or treated as an
association taxable as a corporation in any taxable year, its income, gains,
losses, deductions and credits would be reflected only on its tax return rather
than being passed through to its partners and its taxable income would be taxed
at corporate rates. In addition, its distributions to each of its partners
would be treated as either dividend income (to the extent of its current or
accumulated earnings and profits), and, in the absence of earnings and profits,
as a nontaxable return of capital (to the extent of such partner's tax basis in
his interest therein) or taxable capital gain (after such partner's tax basis in
his interest therein is reduced to zero). Furthermore, losses realized by such
Partnership would not flow through to the Unitholders. Accordingly, treatment
of either Partnership as a corporation for federal income tax purposes would
probably result in a material
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reduction in a Unitholder's cash flow and after-tax return. In addition, if
USRP were to fail to qualify as a partnership for federal income tax
purposes, the REIT Corporation could fail to qualify as a REIT.
The discussion below is based on the assumption that each Partnership will
be classified as a partnership for federal income tax purposes. If that
assumption proves to be erroneous, most, if not all, of the tax consequences
described below would not be applicable to Unitholders.
2. PARTNER STATUS
Unitholders who have become limited partners of USRP pursuant to the
provisions of the Master Partnership Agreement will be treated as partners of
USRP for federal income tax purposes.
The IRS has ruled that assignees of partnership interests who have not been
admitted to a partnership as partners, but who have the capacity to exercise
substantial dominion and control over the assigned partnership interests, will
be treated as partners for federal income tax purposes. On the basis of such
ruling, except as otherwise described herein, (i) assignees who have executed
and delivered transfer applications, and are awaiting admission as limited
partners of the Partnership, and (ii) Unitholders whose Units are held in street
name or by another nominee will be treated as partners for federal income tax
purposes. As such ruling does not extend, on its facts, to assignees of Units
who are entitled to execute and deliver transfer applications and thereby become
entitled to direct the exercise of attendant rights, but who fail to execute and
deliver transfer applications, the tax status of such Unitholders is unclear.
Such Unitholders should consult their own tax advisors with respect to their
status as partners in USRP for federal income tax purposes. A purchaser or
other transferee of Units who does not execute and deliver a transfer
application may not receive certain federal income tax information or reports
furnished to record holders of Units unless the Units are held in a nominee or
street name account and the nominee or broker has executed and delivered a
transfer application with respect to such Units.
A beneficial owner of Units whose Units have been transferred to a short
seller to complete a short sale would appear to lose his status as a partner
with respect to such Units for federal income tax purposes. See "--Exchange
Alternative--Treatment of Short Sales."
3. TAX CONSEQUENCES OF UNIT OWNERSHIP
FLOW-THROUGH OF TAXABLE INCOME. USRP's income, gains, losses, deductions
and credits will consist of its allocable share of the income, gains, losses,
deductions and credits of the Operating Partnership and dividends from its
corporate subsidiaries. Because USRP is not a taxable entity and incurs no
federal income tax liability, each Unitholder will be required to take into
account his allocable share of income, gain, loss and deductions of the
Operating Partnership (through USRP) without regard to whether corresponding
cash distributions are received by Unitholders. Consequently, a Unitholder may
be allocated income from USRP although he has not received a cash distribution
in respect of such income.
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TREATMENT OF PARTNERSHIP DISTRIBUTIONS. Under Section 731 of the Code,
distributions by USRP to a Unitholder generally will not be taxable to such
Unitholder for federal income tax purposes to the extent of his tax basis in his
Units immediately before the distribution. Cash distributions (and, in certain
circumstances, distributions of marketable securities) in excess of such basis
generally will be considered to be gain from the sale or exchange of the Units,
taxable in accordance with the rules described under "Exchange
Alternative--Disposition of Units." The right to exchange Units for Common
Stock of the REIT Corporation may be treated as a marketable security, in which
event the distribution of such rights to the Unitholders would be treated as if
the Unitholders received cash equal to the fair market value of such rights
received. Any reduction in a Unitholder's share of USRP's liabilities included
in his tax basis in his Units will be treated as a distribution of cash to such
Unitholder. See "--Exchange Alternative--Tax Basis of Units." A decrease in a
Unitholder's percentage interest in USRP because of a partnership offering of
additional Units such as upon the admission of the REIT Corporation, will
decrease such Unitholder's share of nonrecourse liabilities and, thus, will
result in a corresponding deemed distribution of cash.
A non-pro rata distribution of money or property may result in ordinary
income to a Unitholder, regardless of his tax basis in his Units, if such
distribution reduces the Unitholder's share of the Partnership's "unrealized
receivables" (including depreciation recapture) and/or substantially appreciated
"inventory items" (both as defined in Section 751 of the Code) (collectively,
"Section 751 Assets"). To that extent, the Unitholder will be treated as having
received his proportionate share of the Section 751 Assets and having exchanged
such assets with USRP in return for the non-pro rata portion of the actual
distribution made to him. This latter deemed exchange will generally result in
the Unitholder's realization of ordinary income under Section 751(b) of the
Code. Such income will equal the excess of (i) the non-pro rata portion of such
distribution over (ii) the Unitholder's tax basis for the share of such Section
751 Assets deemed relinquished in the exchange.
TAX BASIS OF UNITS. In general, a Unitholder's tax basis for his Units
initially will be equal to the price of such Units to him. A Unitholder's tax
basis will generally be increased by (i) his share of partnership taxable income
and (ii) his share of partnership liabilities that are without recourse to any
partner ("nonrecourse liabilities"), if any. Generally, a Unitholder's tax
basis in his interest will be decreased (but not below zero) by (a) his share of
partnership distributions, (b) his share of decreases in nonrecourse liabilities
of the partnership, (c) his share of losses of the partnership and (d) his share
of nondeductible expenditures of the partnership that are not chargeable to
capital. A Unitholder's share of nonrecourse liabilities will generally be
based on his share of the partnership's profits. Accordingly, at the time that
a Unitholder makes the adjustment to his share of partnership properties
pursuant to Section 743(b) of the Code, the Unitholder will not be permitted to
include the recourse debt financing of the partnership but may be entitled to
include a portion of the partnership's nonrecourse financing, in such
adjustment. See "--Exchange Alternative--Tax Treatment of Operations--Section
754 Election."
LIMITATIONS ON DEDUCTIBILITY OF LOSSES. The passive loss limitations
contained in Section 469 of the Code generally provide that individuals,
estates, trusts and certain closely-held
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corporations and personal service corporations can deduct losses from passive
activities (generally, activities in which the taxpayer does not materially
participate) only to the extent of the taxpayer's income from such passive
activities or investments. The passive loss limitations are to be applied
separately with respect to publicly-traded partnerships. Consequently,
losses generated by USRP, if any, will be available to offset only future
income generated by USRP and will not be available to offset income from
other passive activities or investments (including other publicly traded
partnerships) or salary or active business income. Passive losses that are
not deductible because they exceed the Unitholder's income generated by USRP
may be deducted in full when the Unitholder disposes of his entire investment
in USRP to an unrelated party in a fully taxable transaction.
A Unitholder's share of net income from USRP may be offset by any suspended
passive losses from USRP, but may not be offset by any other current or
carryover losses from other passive activities, including those attributable to
other publicly traded partnerships. According to an IRS announcement, Treasury
regulations will be issued which characterize net passive income from a publicly
traded partnership as investment income for purposes of deducting investment
interest.
In addition to the foregoing limitations, a Unitholder may not deduct from
taxable income his share of partnership losses, if any, to the extent that such
losses exceed the lesser of (i) the tax basis of his Units at the end of the
partnership's taxable year in which the loss occurs and (ii) the amount for
which the Unitholder is considered "at risk" under Section 465 of the Code at
the end of that year. In general, a Unitholder will initially be "at risk" to
the extent of the purchase price of his Units. A Unitholder's "at risk" amount
increases or decreases as his tax basis in his Units increases or decreases,
except that nonrecourse liabilities (or increases or decreases in such
liabilities) of USRP generally do not affect his "at risk" amount. Losses
disallowed to a Unitholder as a result of these rules can be carried forward and
will be allowable to the Unitholder to the extent that his tax basis or "at
risk" amount (whichever was the limiting factor) is increased in a subsequent
year. The "at risk" rules apply to an individual Unitholder, a shareholder of a
corporate Unitholder that is an S corporation and a corporate Unitholder if 50%
or more of the value of such stock is owned directly or indirectly by five or
fewer individuals.
ALLOCATION OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTION. The Master
Partnership Agreement requires that a capital account be maintained for each
partner in accordance with the tax accounting principles set forth in applicable
Treasury Regulations under Section 704 of the Code. Distributions upon
liquidation of USRP are to be made in accordance with positive capital account
balances.
In general, if USRP has a net profit, items of income, gain, loss and
deduction will be allocated among the general partner and the Unitholders in
accordance with their respective interests in USRP. Notwithstanding the above,
as required by Section 704(c) of the Code, certain items of partnership income,
gain, loss and deduction will be allocated to account for the difference between
the tax basis and fair market value of certain property held by USRP
("Contributed Property"). Transactions which result in a required Section
704(c) allocation with
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respect to Contributed Property may arise if (i) a Unitholder contributes
appreciated or depreciated property, rather than cash, to USRP, or (ii)
additional Units are issued for cash, and at the time of such issuance, the
capital account of the existing partners are restated to account for the
difference between the tax basis and fair market value of partnership
property. USRP has previously participated in several transactions described
in clause (i) above. Upon the admission of the REIT Corporation, the capital
accounts of the existing partners will be restated as described in clause
(ii) above. Accordingly, with respect to each such transaction, USRP will be
required to make Section 704(c) allocations.
In addition, certain items of recapture income will be allocated to the
extent possible to the partner allocated the deduction giving rise to the
treatment of such gain as recapture income in order to minimize the recognition
of ordinary income by some Unitholders, but these allocations may not be
respected. If these allocations of recapture income are not respected, the
amount of the income or gain allocated to a Unitholder will not change, but a
change in the character of the income allocated to a Unitholder would result.
Finally, although USRP does not expect that its operations will result in the
creation of negative capital accounts, if negative capital accounts nevertheless
result, items of partnership income and gain will be allocated in an amount and
manner sufficient to eliminate the negative balances as quickly as possible.
Under Section 704(c) of the Code, the partners in a partnership cannot be
allocated more depreciation, gain or loss than the total amount of any such item
recognized by that partnership in a particular taxable period (the "ceiling
limitation"). To the extent the ceiling limitation is or becomes applicable,
the Partnership Agreements will require that certain items of income and
deduction be allocated in a way designed to effectively "cure" this problem and
eliminate the impact of the ceiling limitation. Such allocations will not have
substantial economic effect because they will not be reflected in the capital
accounts of the Unitholders. Treasury Regulations under Section 704(c) of the
Code permit a partnership to make reasonable curative allocations to reduce or
eliminate disparities between the tax basis and value attributable to
Contributed Properties.
Counsel is of the opinion that, allocations under the Master Partnership
Agreement will be given substantial effect for federal income tax purposes in
determining a partner's distributive share of an item of income, gain, loss or
deduction. There are, however, uncertainties in the Treasury Regulations
relating to allocations of partnership income.
4. TAX TREATMENT OF OPERATIONS.
INCOME AND DEDUCTIONS IN GENERAL. No federal income tax will be paid by
USRP. Instead, each Unitholder will be required to report on his income tax
return his allocable share of income, gains, losses and deductions of USRP.
Such items must be included on the Unitholder's federal income tax return
without regard to whether USRP makes a distribution of cash to the Unitholder.
A Unitholder is generally entitled to offset his allocable share of USRP's
passive income with his allocable share of losses generated by USRP, if any.
See "
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- --Exchange Alternative--Tax Consequences of Unit Ownership--Limitations on
Deductibility of Losses."
USRP has adopted a convention with respect to transferring Unitholders
which generally allocates the net income or net loss of USRP proportionately to
each day of the year, and treats any Unitholder owning a Unit as of the last day
of the month as owning the Unit for the entire month.
ACCOUNTING METHOD AND TAXABLE YEAR. USRP utilizes the calendar year as its
taxable year and adopted the accrual method of accounting for federal income tax
purposes.
DEPRECIATION METHOD. USRP elected to use the straight-line depreciation
method with respect to its real property assets. Property subsequently acquired
or constructed by USRP may be depreciated using accelerated depreciation methods
permitted by Section 168 of the Code.
SECTION 754 ELECTION. Each Partnership has made the election permitted by
Section 754 of the Code effective for Partnership taxable year 1996. Such
election generally permits a purchaser of Units to adjust his share of the tax
basis in USRP's properties pursuant to Section 743(b) of the Code. Such
elections are irrevocable without the consent of the IRS. The Section 743(b)
adjustment is attributed solely to a purchaser of Units and is not added to the
tax basis of USRP's assets associated with all of the Unitholders (the "Common
Bases"). The amount of the adjustment under Section 743(b) is the difference
between the Unitholder's tax basis in his Units and the Unitholder's
proportionate share of the Common Bases attributable to the Units pursuant to
Section 743. The aggregate amount of the adjustment computed under Section
743(b) is then allocated among the various assets of USRP pursuant to the rules
of Section 755. The Section 743(b) adjustment acts in concert with the Section
704(c) allocations (including the curative allocations, if respected) in
providing the purchaser of Units with the equivalent of a tax basis in his share
of USRP's properties equal to the fair market value of such share. See
"--Exchange Alternative--Tax Consequences of Unit Ownership--Allocation of
Partnership Income, Gain, Loss and Deduction" and "--Exchange
Alternative--Uniformity of Units."
Proposed Treasury Regulation Section 1.168-2(n) generally requires the
Section 743(b) adjustment attributable to recovery property to be depreciated as
if the total amount of such adjustment were attributable to newly-acquired
recovery property placed in service when the transfer occurs. The legislative
history of Section 197 of the Code indicates that the Section 743(b) adjustment
attributable to an amortizable Section 197 intangible should be similarly
treated. Under Treasury Regulation Section 1.167(c)-l(a)(6), a Section 743(b)
adjustment attributable to property subject to depreciation under Section 167 of
the Code rather than cost recovery deductions under Section 168 is generally
required to be depreciated using either the straight-line method or the 150%
declining balance method. USRP utilizes the straight line method on such
property. The depreciation and amortization methods and useful lives associated
with the Section 743(b) adjustment, therefore, may differ from the methods and
useful lives generally used to depreciate the Common Bases in such properties.
The managing general partner of USRP is authorized to adopt a convention to
preserve the uniformity of Units despite
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its inconsistency with Proposed Treasury Regulation Section 1.168-2(n) and
Treasury Regulation Section 1.167(c)-l(a)(6). See "--Exchange
Alternative--Uniformity of Units."
Although counsel is unable to opine as to the validity of such an approach,
USRP intends to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of Contributed Property (to
the extent of any unamortized disparity between the tax basis and value
attributable to Contributed Property) using a rate of depreciation or
amortization derived from the depreciation or amortization method and useful
life applied to the Common Bases of such property, despite its inconsistency
with Proposed Treasury Regulation Section 1.168-2(n), Treasury Regulation
Section 1.167(c)-l(a)(6) or the legislative history of Section 197 of the Code.
If USRP determines that such position cannot reasonably be taken, USRP may adopt
a depreciation or amortization convention under which all purchasers acquiring
Units in the same month would receive depreciation or amortization, whether
attributable to Common Bases or Section 743(b) basis, based upon the same
applicable rate as if they had purchased a direct interest in USRP's property.
Such an aggregate approach may result in lower annual depreciation or
amortization deductions than would otherwise be allowable to certain
Unitholders. See "--Uniformity of Units."
The allocation of the Section 743(b) adjustment must be made in accordance
with the principles of Section 1060 of the Code. Based on these principles, the
IRS may seek to reallocate some or all of any Section 743(b) adjustment not so
allocated by USRP to goodwill which, as an intangible asset, would be
amortizable over a longer period of time than certain of USRP's tangible assets.
A Section 754 election is advantageous when the transferee's tax basis in
such Units is higher than such Units' share of the aggregate tax basis in USRP's
assets immediately prior to the transfer. In such case, pursuant to the
election, the transferee will take a new and higher tax basis in his share of
USRP's assets for purposes of calculating, among other items, his depreciation
deductions and his share of any gain or loss on a sale of USRP's assets.
Conversely, a Section 754 election would be disadvantageous if the transferee's
tax basis in such Units is lower than such Units' share of the aggregate tax
basis in USRP's assets immediately prior to the transfer. Thus, the amounts
that a Unitholder would be able to obtain on a sale or other disposition of his
Units may be affected favorably or adversely by the elections under Section 754.
The calculations and adjustments in connection with the Section 754
election depend, among other things, on the date on which a transfer occurs and
the price at which the transfer occurs. To help reduce the complexity of those
calculations and the resulting administrative cost to USRP, the managing general
partner may apply the following method in making the necessary adjustments
pursuant to the Section 754 election on transfers subsequent to the transfers
pursuant to this offering: the price paid by a transferee for his Units will be
deemed to be the lowest quoted trading price for the Units during the calendar
month in which the transfer was deemed to occur, without regard to the actual
price paid. The application of such convention yields a less favorable tax
result, as compared to adjustments based on actual price, to a transferee who
paid
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more than the "convention price" for his Units. The calculations under
Section 754 elections are highly complex, and there is little legal authority
concerning the mechanics of the calculations, particularly in the context of
publicly traded partnerships. It is possible that the IRS will successfully
assert that the adjustments made by the managing general partner do not meet
the requirements of the Code or the applicable regulations and require a
different tax basis adjustment to be made.
Should the IRS require a different tax basis adjustment to be made, and
should, in the managing general partner's opinion, the expense of compliance
exceed the benefit of the election, the managing general partner may seek
permission from the IRS to revoke the Section 754 election previously made for
USRP. Such a revocation may increase the ratio of a Unitholder's distributive
share of taxable income to cash distributions and adversely affect the amount
that a Unitholder will receive from the sale of his Units.
ESTIMATES OF RELATIVE FAIR MARKET VALUES AND BASIS OF PROPERTIES. The
consequences of the acquisition, ownership and disposition of Units will depend
in part on estimates by the managing general partner of the relative fair market
values and determinations of the tax basis of the assets of USRP. The federal
income tax consequences of such estimates and determinations of tax basis may be
subject to challenge and will not be binding on the IRS or the courts. If the
estimates of fair market value or determinations of tax basis were found to be
incorrect, the character and amount of items of income, gain, loss, deduction or
credit previously reported by Unitholders might change, and Unitholders might be
required to amend their previously filed tax returns or to file claims for
refund.
5. TREATMENT OF SHORT SALES
A Unitholder whose Units are loaned to a "short seller" to cover a short
sale of Units would appear to be considered as having transferred beneficial
ownership of such Units and would, thus, no longer be a partner with respect to
such Units during the period of such loan. As a result, during such period, any
partnership income, gains, deductions, losses or credits with respect to such
Units would appear not to be reportable by such Unitholder, any cash
distributions received by the Unitholder with respect to such Units would be
fully taxable and all of such distributions would appear to be treated as
ordinary income. The IRS also may contend that a loan of Units to a "short
seller" constitutes a taxable exchange. If such a contention were successfully
made, the lending Unitholder may be required to recognize gain or loss. The IRS
has announced that it is actively studying issues relating to the tax treatment
of short sales of partnership interests.
6. ALTERNATIVE MINIMUM TAX
Each Unitholder will be required to take into account his share of any
items of partnership income, gain or loss for purposes of the alternative
minimum tax. A portion of USRP's depreciation deductions may be treated as an
item of tax preference for this purpose. A Unitholder's alternative minimum
taxable income derived from USRP may be higher than his
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share of partnership net income because USRP may use more accelerated methods
of depreciation for purposes of computing federal taxable income or loss.
Prospective Unitholders should consult with their tax advisors as to the
impact of an investment in Units on their liability for the alternative
minimum tax.
7. TAX-EXEMPT ENTITIES, REGULATED INVESTMENT COMPANIES
AND FOREIGN INVESTORS
Employee benefit plans and most other organizations exempt from federal
income tax (including individual retirement accounts ("IRAs") and other
retirement plans) are subject to federal income tax on unrelated business
taxable income ("UBIT"). Substantially all of the income of USRP is rental
income from real property which is excluded from the definition of UBIT.
However, to the extent that any rental income is attributable to debt-financed
property, as defined in Section 514 of the Code, such income will not satisfy
the rental income exclusion and will be taxable to a tax-exempt Unitholder as an
item of UBIT. Although USRP currently has only a small amount of debt-financed
property (as defined under Section 514 of the Code), the Managing General
Partner expects such proportion of debt-financed properties to increase as USRP
continues its acquisition program. Accordingly, a larger percentage of USRP's
total income may become UBIT.
Regulated investment companies are required to derive 90% or more of their
gross income from interest, dividends, gains from the sale of stocks or
securities or foreign currency or certain related sources. It is not
anticipated that any significant amount of USRP's gross income will be
qualifying income.
Nonresident aliens and foreign corporations, trusts or estates that acquire
Units will be considered to be engaged in business in the United States on
account of ownership of such Units and as a consequence will be required to file
federal tax returns in respect of their distributive shares of partnership
income, gain, loss, deduction or credit and pay federal income tax at regular
rates (net of credits, including withholding) on such income. Generally, a
partnership is required by Section 1446 of the Code to pay a withholding tax on
the portion of the partnership's income that is effectively connected with the
conduct of a United States trade or business and that is allocable to the
foreign partners, regardless of whether any actual distributions have been made
to such partners. However, under rules applicable to publicly-traded
partnerships, USRP will withhold (currently at the rate of 39.6%) on actual cash
distributions made quarterly to foreign Unitholders. Each foreign Unitholder
must obtain a taxpayer identification number from the IRS and submit that number
to the transfer agent of USRP on a Form W-8 in order to obtain credit for the
taxes withheld. Subsequent adoption of the Treasury Regulations or the issuance
of other administrative pronouncements may require USRP to change these
procedures.
Because a foreign corporation that owns Units will be treated as engaged in
a United States trade or business, such a Unitholder will be subject to United
States branch profits tax at a rate of 30%, in addition to regular federal
income tax, on its allocable share of USRP's earnings and profits (as adjusted
for changes in the foreign corporation's "U.S. net equity") that are
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effectively connected with the conduct of a United States trade or business.
Such a tax may be reduced or eliminated by an income tax treaty between the
United States and the country with respect to which the foreign corporate
Unitholder is a "qualified resident." In addition, such a Unitholder is
subject to special information reporting requirements under Section 6038C of
the Code.
A foreign Unitholder who sells or otherwise disposes of a Unit will be
subject to federal income tax on gain realized on the disposition of such Unit
to the extent that such gain is effectively connected with a United States trade
or business of the foreign Unitholder. The IRS has issued a ruling under which
all or a portion of any gain that is recognized on a sale of a Unit by a foreign
Unitholder will be subject to tax under the rule of the preceding sentence.
USRP does not expect that any material portion of any such gain will avoid
United States taxation. If less than all of any such gain is so taxable, then
Section 897 of the Code may increase the portion of any gain that is recognized
by a foreign Unitholder that is subject to United States income tax and
withholding of 10% of the amount realized on the disposition of a Unit may apply
if that foreign Unitholder has held more than 5% in value of the Units during
the five-year period ending on the date of the disposition or if the Units are
not regularly traded on an established securities market at the time of the
disposition.
8. UNIFORMITY OF UNITS
There can arise a lack of uniformity in the intrinsic tax characteristics
of Units sold after the date hereof and Units outstanding as of the date hereof.
Without such uniformity, compliance with several federal income tax
requirements, both statutory and regulatory, could be substantially diminished.
In addition, such non-uniformity could have a negative impact on the ability of
a Unitholder to dispose of his interest in USRP. Such lack of uniformity can
result from the application of Proposed Treasury Regulation Section 1.168-2(n)
and Treasury Regulation Section 1.167(c)-l(a)(6) or the application of certain
"ceiling" limitations on USRP's ability to make allocations to eliminate
disparities between the tax basis and value attributable to partnership
properties.
Depreciation conventions may be adopted or items of income and deduction
may be specially allocated in a manner that is intended to preserve the
uniformity of intrinsic tax characteristics among all Units, despite the
application of either Proposed Treasury Regulation Section 1.168-2(n) and
Treasury Regulation Section 1.167(c)-l(a)(6) or the "ceiling" limitations to
partnership properties. Any such special allocation will be made solely for
federal income tax purposes. In the event the IRS disallows the use of such
conventions, some or all of the adverse consequences described in the preceding
paragraph could result. See "--Exchange Alternative--Allocation of Partnership
Income, Gain, Loss and Deduction" and "--Exchange Alternative--Tax Treatment of
Operations--Section 754 Election."
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9. DISPOSITION OF UNITS: EXCHANGE FOR SHARES IN THE REIT CORPORATION
GAIN OR LOSS IN GENERAL. If a Unit is transferred to the REIT Corporation
in exchange for shares in the REIT Corporation, or is sold or otherwise disposed
of, the determination of gain or loss from the exchange, sale or other
disposition will be based on the difference between the amount realized and the
tax basis for such Unit. See "--Exchange Alternative--Tax Consequences of Unit
Ownership--Basis of Units." Upon the exchange, sale or other disposition of his
Units, a Unitholder's "amount realized" will be measured by the sum of the cash
or fair market value of other property received plus the portion of USRP's
nonrecourse liabilities allocated to the Units sold. Similarly, upon a gift of
his Units, a Unitholder will be deemed to have realized gain with respect to the
portion of USRP's nonrecourse liabilities allocable to such Units. To the
extent that the amount of cash or property received plus the allocable share of
USRP's nonrecourse liabilities exceeds the Unitholder's tax basis for the Units
disposed of (in the case of a charitable gift, only a portion of such tax basis
may be offset against the nonrecourse debt), the Unitholder will recognize gain.
The tax liability resulting from such gain could exceed the amount of cash
received upon the disposition of such Units.
The IRS has ruled that a partner must maintain an aggregate tax basis for
his interests in a single partnership (consisting of all interests acquired in
separate transactions). On a sale of a portion of such aggregate interest, such
partner would be required to allocate his aggregate tax basis between the
interest sold and the interest retained by some equitable apportionment method.
If applicable, the aggregation of tax basis of a Unitholder effectively
prohibits a Unitholder from choosing among Units with varying amounts of
inherent gain or loss to control the timing of the recognition of such inherent
gain or loss as would be possible in a stock transaction. Thus, the IRS ruling
may result in an acceleration of gain or deferral of loss on a sale of a portion
of a Unitholder's Units. It is not clear whether such ruling applies to
publicly traded partnerships, such as USRP, the interests in which are evidenced
by separate registered certificates, providing a verifiable means of identifying
each separate interest and tracing the purchase price of such interest. A
Unitholder considering the purchase of additional Units or a sale of Units
purchased at differing prices should consult his tax advisor as to the possible
consequences of that IRS ruling.
To the extent that a portion of the gain upon the sale of a Unit is
attributable to a Unitholder's share of "substantially appreciated inventory
items" and "unrealized receivables" of USRP, as those terms are defined in
Section 751 of the Code, such portion will be treated as ordinary income.
Unrealized receivables include (i) to the extent not previously includable in
partnership income, any rights to pay for services rendered or to be rendered
and (ii) amounts that would be subject to recapture as ordinary income if USRP
had sold its assets at their fair market value at the time of the transfer of a
Unit.
Gain from the sale or other disposition of a Unit may constitute investment
income under Section 163(d) of the Code. A Unitholder must report to the
transfer agent of USRP (on behalf of USRP) any transfer of Units. See
"--Exchange Alternative--Information Return Filing Requirements."
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The treatment of distributions received after a Unitholder has disposed of
his Units is unclear. Such a distribution may be fully taxable as ordinary
income or may reduce a Unitholder's tax basis for the Units disposed of,
resulting in a larger gain or smaller loss from such disposition.
TRANSFEROR/TRANSFEREE ALLOCATIONS. In general, USRP's taxable income and
losses are determined annually and are prorated on a monthly basis and
subsequently apportioned among the Unitholders in proportion to the number of
Units owned by them. However, extraordinary gain or loss realized on a
Terminating Capital Transaction is allocated among the Unitholders of record as
of the date such Terminating Capital Transaction occurs. As a result of this
monthly allocation, a Unitholder transferring Units may be allocated income,
gain, loss, deduction and credit accrued after the transfer.
The use of the monthly conventions discussed above may not be permitted by
existing Treasury Regulations and, accordingly, counsel is unable to opine on
the validity of the method of allocating income and deductions between the
transferors and transferees of Units. If the IRS treats transfers of Units as
occurring throughout each month and a monthly convention is not allowed by the
regulations (or only applies to transfers of less than all of a partner's
interest), the IRS may contend that taxable income or losses of USRP must be
reallocated among the Partners. If any such contention were sustained, certain
Unitholders' respective tax liabilities would be adjusted to the possible
detriment of other Unitholders. The managing general partner is authorized to
revise USRP's method of allocation between transferors and transferees (as well
as among partners whose interests otherwise vary during a taxable period) to
comply with any future regulations.
10. CONSTRUCTIVE TERMINATION OR DISSOLUTION OF PARTNERSHIP
Under Section 708(b)(1)(B) of the Code, a partnership will be considered to
have been terminated if within a twelve-month period there is a sale or exchange
of 50% or more of the interests in partnership capital and profits. A
termination results in a closing of the partnership's taxable year for all
partners, and the partnership's assets are treated as having been distributed to
the partners and reconveyed to the partnership, which is then treated as a new
partnership. A constructive termination of USRP will cause a termination of the
Operating Partnership. In the case of a Unitholder reporting on a fiscal year
other than a calendar year, the closing of a tax year of USRP may result in more
than twelve months' taxable income or loss of USRP being includable in his
taxable income for the year of termination. In addition, each Unitholder will
realize taxable gain to the extent that any money distributed or deemed
distributed to him (including any net reduction in his share of USRP's
nonrecourse liabilities) exceeds the tax basis of his Units.
A termination of either Partnership under Section 708(b)(1)(B) could result
in adverse tax consequences to Unitholders because it could result in a change
in the tax basis for USRP's properties and would require that new tax elections
be made by the reconstituted partnerships. In addition, such a termination
could result in a deferral of Partnership depreciation deductions.
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Further, such a termination may either accelerate the application of (or
subject the reconstituted partnerships to the application of) any change in
law effective as of a date after the termination.
USRP may not have the ability to determine when a constructive termination
occurs as a result of transfers of Units because the Units are currently freely
transferable under "street name" ownership. Thus, USRP may be subject to
penalty for failure to file a tax return and may fail to make certain
partnership elections in a timely manner, including the Section 754 Election.
11. PARTNERSHIP INCOME TAX INFORMATION RETURNS AND
PARTNERSHIP AUDIT PROCEDURES
USRP will use all reasonable efforts to furnish Unitholders with tax
information within 75 days after the close of each partnership taxable year.
Specifically, USRP intends to furnish to each Unitholder a Schedule K-1 which
sets forth his allocable share of USRP's income, gains, losses, deductions and
credits, if any. In preparing such information, the managing general partner
will necessarily use various accounting and reporting conventions to determine
each Unitholder's allocable share of income, gains, losses, deductions and
credits. There is no assurance that any such conventions will yield a result
that conforms to the requirements of the Code, regulations thereunder or
administrative pronouncements of the IRS. The managing general partner cannot
assure Unitholders, that the IRS will not contend that such accounting and
reporting conventions are impermissible. Contesting any such allegations could
result in substantial expense to USRP. In addition, if the IRS were to prevail,
Unitholders may incur substantial liabilities for taxes and interest.
The federal income tax information returns filed by USRP may be audited by
the IRS. The Code contains partnership audit procedures that significantly
simplify the manner in which IRS audit adjustments of partnership items are
resolved. Adjustments (if any) resulting from such an audit may require each
Unitholder to file an amended tax return, and possibly may result in an audit of
the Unitholder's return. Any audit of a Unitholder's return could result in
adjustments of non-partnership as well as partnership items.
Under Sections 6221 through 6233 of the Code, partnerships generally are
treated as separate entities for purposes of federal tax audits, judicial review
of administrative adjustments by the IRS and tax settlement proceedings. The
tax treatment of partnership items of income, gain, loss, deduction and credit
is determined at the partnership level in a unified partnership proceeding
rather than in separate proceedings with the partners. The Code provides for
one partner to be designated as the "Tax Matters Partner" for these purposes.
The Master Partnership Agreement appoints the managing general partner as the
Tax Matters Partner for USRP.
The Tax Matters Partner is entitled to make certain elections on behalf of
USRP and Unitholders and can extend the statute of limitations for assessment of
tax deficiencies against Unitholders with respect to partnership items. In
connection with adjustments to partnership tax returns proposed by the IRS, the
Tax Matters Partner may bind any Unitholder with less than a 1% profits interest
in USRP to a settlement with the IRS unless the Unitholder elects, by filing
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<PAGE>
a statement with the IRS, not to give such authority to the Tax Matters
Partner. The Tax Matters Partner may seek judicial review (to which all the
Unitholders are bound) of a final partnership administrative adjustment and,
if the Tax Matters Partner fails to seek judicial review, such review may be
sought by any Unitholder having at least a 1% profit interest in USRP and by
Unitholders having, in the aggregate, at least a 5% profits interest. Only
one judicial proceeding will go forward, however, and each Unitholder with an
interest in the outcome may participate.
The Unitholders will generally be required to treat partnership items on
their federal income tax returns in a manner consistent with the treatment of
the items on the USRP information return. In general, that consistency
requirement is waived if the Unitholder files a statement with the IRS
identifying the inconsistency. Failure to satisfy the consistency requirement,
if not waived, will result in an adjustment to conform the treatment of the item
by the Unitholder to the treatment on USRP return. Even if the consistency
requirement is waived, adjustments to the Unitholder's tax liability with
respect to partnership items may result from an audit of USRP's or the
Unitholder's tax return. Intentional or negligent disregard of the consistency
requirement may subject a Unitholder to substantial penalties.
12. INFORMATION RETURN FILING REQUIREMENTS
A Unitholder who sells or exchanges Units is required by Section 6050K of
the Code to notify USRP in writing of such sale or exchange, and USRP is
required to notify the IRS of such transaction and to furnish certain
information to the transferor and transferee. However, these reporting
requirements do not apply with respect to a sale by an individual who is a
citizen of the United States and who effects such sale through a broker. In
addition, a transferor and a transferee of a Unit will be required to furnish to
the IRS the amount of the consideration received for such Unit that is allocated
to goodwill or going concern value of USRP. Failure to satisfy such reporting
obligations may lead to the imposition of substantial penalties.
13. NOMINEE REPORTING
Under Section 6031(c) of the Code, persons who hold an interest in USRP as
a nominee for another person must report certain information to USRP. Temporary
Treasury Regulations provide that such information should include (i) the name,
address and taxpayer identification number of the beneficial owners and the
nominee; (ii) whether the beneficial owner is (a) a person that is not a United
States person, (b) a foreign government, an international organization or any
wholly owned agency or instrumentality of either of the foregoing, or (c) a
tax-exempt entity; (iii) the amount and description of Units held, acquired or
transferred for the beneficial owners; and (iv) certain information including
the dates of acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net proceeds from
sales. Brokers and financial institutions are required to furnish additional
information, including whether they are a United States person and certain
information on Units they acquire, hold or transfer for their own account. A
penalty of $50 per failure (up to a maximum of $100,000 per calendar year) is
imposed for failure to report such information to
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<PAGE>
USRP. The nominee is required to supply the beneficial owner of the Units
with the information furnished to USRP.
14. STATE AND OTHER TAXES
In addition to federal income taxes, Unitholders may be subject to other
taxes, such as state and local income taxes, unincorporated business taxes, and
estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which the partners reside or in which either Partnership does
business or owns property. Although an analysis of those various taxes cannot
be presented here, each prospective Unitholder should consider the potential
impact of such taxes on his investment in USRP. The Operating Partnership owns
property and does business in 44 states. A Unitholder will likely be required
to file state income tax returns in such states (other than states such as Texas
and Florida not having a state income tax or states in which USRP is required or
has elected to withhold and pay taxes on behalf of the Unitholders) and may be
subject to penalties for failure to comply with such requirements. In addition,
an obligation to file tax returns or to pay taxes may arise in other states.
Moreover, in certain states, tax losses may not produce a tax benefit in the
year incurred (if, for example, the partner has no income from sources within
that state) and also may not be available to offset income in subsequent taxable
years.
It is the responsibility of each prospective Unitholder to investigate the
legal and tax consequences, under the laws of pertinent states or localities, of
his investment in USRP. Accordingly, each prospective Unitholder should
consult, and must depend upon, his own tax counsel or other advisor with regard
to those matters. Further, it is the responsibility of each Unitholder to file
all state and local, as well as federal, tax returns that may be required of
such Unitholder.
C. DIFFERENCES BETWEEN A PARTNERSHIP AND A REIT
The following is a summary of the material differences, as more
specifically described above under "The Merger Alternative" and "Exchange
Alternative," between the federal tax consequences applicable to a partnership
and its partners versus those applicable to a REIT and its stockholders.
TAXATION OF ENTITY. A partnership is not a taxable entity. A
partnership's partners recognize their allocable share of the partnership's
taxable income or loss. A REIT is a taxable entity and must pay tax at the
corporate rates on its taxable income, but it is allowed a deduction for
distributions to its stockholders. Consequently, a REIT may avoid federal
income taxation. The Code contains several special provisions that may
apply to a REIT to cause it to pay certain taxes.
FLOW THROUGH OF LOSS. A partnership's taxable loss is allocated to
its partners, who may utilize such losses subject to various limitations.
Losses of a REIT do not flow through to its stockholders.
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<PAGE>
CHARACTER OF INCOME OR LOSS. Each item of income or loss of a
partnership (E.G., as rent, interest, dividends, capital gain, etc.)
retains its character as it is allocated to the partners. This may be
relevant for various provisions of the Code including the limitation on
passive activity losses, alternative minimum tax, limitations on itemized
deductions, etc. As described above under "--The Merger Alternative--Tax
Consequences of the REIT Corporation's Qualification as a REIT--Taxation of
Stockholders," taxable distributions from a REIT are treated as dividends
except to the extent that such distributions are designated as capital gain
distributions.
BASIS. A partner's basis in a partnership is increased by the
partnership's income and such partner's share of partnership indebtedness,
and is decreased by losses, distributions and reductions in his share of
partnership indebtedness. The basis of a REIT stockholder is not affected
by the REIT's income or loss or the REIT's indebtedness, but is reduced to
the extent the shareholder receives non-taxable distributions.
REQUIREMENTS FOR QUALIFICATION. As described above under "--The
Merger Alternative--Tax Consequences of the REIT Corporation's
Qualification as a REIT--REIT Qualification," in order to remain qualified
as a REIT, a REIT must satisfy various income, asset, distribution,
shareholder and record keeping requirements. A publicly traded partnership
has certain income characterization requirements, but is otherwise not
subject to the same requirements as a REIT in order to retain its
classification as a partnership for tax purposes.
BASIS ADJUSTMENTS. A transferee Unitholder is entitled to the benefit
of certain basis adjustments under Section 754 of the Code upon a sale or
exchange of Units or the death of a Unitholder. See "--Exchange
Alternative--Tax Treatment of Operations--Section 754 Election." There
will be no Section 754 adjustments upon the sale or exchange of Common
Stock or the death of a stockholder of the REIT Corporation.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act ("ERISA") and the prohibited transaction
provisions of Section 4975 of the Code that may be relevant to a Unitholder
(including, with respect to the discussion contained in "Status of the Company
under ERISA," to a Unitholder that is not an employee benefit plan, another
tax-qualified retirement plan, or an individual retirement account ("IRA")).
This discussion does not purport to deal with all aspects of ERISA or Section
4975 of the Code or, to the extent not preempted, state law that may be relevant
to particular employee benefit plan shareholders (including plans subject to
Title I of ERISA, other retirement plans and IRAs subject to the prohibited
transaction provisions of Section 4975 of the Code and governmental plans or
church plans that are exempt from ERISA and Section 4975 of the Code but that
may be subject to state law requirements) in light of their particular
circumstances.
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<PAGE>
A FIDUCIARY MAKING THE DECISION TO INVEST IN THE COMMON SHARES ON BEHALF OF
A UNITHOLDER WHICH IS AN ERISA PLAN, A TAX-QUALIFIED RETIREMENT PLAN OR AN IRA
OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR
REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE
CODE AND (TO THE EXTENT NOT PREEMPTED) STATE LAW WITH RESPECT TO THE PURCHASE,
OWNERSHIP OR SALE OF THE COMMON SHARES BY SUCH PLAN OR IRA.
EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS AND IRAS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to Title I of ERISA (an "ERISA Plan") should carefully consider whether
an investment in the Common Shares is consistent with his fiduciary
responsibilities under ERISA. In particular, the fiduciary requirements of Part
4 of Title I of ERISA require that an ERISA Plan's investments be (i) prudent
and in the best interests of the ERISA Plan, its participants and beneficiaries,
(ii) diversified in order to reduce the risk of large losses, unless it is
clearly prudent not to do so, and (iii) authorized under the terms of the
governing documents of the ERISA Plan. In determining whether any investment in
the Common Shares is prudent for purposes of ERISA, the appropriate fiduciary of
an ERISA Plan should consider all of the facts and circumstances, including
whether the investment is reasonably designed, as a part of the ERISA Plan's
portfolio for which the fiduciary has investment responsibility, to meet the
objectives of the ERISA Plan, taking into consideration the risk of loss and
opportunity for gain (or other return) from the investment, the diversification,
cash flow and funding requirements of the ERISA Plan, and the liquidity and
current return of the ERISA Plan's portfolio. A fiduciary should also take into
account the nature of the Company's business, the length of the Company's
operating history and other matters described under "Risk Factors and other
Special Considerations."
Fiduciaries of ERISA Plans, as well as fiduciaries of IRAs, retirement
plans for self-employed individuals ("Keogh Plans") and other plans subject to
Section 4975 of the Code (IRAs, Keogh Plans and such other plans are referred to
herein as "IRC Plans") should also consider the application of the prohibited
transaction provisions of Section 406 of ERISA and Section 4975 of the Code in
making their investment decision. A "party in interest" or "disqualified
person" with respect to an ERISA Plan or IRC Plan is subject to (i) an initial
10% excise tax on the amount involved in any prohibited transaction involving
the assets of the plan and (ii) an excise tax equal to 100% of the amount
involved if any prohibited transaction is not corrected. If the disqualified
person who engages in the transaction is the individual on behalf of whom an IRA
is maintained (or his beneficiary), the IRA may lose its tax-exempt status and
its assets may be deemed to have been distributed to such individual in a
taxable distribution on account of the prohibited transaction. In addition, a
fiduciary who permits an ERISA Plan to engage in a transaction that the
fiduciary knows or should know is a prohibited transaction may be liable to the
ERISA Plan for any loss the ERISA Plan incurs as a result of the transaction and
for any profits earned by the fiduciary in the transactions.
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<PAGE>
In addition to liability for ERISA Plan losses, ERISA imposes a civil
penalty against fiduciaries of ERISA Plans who breach the prudence and other
fiduciary standards of ERISA, and against non-fiduciaries who knowingly
participate in the transaction giving rise to the breach. A prohibited
transaction by an ERISA Plan fiduciary generally would constitute a breach of
the ERISA fiduciary standards. The civil penalty is equal to 20% of the amount
recovered from a fiduciary or non-fiduciary with respect to such breach or
knowing participation pursuant to a settlement agreement with the United States
Secretary of Labor or a court order resulting from a proceeding instituted by
the Secretary. The penalty may be waived and, in any event, would be offset to
the extent of the responsible party's liability for excise tax under the Code.
STATUS OF THE COMPANY UNDER ERISA
In determining whether the fiduciary requirements of ERISA and the
prohibited transaction provisions of ERISA and the Code apply to an entity's
operations because one or more investors in the entity's equity interest is an
ERISA Plan or an IRC Plan, it is necessary to determine whether the underlying
assets of such entity are considered "plan assets" for purposes of ERISA and the
Code. The U.S. Department of Labor has issued regulations defining "plan
assets" for this purpose (the "DOL Regulation"). An ERISA Plan fiduciary should
also consider the relevance of these principles to ERISA's prohibition on
improper delegation of responsibility for the management of plan assets, and
ERISA's imposition of co-fiduciary liability on a fiduciary who participates in,
permits (by action or inaction) the occurrence of, or fails to remedy, a known
breach by another fiduciary. In general, the DOL Regulation provides that if an
ERISA Plan or IRC Plan acquires "publicly offered securities" of an entity,
which are sold pursuant to an effective registration statement under the
Securities Act and subsequently registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, which are "widely held" (I.E., held by at least
100 holders independent of the issuer and each other), and freely transferable,
the assets of such entity will not be considered "plan assets" solely by reason
of such plan's investment in the entity.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock being offered
hereby will be passed upon for the REIT Corporation by Winstead Sechrest &
Minick P.C., Dallas, Texas. The federal income tax consequences in connection
with the Conversion will be passed upon for USRP by Winstead Sechrest & Minick
P.C., Dallas, Texas.
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<PAGE>
EXPERTS
The consolidated financial statements of USRP as of December 31, 1996 and
1995, the related consolidated statements of income, partners' capital and cash
flows for each of the three years in the period ended December 31, 1996 and the
balance sheet of U.S. Restaurant Properties, Inc. as of February 4, 1997,
included in this Proxy Statement/Prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports which are included
and incorporated by reference herein, and have been so included and incorporated
in reliance upon the reports of such firm given upon their authority as an
expert in accounting and auditing.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
PRO FORMA FINANCIAL INFORMATION (Unaudited)
Consolidated Balance Sheet as of December 31, 1996................... F-4
Condensed Consolidated Statement of Income for the year ended
December 31, 1996................................................. F-7
U.S. RESTAURANT PROPERTIES, INC.
Independent Auditors' Report......................................... F-10
Balance Sheet as of February 4, 1997................................. F-11
Notes to Balance Sheet............................................... F-12
U.S. RESTAURANT PROPERTIES MASTER L.P.
Independent Auditors' Report......................................... F-14
Consolidated Balance Sheets at December 31, 1995 and 1996............ F-15
Consolidated Statements of Income for the years ended December 31,
1994, 1995 and 1996............................................... F-16
Consolidated Statements of Partners' Capital for the years ended
December 31, 1994, 1995 and 1996 ................................. F-17
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996.................................. F-18
Notes to Consolidated Financial Statements for the years ended
December 31, 1994, 1995 and 1996.................................. F-20
F-1
<PAGE>
U.S. RESTAURANT PROPERTIES, INC.
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following pro forma consolidated financial statements of U.S.
Restaurant Properties, Inc. (the "REIT Corporation") should be read in
conjunction with the consolidated financial statements of U.S. Restaurant
Properties Master L.P. ("USRP") and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere in this
Proxy Statement/Prospectus. The pro forma consolidated financial statements
are not necessarily indicative of what the REIT Corporation's financial
position or results of operations would have been had the transactions
described below occurred on the assumed dates. Such financial statements
also do not purport to represent the future financial position or results of
operations of the REIT Corporation.
The attached pro forma consolidated financial statements have been prepared
based upon the REIT Corporation consolidating the operations of USRP including
U.S. Restaurant Properties Operating L.P. and other majority owned entities
(USRP and other majority owned entities collectively, the "Partnerships"). The
basis for the consolidation is because the REIT Corporation, or a wholly-owned
subsidiary thereof, will be the managing general partner of the Partnerships and
management of the REIT Corporation will have complete control over the
Partnerships through its right to make major decisions such as the acquisition,
sale, financing or refinancing of principal partnership assets, issuance of debt
or equity securities, declaration and payment of dividends or distributions and
all other business matters.
The pro forma consolidated balance sheet of the REIT Corporation as of
December 31, 1996 is based upon USRP's December 31, 1996 audited balance sheet
adjusted to reflect as of December 31, 1996 (i) the purchase of 24 properties
for $15,894,000 completed since December 31, 1996, including the value of
118,582 Units of $3,320,000, (ii) the purchase of 16 properties from QSR Income
Properties, Ltd. ("QSR") for 277,131 Units (at $28.50 per Unit), (iii) the
purchase of 114 properties from other sellers that as of March 28, 1997 are
under binding contracts for $64,758,000, (iv) the additional borrowings of
$76,930,000 required to purchase the properties acquired and under contract, (v)
the sale of one property for $1,175,000, (vi) the Managing General Partner's
assignment of its Property Management Contract to the Operating Partnership or
USRP (depending upon how the Conversion is effected) and converting its
aggregate 1.98% partnership interest in the Partnerships (the "Partnership
Interests") into 850,000 shares of Common Stock or its equivalent in a limited
partner interest in the Operating Partnership or Units (depending upon how the
Conversion is effected) with the common stock valued at the current market price
(assumed $28.50 per share) and the related cost of this transaction aggregating
$580,000 and (vii) consolidation with the REIT Corporation. The property
acquisitions will be accounted for as purchases and the assignment of the
Property Management Contract and the cost of the transaction will be expensed as
nonrecurring items.
F-2
<PAGE>
The pro forma condensed consolidated statement of income of the REIT
Corporation for the year ended December 31, 1996 is based upon USRP's audited
statement of income for the year ended December 31, 1996, adjusted to reflect as
of January 1, 1996; (i) the purchase of 208 properties for $121,230,000,
including the value of 503,418 Units of $11,232,296 completed since December 31,
1995, (ii) the issuance of 1,800,000 Units issued in June 1996 having net
proceeds of $40,203,000, (iii) the purchase of 16 properties from QSR for
277,131 Units (at $28.50 per Unit), (iv) the purchase of 114 properties from
other sellers that as of March 28, 1997 are under binding contracts for
$64,758,000, (v) the additional borrowings of $135,485,000 required to purchase
the properties acquired and under contract, (vi) the sale of one property for
$1,175,000, and (vii) the Managing General Partner's assignment of its Property
Management Contract to the Operating Partnership or USRP (depending upon how the
Conversion is effected) and converting its aggregate 1.98% partnership interest
in the Partnerships (the "Partnership Interests") into 850,000 shares of Common
Stock or its equivalent in a limited partner interest in the Operating
Partnership or Units (depending upon how the Conversion is effected) with the
common stock valued at the current market price (assumed $28.50 per share). The
termination of the Property Management Contract and the REIT organization costs
are being treated as nonrecurring expenses of $23,046,000 and $580,000,
respectively, and are not reflected in the pro forma condensed consolidated
statement of income. However, they will be expensed when incurred.
When determining the number of Units that USRP will issue to QSR in
exchange for the QSR's assets, USRP has assumed that the adjusted purchase price
for QSR's assets equaled $7,721,234 plus the current principal balance of the
promissory notes of $177,000 that QSR will sell to the Partnerships and that the
average closing price for a Unit for the five trading days immediately preceding
the closing date equaled $28.50. If the average trading price of the Units
increases before the closing date, USRP could issue significantly fewer Units to
QSR or if the trading price decreases before the closing date, USRP could issue
significantly more Units to QSR.
F-3
<PAGE>
U.S. RESTAURANT PROPERTIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
U.S. Restaurant Properties Master L.P.
-----------------------------------------------------------
Other Properties Property
QSR's Under Contract Under Contract REIT Company
Historical Purchases(a) Properties(b) To Purchase(c) For Sale(d) Conversion Pro Forma
---------- ------------ ------------- ---------------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash $ 381 $ $ 169 $ $ 1,175 $ 1(e) $ 1,726
Receivables, net 2,117 2,117
Purchase deposits 908 (70) (350) (332) 156
Prepaid expenses 403 403
Deferred rent receivable 536 536
Notes receivable 4,046 177 76 4,299
Net investment in direct
financing leases 17,105 (217) 16,888
Land 61,340 3,179 1,580 13,188 79,287
Buildings and leasehold
improvements, net 75,339 12,715 6,322 51,494 145,870
Machinery and equipment,
net 2,980 2,980
Intangibles, net 12,263 (169) 12,094
-------- ------- ------ ------- --------- --------- --------
$177,418 $15,824 $7,898 $64,426 $ 789 $ 1 $266,356
-------- ------- ------ ------- --------- --------- --------
-------- ------- ------ ------- --------- --------- --------
Accounts payable $ 2,697 $ $ $ $ $ 580(f) $ 3,277
Deferred gain 590 590
Line of credit and other
long term debt 69,486 12,504 64,426 146,416
Capitalized lease
obligations 362 362
General Partners'
capital 1,163 16 (1,179)(g)
Limited Partners'
capital 103,120 3,320 7,898 773 (115,111)(g)
Stockholders' equity 115,711 (h) 115,711
-------- ------- ------ ------- --------- --------- --------
$177,418 $15,824 $7,898 $64,426 $ 789 $ 1 $266,356
-------- ------- ------ ------- --------- --------- --------
-------- ------- ------ ------- --------- --------- --------
</TABLE>
_______________________
F-4
<PAGE>
(a) Reflects pro forma adjustments for 1997 acquisitions completed since
December 31, 1996 which consist of the purchase of 24 properties as
follows:
Arby's 2 $ 378
Bruegger's Bagels 16 11,010
Chi Chi's 1 1,419
Old Chicago Pizza 1 909
Pizza Hut 2 451
Schlotzsky's 2 1,727
-- -------
24 $15,894
-- -------
-- -------
Total of land, buildings and leasehold
improvements and machinery and
equipment $15,894
Less purchase deposit previously paid (70)
Less 118,582 Units issued (3,320)
-------
Increase in line of credit and other
long term debt $12,504
-------
-------
The respective purchase price for the properties has been allocated
between land ($3,179) and buildings and leasehold improvements
($12,715) on a preliminary basis. Final determination of the proper
allocation between these accounts will be made prior to finalizing the
financial statements for the year ended December 31, 1997. Management
does not expect material adjustments to occur.
(b) Reflects the pro forma adjustments for QSR's properties which are
comprised of 16 properties. The total purchase price plus appropriate
capitalized costs are as follows:
16 properties $ 7,721
Acquisition costs 181
-------
Total land, buildings and leasehold
improvements 7,902
Notes receivable 177
-------
8,079
Less purchase deposit previously paid (350)
Less 277,131 Units issued (7,898)
-------
Cash excess (deposit return less
acquisition costs) $ 169
-------
-------
The respective purchase price for the properties has been allocated
between land ($1,580) and buildings and leasehold improvements
($6,322) on a preliminary basis. Final determination of the property
allocation between these accounts will be made prior to finalizing the
financial statements for the year ended December 31, 1997. Management
does not expect material adjustments to occur.
(c) Reflects the pro forma adjustments for the properties under binding
contracts as of March 28, 1997 which are comprised of 114 properties
as follows:
F-5
<PAGE>
Number of Properties Purchase Price
-------------------- --------------
Arby's 76 $45,093
Bruegger's Bagels 1 752
Dairy Queen 2 944
Hardees 4 2,002
Pizza Hut 6 4,182
Schlotzsky's 2 1,495
Other 23 9,895
--- -------
114 64,363
--- -------
---
Two parcels of land adjacent to
existing stores 319
Note receivable 76
-------
64,758
-------
Less purchase deposits
previously paid (332)
-------
Increase in line of credit and
other long-term debt $64,426
-------
-------
The respective purchase price for the properties has been allocated between
land ($13,188) and buildings and leasehold improvements ($51,494) on a
preliminary basis. Final determination of the property allocation between
these accounts will be made prior to finalizing the financial statements
for the year ended December 31, 1997. Management does not expect material
adjustments to occur.
(d) Reflects the pro forma adjustments for a property which is for sale under a
binding contract.
(e) Reflects pro forma adjustment for the contribution of $1 by QSV Properties
to capitalize the REIT Corporation.
(f) Reflects the costs associated with the REIT conversion including legal,
filing, printing, fairness opinion and related costs.
(g) Reflects pro forma adjustments to convert the General Partner's and limited
partners' capital accounts into stockholders' equity. It is assumed that
the Units owned by the limited partners will immediately be converted to
the REIT Corporation's shares.
(h) Reflects the following pro forma adjustment to stockholders' equity
relating to the Managing General Partner's assignment of its Property
Management Contract to the Operating Partnership or USRP (depending upon
how the Conversion is effected) and converting its aggregate 1.98%
partnership interest in the Partnerships (the "Partnership interests") into
850,000 shares of Common Stock or its equivalent in a limited partner
interest in the Operating Partnership or Units (depending upon how the
Conversion is effected) with the common stock valued at the current market
price (assumed $28.50 per share):
Value of 850,000 Initial Shares of Common Stock or its
equivalent in interests in the Partnerships (at $28.50
per share current market value) issued to the Managing
General Partner $ 24,225
Cost of property management contract to be expensed (23,046)
REIT organization costs to be expensed (580)
Equity related to Limited Partners upon Conversion 115,111
REIT Corporation equity 1
$115,711
F-6
<PAGE>
U.S. RESTAURANT PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS AND UNITS/SHARES IN THOUSANDS,
EXCEPT FOR PER UNIT AND SHARE DATA)
<TABLE>
U.S. Restaurant Properties Master L.P.
--------------------------------------------------------
Other Properties Property
QSR's Under Contract Under Contract REIT Company
Historical Purchases(a) Properties(b) To Purchase(c) For Sale(l) Conversion(d) Pro Forma
---------- ------------ ------------- -------------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenues $18,324 $9,245 $1,327 $7,675 $ (116) $ $36,455
Expenses:
Rent 2,080 232 115 97 2,524
Depreciation and amortization 3,978 2,518(e) 337(e) 2,575(g) (6) (72)(f) 9,330
Taxes, general and
administrative 2,461 859(g) 45(g) 687(g) (2,117)(h) 1,935
Interest expense (income), net 2,364 3,693(i) 19(i) 4,747(i) 10,823
Total expenses 10,883 7,302 516 8,106 (6) (2,189) 24,612
Gain on Sale of equipment 32 32
------- ------ ------ ------ ------- ------- -------
Net income $ 7,473 $1,943 $ 811 $ (431) $ (110) $ 2,189 $11,875
------- ------ ------ ------ ------- ------- -------
------- ------ ------ ------ ------- ------- -------
Net income allocable
to unitholders $ 7,325
Average number of
units/shares outstanding 6,107 119 277(j) 851(k) 8,145
------- ------ ------ ------ ------- ------- -------
Net income per unit/share $ 1.20 $ 1.46
------- -------
------- -------
</TABLE>
_____________
(a) Reflects pro forma adjustments to operations for the 1996 acquisitions,
comprised of 184 properties acquired on various dates from January 1, 1996
through December 31, 1996 and the 1997 acquisitions comprised of 24
properties acquired on various dates from January 1, 1997 through March 28,
1997.
(b) Reflects pro forma adjustments for QSR's 16 properties based on historical
information.
(c) Reflects the pro forma adjustments for 114 properties under binding
contracts as of March 28, 1997 with other sellers based on historical
information.
(d) Reflects pro forma adjustments relating to the effects of the Managing
General Partner's assignment of its Property Management Contract to the
Operating Partnership or USRP (depending upon how the Conversion is
effected).
F-7
<PAGE>
No adjustment is shown for the cost of terminating the Managing General
Partner's property management contract estimated to be $23,046 or for the
legal, filing, printing, fairness opinion and related costs of completing
the REIT conversion estimated to be $580 since both of these amounts are
considered to be nonrecurring expenses. Costs related to the
reorganization will be charged to expense in the period incurred and the
cost related to the property management contract will be expensed at the
time the contract is terminated.
(e) Reflects pro forma increase in depreciation expense related to the purchase
of the respective properties and the related capitalization of fees and
commissions including fees paid or payable to the Managing General Partner.
Depreciation is computed using the straight line method and estimated
useful lives of buildings and leasehold improvements and machinery and
equipment of 10 to 20 years.
(f) Reflects pro forma adjustment to depreciation and amortization expense.
The reduction in expense is due to a decrease in fees paid to the Managing
General Partner assuming the Property Management Contract is canceled.
Such fees consist of 1% of the contracted purchase price for the respective
properties which is capitalized as part of the purchase price.
(g) Reflects pro forma increase in general and administrative expenses
attributable to the increase in fees due to the Managing General Partner.
Such increase is comprised of 1% of the contracted purchase price for the
respective properties and 25% of the cash flow received with respect to
such additional properties in excess of the cash flow representing a 12%
annual rate of return.
(h) Pro forma adjustments to general and administrative expense are comprised
of the following:
Decrease in management fees $(2,867)
Increase in payroll expenses (currently
being paid by the Managing General
Partner) 750
-------
Net decrease $(2,117)
-------
-------
All other general and administrative expenses are not expected to increase
as a result of the conversion to a REIT since the Partnership is already a
public entity exempt from federal income taxes.
(i) Reflects the pro forma adjustment to interest expense as a result of the
purchase of the respective properties. Pro forma interest expense is based
on the increase in debt outstanding and borrowings for payment of
distributions on units issued on a pro forma basis using interest rates
based on the Partnership's credit arrangements which are as follows:
Principal Interest Rate
Series A Senior Secured Guaranteed Notes $12,500 8.00%
Series B Senior Secured Guaranteed Notes 27,500 8.30%
Line of credit 95,000 7.18%
Additional borrowings are estimated at a rate of 8.5% based upon the
additional debt agreements the Company is in the process of negotiating.
(j) Reflects pro forma adjustments for Partnership Units to be issued to QSR in
exchange for QSR's 16 properties established as follows:
Purchase price $7,898
Market value of shares at January 6, 1997 $28.50
Partnership Units to be issued 277,131
F-8
<PAGE>
(k) Pro forma adjustment reflects the 850 Initial shares of Common Stock or its
equivalent in interests in the Partnerships to be issued to the Managing
General Partner for its interests in the Partnerships and termination of
its property management contract and shares of Common Stock issued by the
REIT Corporation to the Managing General Partner upon formation of the REIT
Corporation at $1 per share.
(l) Reflects the pro forma adjustments relating to a property which is for sale
under a binding contract.
F-9
<PAGE>
U.S. RESTAURANT PROPERTIES, INC.
INDEPENDENT AUDITORS' REPORT
To the Directors and Stockholder of
U.S. Restaurant Properties, Inc.
We have audited the accompanying balance sheet of U.S. Restaurant Properties,
Inc. as of February 4, 1997. This balance sheet is the responsibility of the
management of U.S. Restaurant Properties, Inc. Our responsibility is to express
an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of U.S. Restaurant Properties, Inc. at February 4, 1997,
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 5, 1997
F-10
<PAGE>
U.S. RESTAURANT PROPERTIES, INC.
BALANCE SHEET
FEBRUARY 4, 1997
ASSETS
Cash $1,000
------
------
STOCKHOLDER'S EQUITY
Preferred stock, $.001 par value per share; 10,000,000 shares
authorized, no shares issued
Common Stock, $.001 par value per share; 45,000,000 shares
authorized; 1,000 shares issued and outstanding $ 1
Excess Stock, $.001 par value per share; 5,000,000 shares
authorized, no shares issued
Additional paid-in capital 999
------
$1,000
------
------
See Notes to Balance Sheet.
F-11
<PAGE>
U.S. RESTAURANT PROPERTIES, INC.
NOTES TO BALANCE SHEET
FEBRUARY 4, 1997
1. ORGANIZATION
U.S. Restaurant Properties, Inc. (the "Company") is a newly-organized
Maryland corporation formed to continue the restaurant property management
operations of U.S. Restaurant Properties Master, L.P. (collectively, with its
subsidiaries, "USRP"). The Company is authorized to issue up to 45,000,000
shares of common stock, par value $.001 per share (the "Common Stock"),
10,000,000 shares of Preferred Stock, par value $.001 per share (the "Preferred
Stock") and 5,000,000 shares of Excess Stock, par value $.001 per share.
Pursuant to the Company's Articles of Incorporation (the "Articles"), any
purported transfer of shares of Common Stock or Preferred Stock that would
result in a person owning shares of Common Stock or Preferred Stock in excess of
certain limits set out in Articles will result in the shares subject to such
purported transfer being automatically exchanged for an equal number of shares
of Excess Stock.
The Company was capitalized upon the sale of 1,000 shares of Common Stock
for $1,000 to QSV Properties, Inc. ("QSV"). The Company will be a self-advised
real estate investment trust ("REIT") formed to continue the restaurant property
management, acquisition and development operations, related business objectives
and strategies of USRP. The consolidated financial statements of U.S.
Restaurant Properties, Inc. will include the operations of USRP. The Company
intends to qualify as a REIT as defined under the Internal Revenue Code of 1986,
as amended.
2. BUSINESS
The Company shall invest in U.S. Restaurant Properties Operating, L.P. (the
"Operating Partnership" and, together with USRP, the "Partnerships"), which will
include and continue all operations of USRP. The purpose of this investment is
to facilitate the conversion of USRP's ownership structure from a master limited
partnership to a REIT. The Company was formed on February 4, 1997 and will not
have any operations until the Conversion is effected.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company shall succeed to the operations of USRP, and accordingly, will
follow all accounting principles established by USRP in addition to the
following:
INCOME TAXES - Provisions for income taxes will be made in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109").
F-12
<PAGE>
U.S. RESTAURANT PROPERTIES, INC.
NOTES TO BALANCE SHEET
4. SUBSEQUENT EVENTS
QSV has agreed to convert the Operating Partnership General Partnership
Interest and QSV's general partner interest in U.S. Restaurant Properties Master
L.P. Operating Partnership General Partner Interest of in exchange for 850,000
shares or its equivalent in interests in the Partnerships. An additional
550,000 shares or its equivalent in interests in the Partnerships may be issued
to QSV if certain earnings targets are met by the year 2000. QSV is an entity
that is primarily owned by Mr. Robert J. Stetson and Mr. Fred H. Margolin.
The Company intends to enter into employment agreements with Messrs.
Stetson and Margolin. The agreements will be for three years, beginning with
the closing of the Acquisition. Pursuant to the Employment Agreements, Mr.
Stetson will serve as President and Chief Executive Officer of the Company and
Mr. Margolin will serve as Chairman of the Board of the Company and each will be
paid an annual base salary of $250,000.
F-13
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
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, 1996
and 1995, and the related consolidated statements of income, partners'
capital, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements 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 financial position of U.S. Restaurant Properties
Master L.P. as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 28, 1997
F-14
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
December 31,
-------------------
1995 1996
------- --------
Cash and equivalents $ 7 $ 381
Receivables, net 951 2,117
Deferred rent receivable -- 536
Purchase deposits 1,792 908
Prepaid expenses 315 403
Notes receivable -- 1,308
Notes receivable - related parties 269 2,738
Net investment in direct financing leases 19,371 17,105
Land 27,493 61,340
Buildings and leasehold improvements, net 7,900 75,339
Machinery and equipment, net 224 2,980
Intangibles, net 13,161 12,263
------- --------
$71,483 $177,418
======= ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 677 $ 2,642
Deferred rent payable -- 55
Deferred gain on sale of property -- 590
Lines of credit 10,931 69,486
Capitalized lease obligations 563 362
Commitments (Notes 8 and 9)
General Partners' capital 1,241 1,163
Limited Partners' capital 58,071 103,120
------- --------
$71,483 $177,418
======= ========
See Notes to Consolidated Financial Statements.
F-15
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-unit data)
Year Ended December 31,
-------------------------------
1994 1995 1996
------- ------- -------
GROSS RENTAL RECEIPTS (NOTE 10) $10,466 $11,647 $ 9,831
======= ======= =======
REVENUES FROM LEASED PROPERTIES
Rental income $ 6,340 $ 7,540 $16,346
Amortization of unearned
income on direct financing
leases 2,453 2,240 1,978
------- ------- -------
Total Revenues 8,793 9,780 18,324
EXPENSES
Rent 1,348 1,405 2,080
Depreciation and amortization 1,361 1,541 3,978
Taxes, general and
administrative 1,144 1,419 2,461
Interest expense (income), net (4) 192 2,364
Provision for write-down or
disposition of properties 11 - -
------- ------- -------
Total Expenses 3,860 4,557 10,883
Gain on sale of equipment - - 32
------- ------- -------
Net income $ 4,933 $ 5,223 $ 7,473
======= ======= =======
Net income allocable to
unitholders $ 4,834 $ 5,119 $ 7,325
======= ======= =======
Average number of outstanding
units 4,635 4,638 6,107
------- ------- -------
Net income per unit $ 1.04 $ 1.10 $ 1.20
======= ======= =======
See Notes to Consolidated Financial Statements.
F-16
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(In thousands)
<TABLE>
General Limited
Units Partners Partners Total
----- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 4,635 $1,357 $ 62,757 $ 64,114
Net income - 99 4,834 4,933
Cash distributions - (148) (7,230) (7,378)
----- -------- -------- --------
Balance at December 31, 1994 4,635 1,308 60,361 61,669
----- -------- -------- --------
Special general partner interest transfer - (13) (3) (16)
Net income - 104 5,119 5,223
Purchase of partnership units (30) - (547) (547)
Units issued for property 54 - 985 985
Cash distributions - (158) (7,844) (8,002)
----- -------- -------- --------
Balance at December 31, 1995 4,659 1,241 58,071 59,312
----- -------- -------- --------
Net income - 148 7,325 7,473
Units issued for property 385 - 7,912 7,912
Proceeds from units issued in public offering 1,800 - 40,203 40,203
Proceeds from exercised unit options 50 - 775 775
Cash distributions - (226) (11,166) (11,392)
----- -------- -------- --------
Balance at December 31, 1996 6,894 $1,163 $103,120 $104,283
===== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-17
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
------------------------------
1994 1995 1996
------- ------- --------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 4,933 $ 5,223 $ 7,473
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation and amortization 1,361 1,541 3,978
Amortization of deferred
financing costs - - 162
Other, net (843) 854 (32)
Increase in receivables, net (301) (236) (1,166)
Increase in prepaid expenses (36) (192) (88)
Increase in deferred rent receivable - - (536)
Reduction in net investment in
direct financing leases 1,673 1,866 2,041
Increase in accounts payable 203 232 1,965
Increase in deferred rent payable - - 55
2,057 4,065 6,379
------- ------- --------
Cash provided by operating
activities 6,990 9,288 13,852
CASH FLOWS FROM (USED IN)
INVESTING ACTIVITIES:
Proceeds from sale of property
and equipment - - 122
Purchase of property - (9,746) (95,918)
Purchase of machinery and
equipment - (232) (3,032)
Purchase deposits (paid) used - (1,792) 884
Increase in notes receivable - (269) (3,034)
------- ------- --------
Cash used in investing activities - (12,039) (100,978)
CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES:
Loan origination costs
and other intangibles - (77) (440)
F-18
<PAGE>
Year Ended December 31,
------------------------------
1994 1995 1996
------- ------- --------
Payments on capitalized lease
obligations (191) (212) (201)
Proceeds from line of credit - 12,453 104,805
Payments on line of credit - (1,522) (46,250)
Cash distributions (7,378) (8,002) (11,392)
Purchase of partnership units - (547) -
Purchase of special general
partner interest - (16) -
Proceeds from issuance of units - - 40,978
------- ------- --------
Cash provided by (used in) financing
activities (7,569) 2,077 87,500
------- ------- --------
Increase (decrease) in cash and
equivalents (579) (674) 374
Cash and equivalents at
beginning of year 1,260 681 7
------- ------- --------
Cash and equivalents at end of
year $ 681 $ 7 $ 381
------- ------- --------
------- ------- --------
SUPPLEMENTAL DISCLOSURE:
Interest paid during the year $ 90 $ 256 $ 2,431
------- ------- --------
------- ------- --------
NONCASH INVESTING
ACTIVITIES
Units issued for property $ - $ 985 $ 7,912
------- ------- --------
------- ------- --------
Deferred gain on sale
of property $ - $ - $ 590
------- ------- --------
------- ------- --------
Note received on sale
of property $ - $ - $ 743
------- ------- --------
------- ------- --------
Sale of property on direct
financing lease $ - $ - $ 225
------- ------- --------
------- ------- --------
See Notes to Consolidated Financial Statements.
F-19
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Dollars in thousands except per-unit amounts)
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 99.01% limited partnership interest in U.S.
Restaurant Properties Operating L.P. (Operating Partnership), also a Delaware
limited partnership, acquired from Burger King Corporation (BKC) in February
1986 for $94,592 an interest in 128 restaurant properties owned or leased by BKC
and leased or subleased on a net lease basis to BKC franchisees. The
Partnership is the sole limited partner of the Operating Partnership, and they
are referred to collectively as the "Partnerships" or the "Partnership." QSV
Properties, Inc., (QSV), formerly U.S. Restaurant Properties, Inc., 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 for its 0.02% interest in the
Operating and Master Limited Partnership.
In 1996, the Partnership established certain other wholly owned operating
entities consisting of U.S. Restaurant Properties Business Trust I, U.S.
Restaurant Properties Business Trust II, Restaurant Acquisition Corporation,
Restaurant Renovation Partners L.P., U.S. Restaurant Properties West Virginia
Partners L.P., U.S. Restaurant Properties Carolina LTD., U.S. Restaurant
Properties Lincoln LTD., and U.S. Restaurant Properties Norman LTD.
Collectively, these entities in addition to the Partnerships are referred to as
the "Company." All of these entities are included in the consolidated financial
statements.
The Partnership may issue an unlimited number of units. The units
outstanding as of December 31, 1995 and 1996, totaled 4,659,167 and 6,894,003,
respectively.
QSV Properties, Inc. (formerly named U.S. Restaurant Properties, Inc.) is
the Managing General Partner of the Partnership.
2. ACCOUNTING POLICIES
The consolidated 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 10 for a reconciliation of
financial reporting income to taxable income). The consolidated financial
statements reflect the accounts of the Company after elimination of significant
inter-entity transactions.
F-20
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
Cash and equivalents include short-term, highly liquid investments with
maturities at the date of purchase of three months or less.
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. The Company's management routinely reviews the carrying amount of
intangibles based on projected cash flows. Based on the Company's policy for
evaluating impairment of intangibles, no valuation allowance was recorded as of
December 31, 1995 and 1996.
Rent revenues and expenses under operating leases are recognized on a
straight-line basis.
DEPRECIATION
Depreciation is computed using the straight-line method over estimated
useful lives of 6 to 20 years for financial reporting 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,
revenues and expenses as of and for the reporting periods. Actual results may
differ from such estimates.
LONG-LIVED ASSETS
Long-lived assets include real estate, direct financing leases and
intangibles which are evaluated on an individual property basis. The
Partnership's management routinely reviews its investments for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Based on the Company's policy for reviewing
impairment of long-lived assets, no valuation allowance was recorded as of
December 31, 1995 and 1996.
F-21
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
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.
EQUITY-BASED COMPENSATION
In 1995, Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123), was issued, effective for fiscal years
beginning after December 15, 1995. This Statement requires companies to use
recognized option pricing models to estimate the fair value of equity-based
compensation, including options. This Statement also 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 Company has elected not to
recognize compensation expense for employee equity-based compensation as
calculated under SFAS 123, but will recognize any related expense in accordance
with the provisions of APB Opinion No. 25. Disclosure of amounts required by
SFAS 123 is included in Note 6.
ENVIRONMENTAL REMEDIATION COSTS
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals
for estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remediation feasibility study. Such
accruals are adjusted as further information develops or circumstances change.
Recoveries of environmental remediation costs from other parties are recorded as
assets when their receipt is deemed probable. Company management is not aware
of any environmental remediation obligations which would materially affect the
operations, financial position or cash flows of the Company.
In 1996, the American Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental Remediation Liabilities" (SOP 96-1),
which provides guidance for the recognition, measurement, display and disclosure
of environmental remediation liabilities. The Company will adopt the provisions
of SOP 96-1 in 1997, as
F-22
<PAGE>
required, and does not expect such adoption to have a material impact on its
results of operations, financial position or cash flows.
F-23
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform to the
current-year presentation.
3. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is necessary to interpret market
data and develop the related estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
could be realized upon disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Cash and equivalents, receivables (including deferred rent receivable),
accounts payable (including deferred rent payable), and the line of credit are
carried at amounts that approximate their fair value.
The fair value of notes receivable totaling $269 and $4,046 as of
December 31, 1995 and 1996, respectively, have a fair value of $269,000 and
$3,672, respectively, as based upon interest rates for notes with similar terms
and remaining maturities.
The fair value estimates presented herein are based on information
available to management as of December 31, 1995 and 1996. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
F-24
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OTHER BALANCE SHEET INFORMATION
December 31
-----------------------
1995 1996
--------- ---------
RECEIVABLES, NET
Receivables ............................ $ 1,068 $ 2,234
Less allowance for doubtful
accounts ............................. (117) (117)
--------- ---------
$ 951 $ 2,117
--------- ---------
--------- ---------
BUILDINGS AND LEASEHOLD
IMPROVEMENTS, NET
Buildings and leasehold improvements ... $ 10,545 80,528
Less accumulated depreciation .......... (2,645) (5,189)
--------- ---------
$ 7,900 $ 75,339
--------- ---------
--------- ---------
MACHINERY AND EQUIPMENT, NET
Machinery and equipment................. 232 $ 3,244
Less accumulated depreciation .......... (8) (264)
--------- ---------
$ 224 $ 2,980
--------- ---------
--------- ---------
INTANGIBLES, NET
Intangibles .......................... $ 26,515 $ 27,003
Less accumulated amortization......... (13,354) (14,740)
--------- ---------
$ 13,161 $ 12,263
--------- ---------
--------- ---------
Total purchase deposits of $1,792 and $908 at December 31, 1995 and 1996,
respectively, included $1,075 and $167 of nonrefundable deposits, respectively.
5. PROPERTY ACQUISITIONS AND DISPOSITIONS
In March 1995, the Partnership agreement was amended to expand the purpose
of the Partnership and allow for the diversification of the Partnership's
restaurant property portfolio through the acquisition of additional fast-food
and casual dining restaurant properties. Since the amendment in March 1995, the
Partnership has acquired 200 restaurant properties.
During 1996, the Company completed the purchase of 184 restaurant
properties for an aggregate purchase price of $105,336 including the value of
384,836 Partnership Units issued as part of the aggregate purchase price. Three
restaurant properties were purchased with only Partnership Units; five
restaurant properties were purchased with a combination of cash and Partnership
Units; and 166 restaurant properties were purchased with only cash. The 184
restaurant properties include 45 Burger King restaurants, 40 Dairy Queen
restaurants, 30 Grandy's restaurants, 25 Hardee's restaurants, 12 Pizza Hut
restaurants, two KFC restaurants, six Schlotzsky's restaurants, six Chili's
restaurants and 18 regional
F-25
<PAGE>
brand restaurants. The 384,836 Partnership Units issued in four of these
transactions have guaranteed Partnership Unit values (see Note 6).
F-26
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY ACQUISITIONS AND DISPOSITIONS (CONTINUED)
During 1995, the Partnership completed the purchase of 16 restaurant
properties for an aggregate purchase price of $10,731, including the value of
54,167 Partnership Units issued. The 16 restaurant properties include 9 Burger
King restaurant properties, two Chili's restaurant properties and five regional
brand restaurant properties. The 54,167 Partnership Units issued include
provisions for guaranteed Partnership Unit values in the future (see Note 6).
During 1996, the Company sold one restaurant property for $815. The
Company received cash of $72 and a note from the buyer of $743. In accordance
with Statement of Financial Accounting Standards No. 66, "Accounting for Real
Estate Sales," the Company recorded a deferred gain on the sale of $590.
On December 31, 1996, the Company owned land at 243 restaurant properties
and leased the land at 79 restaurant properties from third-party lessors under
operating leases. The Company in turn leased or subleased the land primarily to
fast-food and casual dining restaurant operators under operating leases.
On December 31, 1996, the Company owned the buildings on 277 restaurant
properties and leased the buildings on 14 restaurant properties from third-party
lessors under leases accounted for as capital leases. The Company owns 31
restaurant properties in which only the land is owned and leased. The Company
leased 183 buildings to franchisees under operating leases. These 183 buildings
are stated at cost, net of accumulated depreciation, on the balance sheet. A
total of 108 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 108 buildings.
One restaurant property was sold during 1996.
On December 31, 1995 and 1996, there were 138 and 321 Company restaurant
sites respectively, in operation, and there was one closed site. The Company
continues to seek a suitable tenant for the remaining site. The write-down of
the closed site was $11 in 1994. No write-downs were recorded in 1995 or 1996.
In the normal course of business, the Company may sign purchase agreements
to acquire restaurant properties. Such agreements become binding obligations
upon the completion of a due diligence period ranging usually from 15-30 days.
On December 31, 1996, earnest money purchase deposits amounting to $908
were on deposit for the purchase of six Pizza Hut restaurants, four Schlotzsky's
restaurants, three Wendy's restaurants, two Arby's restaurants, two Hardee's
restaurants, one Taco Bell
F-27
<PAGE>
restaurant, one Kentucky Fried Chicken restaurant and 19 other regional chain
restaurants.
F-28
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PARTNERSHIP UNIT OPTIONS AND GUARANTEED STOCK PRICE
Three restaurant properties were acquired on October 10, 1995, with a
combination of cash and 54,167 Units. The 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 $18.375. 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.
During 1996, 384,836 Partnership Units were used to purchase 18 of the 184
properties in four separate transactions. Of the 384,836 Partnership Units
issued, 324,575 Partnership Units are guaranteed to have a market value of $24
per unit two years from the transaction date, 28,261 Partnership Units are
guaranteed to have a market value of $23 per unit three years from the
transaction date and 32,000 Partnership Units are guaranteed to have a value of
$25 per unit two years from the transaction date. The accounting described in
the paragraph above was used to record these transactions.
The Partnership has one fixed option plan. Under this plan, the Limited
Partners on March 17, 1995 granted the Managing General Partner options to
acquire up to 400,000 Partnership Units, subject to certain adjustments under
antidilution provisions. The exercise price of each option is $15.50 which is
the average closing price of the depository receipts for the Partnership Units
on the New York Stock Exchange for the five trading days immediately after the
date of grant. The options are nontransferable except by operation of law and
vest and became exercisable in March 1996. The term of the options expires in
March 2005. As of December 31, 1996, the Managing General Partner had exercised
50,000 Partnership Units at the option price of $15.50 for a total purchase
price of $775.
In accordance with SFAS 123, the fair value of each option is estimated on
the date of the grant using the binomial option-pricing model with the following
weighted-average assumptions: dividend yield of 7.3% for all years; expected
volatility of 17.8%, risk free interest rate of 5.7% for the options; and
expected lives of 4 years for the plan options.
As of March 17, 1995, the 400,000 options which are described above had a
fair value as of the grant date of $724 representing a value per option of
$1.81.
Under the fixed option plan, if these options were considered as
compensation, net income would have been $4,680 and $7,292 as of December 31,
1995 and 1996, respectively. Net income per unit would have been $0.99 and
$1.17 as of December 31, 1995 and 1996, respectively.
F-29
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LINES OF CREDIT
On December 31, 1995 and 1996, $10,931 and $65,396, respectively, had been
drawn on the Company's primary line of credit. The Company's line of credit was
increased to $95,000 in December 1996 and matures on December 23, 1998.
Substantially all properties are included as collateral on this line of credit.
The interest rate on this debt floats at 180 basis percentage points above
LIBOR. The effective interest rate at December 31, 1996, was 7.3625%. There is
an unused line of credit fee of .25% per annum of the average daily excess of
the commitment amount over the aggregate unpaid balance on the revolving loan
which is charged and is payable on a quarterly basis. The line of credit
requires the Company to maintain a combined tangible net worth, as defined in
the loan document, in excess of $85,000; maintain a combined GAAP Partners'
Capital, as defined in the loan document, of not less than $100,000; maintain a
cash flow coverage ratio of not less than .95 to 1 based upon a pro forma
five-year bank debt amortization; and maintain certain other financial covenants
as defined in the loan agreement. The Company's management believes it is in
compliance with all loan provision requirements as of December 31, 1996. On
December 31, 1996, the balance available on the line of credit equaled $29,600
(considers $400 subject to outstanding letter of credit).
A revolving credit facility of $20,000 was established with a national
mortgage company on April 29, 1996. The interest rate on this credit facility
was LIBOR plus 300 basis points which resulted in an interest rate of 8.5625% at
December 31, 1996. This revolving credit facility is secured by approximately
63 properties. On December 31, 1996, the total amount due equaled $4,090. This
revolving credit facility was paid in full in January 1997 and no additional
draws are available.
8. INVESTMENTS AND COMMITMENTS AS LESSOR
The Company leases land and buildings to a variety of national and regional
fast-food chain and casual dining restaurants. The building portions on 108 of
these properties, which are leased by BKC franchisees, are accounted for as
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 or any of their other franchise chains
renews or extends the lessee's franchise agreement.
As of December 31, 1996, the remaining lease terms of all leases described
in the above paragraph and in Note 5 ranged from 1 to 28 years and include
various renewal options. 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.
F-30
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INVESTMENTS AND COMMITMENTS AS LESSOR (CONTINUED)
Direct
Financing Operating
Leases Leases
--------- ---------
MINIMUM FUTURE LEASE RECEIPTS FOR
YEARS ENDING DECEMBER 31:
1997 $ 4,071 $ 17,060
1998 3,759 17,209
1999 2,978 16,944
2000 2,036 16,203
2001 1,331 15,216
Later 1,274 165,798
------- --------
$15,449 $248,430
------- --------
------- --------
1995 1996
------- -------
NET INVESTMENT IN DIRECT FINANCING
LEASES AT DECEMBER 31:
Minimum future lease receipts $19,778 $15,449
Estimated unguaranteed residual values 7,562 7,437
Unearned amount representing interest (7,969) (5,781)
------- -------
$19,371 $17,105
------- -------
------- -------
Year Ended December 31,
--------------------------
1994 1995 1996
------ ------ -------
RENTAL INCOME:
Minimum rental income $3,062 $3,584 $11,022
Contingent rental income 3,278 3,956 5,324
------ ------ -------
$6,340 $7,540 $16,346
------ ------ -------
------ ------ -------
F-31
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INVESTMENTS AND COMMITMENTS AS LESSOR (CONTINUED)
If Burger King properties are not adequately maintained during the term of
the tenant leases, of which there are 173, such properties may have to be
rebuilt before the leases can be renewed, either by the Company 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 operating 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.
The Company believes that improving, expanding, rebuilding or replacing its
restaurant properties from time to time is important. 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 Burger King restaurant as may be reasonably required by
BKC from time to time to modify the appearance of the restaurant to reflect the
then current image requirements for Burger King restaurants. Most of the
properties that are operating as Burger King restaurants are 15 to 20 years old.
The Company believes that many of these properties require substantial
improvements to maximize sales and that their condition is below BKC's current
image requirements.
To encourage the early renewal of existing leases/subleases, the Company
recently established an "early renewal program" whereby the Company has offered
to certain tenants the right to renew existing leases/subleases for up to an
additional 20 years in consideration for remodeling financing. The purpose of
this program is to extend the term of existing leases/subleases prior to the end
of the lease term and enhance the value of the underlying property to the
Company. As a result of this program, the Company has extended the lease term
for 31 leases/subleases as a result of remodel grants and lease
F-32
<PAGE>
riders. Two leases were renewed with loans. During 1996, the Company paid
remodeling costs of $1,118 in conjunction with this program.
F-33
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS
The land at 79 restaurant properties and the land and buildings at 14
restaurant properties are leased by the Company from third party lessors. The
building portions of the leases are generally capital leases while the land
portions are operating leases. These leases provide for an original term of 20
years and most are renewable at the Company's option. As of December 31, 1996,
the remaining lease terms (excluding renewal option terms) ranged from 1 to 15
years. If all renewal options are taken into account, the terms ranged from 5
to 35 years. Rents payable may escalate during the original lease and renewal
terms. For nine 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:
1997 $199 $ 2,103
1998 140 2,145
1999 60 1,930
2000 4 1,675
2001 1 1,248
Later -- 3,530
---- -------
Total minimum obligations (a) 404 $12,631
---- =======
Amount representing interest (42)
----
Present value of minimum obligations $362
====
____________________
(a) Minimum Lease Obligations have not been reduced by minimum sublease
rentals.
Year Ended December 31,
--------------------------
1994 1995 1996
------ ------ ------
RENTAL EXPENSE
Minimum rental expense...................... $1,246 $1,304 $1,992
Contingent rental expense................ 102 101 88
------ ------ ------
$1,348 $1,405 $2,080
====== ====== ======
On July 21, 1995, the Managing General Partner authorized the Partnership
to repurchase up to 300,000 of its units in the open market. Through
December 31, 1996, the Partnership repurchased 30,000 Units for $547,000. No
further repurchases have been made or are contemplated.
F-34
<PAGE>
During 1996, the Company agreed to make available to USRP Development
Company a revolving line of credit in the principal amount of $5,000, to be used
solely for paying for the acquisition and development of restaurant properties
which will be purchased by the Company upon completion of the development. The
line of credit is secured by certain
F-35
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS (CONTINUED)
development properties and bears interest at an annual rate of 9%. The line
of credit is payable in monthly installments beginning July 1997 and matures in
October 2001. At December 31, 1996, the outstanding balance was $1,414 and is
included in Notes Receivable - related parties.
10. 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 the Company 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, and in the accounting
for escalating rents.
Financial
Reporting Reconciling Taxable
Income Differences Income
--------- ----------- -------
REVENUES FROM LEASED PROPERTIES:
Rental income..................... $ 16,346 $ 3,485 $19,831
Amortization of unearned income
on direct financing leases...... 1,978 (1,978) -
-------- -------- -------
18,324 1,507 19,831
-------- -------- -------
EXPENSES:
Rent.............................. $ 2,080 $ 192 $ 2,272
Depreciation and amortization..... 3,978 1,242 5,220
General and administrative........ 2,461 2,461
Interest expense (income), net.... 2,364 (47) 2,317
-------- -------- -------
10,883 1,387 12,270
Gain on sale of properties and
equipment....................... 32 28 60
-------- -------- -------
Net income........................ $ 7,473 $ 148 $ 7,621
======== ======== =======
F-36
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS
The Managing General Partner is responsible for managing the business and
affairs of the Company. The Company pays the Managing General Partner a
non-accountable annual allowance (adjusted annually to reflect increases in the
Consumer Price Index and additions to the property portfolio), 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,
1994, 1995 and 1996, was $542, $585 and $1,175, respectively. The Partnerships'
accounts payable balance includes $136, $187 and $416 for this allowance as of
December 31, 1994, 1995 and 1996, respectively The Managing General Partner paid
no out-of-pocket costs to other parties on behalf of the Partnerships during
1994, 1995, and 1996.
To compensate the Managing General Partner for its efforts and increased
internal expenses with respect to additional properties, the Partnership pays
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
and 1996, the one-time acquisition fee equaled $109 and $1,043, respectively,
which was capitalized, and the increase in the non-accountable annual fee
equaled $29 and $495, respectively. In addition, if the Rate of Return (as
defined) on the Partnership's equity in all additional properties exceeds 12%
per annum for any fiscal year, the Managing General Partner will be paid an
additional fee equal to 25% of the cash flow received with respect to such
additional properties in excess of the cash flow representing a 12% Rate of
Return thereon. For 1996 this additional fee equaled $93 and there was no fee
paid in 1994 and 1995. However, to the extent such distributions are ultimately
received by the Managing General Partner in excess of those provided by its
1.98% Partnership interest, they will reduce the fee payable with respect to
such excess cash flow from any additional properties.
In 1994, the Partnerships with the consent and financial participation of
BKC, continued rent relief for three properties.
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 to provide the Company 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, 1994, 1995 and 1996.
F-37
<PAGE>
A note receivable of $255 and $267 is due from Arkansas Restaurants #10
L.P. (Arkansas) at December 31, 1995 and 1996, respectively. The note
receivable is due on September 1, 1997, and has an interest rate of 9.0% per
annum. At December 31, 1996, tenant and other receivables from Arkansas were
$63. In addition, during 1996 the Company paid remodel costs of $443 on behalf
of Arkansas for three restaurants operated by Arkansas under
F-38
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
the Company's early-renewal program (see Note 8). The Managing General Partner
of Arkansas Restaurants #10 L.P. is owned by an officer of the Partnership's
Managing General Partner but receives no compensation for its services.
As of December 31, 1996, notes receivable of $920 are due from Southeast
Fast Food Partners, L.P. (SFF). The notes receivable are due on July 1, 1997
($57) and July 1, 1999 ($863) and have an interest rate of 9.0% per annum. As
of December 31, 1996, a note receivable of $136 is due from the owners of SFF.
This note receivables is due on July 1, 1999 and has an interest rate of 9.0%
per annum. At December 31, 1996, tenant and other receivables from SFF were
$125. In addition, during 1996, the Company incurred remodeling costs of $180
on behalf of SFF for restaurants operated by SFF under the Company's early
renewal program (See Note 8). These remodeling costs are included in
accounts payable at December 31, 1996. The Managing General Partner of
Southeast Fast Food Partners, L.P. is owned by an officer of the Partnership's
Managing General Partner.
On July 30, 1996, the Company completed a sale/leaseback transaction with
Carlos O'Kelly's, Inc. Carlos O'Kelly's, Inc. is owned by a director of the
Managing General Partner.
12. DISTRIBUTIONS AND ALLOCATIONS
Under the amended partnership agreements, 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 per unit, 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
1996 and 1995 and 98% for 1994.
F-39
<PAGE>
Under the amended partnership agreements, 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
F-40
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. DISTRIBUTIONS AND ALLOCATIONS (CONTINUED)
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. The
deferred gain on disposition of property recorded in 1996 will be distributed
upon the recognition of the gain by the Company.
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.
13. SUMMARY BY QUARTER (UNAUDITED)
Per Unit
------------------------
Allocable Cash Related
Revenues Net Income Net Income Distributions
-------- ---------- ---------- -------------
1994
First quarter $ 1,984 $1,100 $0.23 $0.39
Second quarter 2,297 1,341 0.28 0.39
Third quarter 2,330 1,392 0.29 0.41
Fourth quarter 2,182 1,100 0.24 0.42
------- ------ ----- -----
Annual $ 8,793 $4,933 $1.04 $1.61
======= ====== ===== =====
1995
First quarter $ 2,123 $1,090 $0.23 $0.42
Second quarter 2,495 1,407 0.30 0.42
Third quarter 2,592 1,496 0.32 0.43
Fourth quarter 2,570 1,230 0.25 0.44
------- ------ ----- -----
Annual $ 9,780 $5,223 $1.10 $1.71
======= ====== ===== =====
1996
First quarter $ 2,955 $1,323 $0.26 $0.47
Second quarter 4,309 1,862 0.33 0.48
Third quarter 5,748 2,590 0.36 0.485
Fourth quarter 5,312 1,698 0.25 0.50
------- ------ ----- -----
Annual $18,324 $7,473 $1.20 $1.94
======= ====== ===== =====
_____________
* Represents amounts declared and paid in the following quarter.
F-41
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. PRO FORMA (UNAUDITED)
The following pro forma information was prepared by adjusting the actual
consolidated results of the Company for the years ended December 31, 1995 and
1996 for the effects of:
a. the purchase of 184 restaurant properties on various dates during 1996
for an aggregate purchase price of $105,336 including the value of
384,836 Partnership Units issued to sellers and other related
financing transactions including the sale of 1,800,000 Partnership
Units in June 1996; and
b. the purchase of 16 restaurant properties on various dates from March
1995 through December 1995 for an aggregate purchase price of $10,963
including the value of 54,167 Partnership Units issued to sellers and
other related financing transactions as if all such transactions had
occurred as of January 1, 1995. Interest expense for pro forma
purposes was calculated assuming interest rates of 7.5% and 7.2% per
annum for 1995 and 1996, respectively, which approximates the rates
the Company paid during such periods.
These proforma operating results are not necessarily indicative of what the
actual results of operations of the Company would have been assuming all of the
restaurant properties were acquired as of January 1, 1995 and they do not
purport to represent the results of operations for future periods.
Year Ended December 31,
-----------------------
1995 1996
------- -------
Revenues from leased properties $25,439 $25,685
Net income 9,533 9,610
Net income allocable to unitholders 9,344 9,419
Average number of outstanding units 6,973 6,898
------- -------
Net income per unit $ 1.34 $ 1.37
======= =======
F-42
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS (UNAUDITED)
In January and February 1997 the Company acquired six properties in four
separate transactions. The total purchase price approximated $2,556 in cash.
Among the restaurant properties acquired were two Arby's, two Pizza Huts and two
Schlotzky's.
On January 29, 1997, a distribution of $0.50 per Partnership Unit was
declared. The date of record was March 6, 1997, and the distribution date was
March 13, 1997.
On February 7, 1997, a proxy statement for an exchange offer and
registration statement was filed with the Securities and Exchange Commission.
This filing pertains to an exchange of restaurant properties for Partnership
Units. This exchange is currently valued at $7,850.
On February 7, 1997, a proxy and registration statement, Form S-4, was
filed with the Securities and Exchange Commission regarding the conversion of
U.S. Restaurant Properties Master L.P. to a real estate investment trust entity.
On February 26, 1997, the Company issued $40,000 in debt which consist of
$12,500 Series A Senior Secured Guaranteed Notes with an 8.06% interest rate and
a due date of January 31, 2000; and $27,500 Series B Senior Secured Guaranteed
Notes with an 8.30% interest rate and due date of January 31, 2002. The
proceeds were primarily utilized to reduce the amount outstanding under the line
of credit and to improve the Company's cash position. The debt is
collateralized by substantially all the assets of the Company.
From March 1, 1997 through March 19, 1997, the Company has acquired 18
properties. The total purchase price approximated $12,800 which included
118,579 Partnership Units. The 18 properties included 16 Bruegger's Bagels
restaurant properties and two regional named restaurant properties.
On March 19, 1997, the Company had 130 restaurant properties under contract
for acquisition. Such properties represent 19 separate transactions in various
stages of negotiation and due diligence. These acquisitions represent an
aggregate consideration of approximately $72,000. These properties include 76
Arby's restaurant properties, six Pizza Hut restaurant properties, four Hardee's
restaurant properties, two Schlotzsky's restaurant properties, two Wendy's
restaurant properties, one Bruegger's Bagels restaurant property and 39 other
restaurant properties operated under other trade names.
F-43
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of _______________, 1997 (the
"Agreement"), by and among U.S. RESTAURANT PROPERTIES MASTER L.P., a Delaware
limited partnership (the "Partnership"); U.S. RESTAURANT PROPERTIES, INC., a
Maryland corporation (the "Company"); USRP ACQUISITION, L.P., a Delaware
partnership and an indirectly wholly-owned subsidiary of the Company (the
"Acquisition Subsidiary"); USRP MANAGING, INC., a Delaware corporation and
wholly-owned subsidiary to the Company and general partner of the Acquisition
Subsidiary (the "General Partner") and QSV PROPERTIES, INC., a Delaware
corporation and the managing general partner of the Partnership ("QSV").
RECITALS
WHEREAS, Boards of Directors of QSV and of the Company have determined that
it is in the best interests of the Partnership and the Company, respectively, to
effect the merger provided for herein (the "Merger") upon the terms and subject
to the conditions set forth herein;
WHEREAS, the Company will have ownership rights in the assets of the
Partnership pursuant to this Agreement, and in accordance therewith, the Company
has caused to be formed and organized the General Partner and the Acquisition
Subsidiary; and
WHEREAS, all partnership and corporate action, as applicable, on the part
of the parties hereto necessary to authorize the execution of this Agreement has
been duly taken.
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. THE MERGER; EFFECTIVE TIME
1.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.2 hereof), in order to effect the
Merger, the Acquisition Subsidiary shall be merged with and into the Partnership
and the separate existence of the Acquisition Subsidiary shall thereupon cease.
The Partnership shall be the surviving entity in the Merger (sometimes
hereinafter referred to as the "Surviving Entity"), the General Partner will be
substituted as managing general partner of the Partnership and, as a result, the
Partnership shall become an indirectly wholly-owned subsidiary of the Company
and shall continue to be governed by the laws of the State of Delaware. The
separate existence of the Partnership with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger. The
Merger shall be pursuant to the provisions of and shall have the effect provided
in the Delaware Revised Uniform Limited Partnership Act (the "Delaware RULPA").
A-1
<PAGE>
1.2 EFFECTIVE TIME. Provided that this Agreement has not been terminated
or abandoned pursuant to Section 9 hereof, on the first business day following
the date on which the last to be fulfilled or waived of the conditions set forth
in Section 8 hereof shall be fulfilled or waived, or on such later date as the
Partnership and the Company may agree, a certificate of merger (the "Certificate
of Merger") with respect to the transactions contemplated hereby shall be
executed, acknowledged and filed with the Secretary of State of the State of
Delaware as provided in Section 211 of the Delaware RULPA and the Merger
provided for herein shall become effective at 11:59 p.m. on the date of such
filing or such other time and date as is set forth in the Certificate of Merger
(the "Effective Time").
2. PARTNERSHIP AGREEMENT OF THE SURVIVING ENTITY
The partnership agreement of the Partnership in effect at the Effective
Time shall be the partnership agreement of the Surviving Entity, until duly
amended in accordance with the terms thereof and the Delaware RULPA.
3. EFFECT OF THE MERGER ON PARTNERSHIP INTERESTS
3.1 EFFECT ON PARTNERSHIP INTERESTS. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any partnership
interest in the Partnership or the Acquiring Subsidiary:
(a) Each unit representing an assignment of limited partnership
interest in the Partnership (the "Units") issued and outstanding
immediately prior to the Effective Time (an aggregate of 7,012,585 Units)
shall be exchanged for and converted into one validly issued, fully paid
and nonassessable share of common stock, par value $.01 per share, of the
Company (the "Common Stock") (or an aggregate of 7,012,585 shares). Each
certificate representing any such Units (the "Certificates") outstanding
immediately prior to the Effective Date shall thereafter represent the
right to receive a certificate representing a like number of shares of
Common Stock. All Units shall no longer be outstanding and shall be
cancelled and returned and shall cease to exist;
(b) QSV's 1% Percentage Interest, as defined in the Third Amended and
Restated Agreement of Limited Partnership of the Partnership dated as of
__________________, 1997 (the "Partnership Agreement"), shall be exchanged
for and converted into 70,834 shares of Common Stock and the right to
receive a certificate representing such Common Stock.
3.2 EXCHANGE OF UNITS FOR COMPANY SHARES.
(a) EXCHANGE AGENT. As of the Effective Time, the Company shall
deposit with American Stock Transfer & Trust Company (the "Exchange
Agent"), for the benefit of holders of Units ("Unitholders"), for exchange
in accordance with this Section 3, certificates representing the shares of
Common Stock to be issued pursuant to Section 3.1 in exchange for
outstanding Units.
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(b) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Entity shall cause the Exchange Agent to mail to each Unitholder
of record (i) a letter of transmittal, which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent, in such
form and including such other provisions as the Company may specify and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing Company Shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such
letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor a certificate representing a
number of shares of Common Stock equal to the number of Units represented
by the Certificate, the Certificate, and the Certificate so surrendered
shall forthwith be cancelled. Declared but unpaid distributions on Units
and partnership interests outstanding as of the applicable record date
shall be the obligation of the Company and the Company hereby agrees to pay
such distributions on the payment date specified in the resolutions of QSV
authorizing such distributions. No interest will be paid or accrued on
unpaid distributions, if any, payable to holders of Certificates. In the
event of a transfer of ownership of Units which is not registered in the
transfer records of the Partnership, a certificate representing the proper
number of shares of Common Stock may be issued to the transferee if the
Certificate representing such Units is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer
and to evidence that any applicable transfer taxes have been paid. If any
certificate for shares of Common Stock is to be issued in a name other than
that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition to such exchange that the person
requesting such exchange (i) pay any transfer or other taxes required by
reason of the exchange of certificates of shares of Common Stock in a name
other than that of the registered holder of the Certificate surrendered or
(ii) establish to the satisfaction of the Company that such taxes have been
paid or are not applicable.
(c) TRANSFERS. After the Effective Time, there shall be no transfers
on the transfer books of the Partnership of the Units which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Company for transfer,
they shall be cancelled and exchanged for the number of shares of Common
Stock deliverable in respect thereof pursuant to this Agreement in
accordance with the procedures set forth in this Section 3.
(d) NO LIABILITY. In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Company, the posting by such person of a bond in such
amount as the Company may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate, a
certificate representing the shares of Common Stock deliverable in respect
thereof pursuant to this Agreement.
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4. EFFECT OF MERGER ON PARTNERSHIP INTERESTS IN ACQUIRING SUBSIDIARY
OUTSTANDING PRIOR TO THE EFFECTIVE TIME
At the Effective Time, by virtue of the Merger, all partnership interests
in the Acquiring Subsidiary outstanding immediately prior thereto (all of which,
immediately prior to the Effective time, shall have been owned by the Company
and the General Partner shall continue to be outstanding as interests in the
Partnership.
5. REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE GENERAL PARTNER AND
THE ACQUISITION SUBSIDIARY. The Company, the General Partner and the
Acquisition Subsidiary hereby represent and warrant to the Partnership as
follows:
(a) The Company and the General Partner are corporations and the
Acquisition Subsidiary is a partnership duly formed, validly existing and
in good standing under the applicable laws of its state of organization.
(b) All action on the part of the Company, the General Partner and
the Acquisition Subsidiary and their respective officers, trustees,
directors, stockholders and partners, as applicable, necessary for the
authorization, execution and delivery of this Agreement, the performance of
all obligations of the Company, the General Partner and the Acquisition
Subsidiary hereunder and, in the case of the Company, the authorization,
issuance and delivery of the shares of Common Stock has been taken or will
be taken prior to the Effective Date, and this Agreement constitutes the
valid and legally binding obligation of each of the Company, the General
Partner and the Acquisition Subsidiary, enforceable against it in
accordance with its terms, except (i) as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditor's rights
generally and (ii) as enforceability may be limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
(c) Neither the Company, the General Partner nor the Acquisition
Subsidiary is in violation of or default under any provisions of its
articles or certificate of incorporation, bylaws or partnership agreement,
as applicable, or of any instrument, judgment, order, writ, decree or
contract to which, it is a party or by which it is bound or, in any
material respect, of any provision of any federal or state statute, rule or
regulation applicable to it. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
will not result in any such violation or be in conflict with or constitute,
with or without the passage of time or the giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree
or contract or an event which results in the creation of any lien, charge
or encumbrance upon any assets of the Company, the General Partner or the
Acquisition Subsidiary.
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5.2 REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP. The Partnership
hereby represents and warrants to the Company as follows:
(a) The Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of Delaware.
(b) All action on the part of the Partnership and its partners
necessary for the authorization, execution and delivery of this Agreement
and the performance of all obligations of the Partnership hereunder has
been taken or, subject to obtaining the approval of Unitholders holding a
majority of the outstanding Units, will be taken prior to the Effective
Date, and this Agreement constitutes the valid and legally binding
obligation of the Partnership, enforceable against it in accordance with
its terms, except (i) as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditor's rights generally
and (ii) as enforceability may be limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
(c) The Partnership is not in violation of or in default under any
provision of the Partnership Agreement or of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is
bound or, in any material respect, of any provision of any Federal or state
statute, rule or regulation applicable to the Partnership. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in any such violation or
be in conflict with or constitute, with or without the passage of time or
the giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which
results in the creation of any lien, charge or encumbrance upon any of the
assets of the Partnership.
6. COVENANTS
6.1 STOCK EXCHANGE LISTING. The Company shall use its best efforts to
obtain an approval to list on the New York Stock Exchange, Inc. ("NYSE") the
Common Stock to be issued in the Merger, subject to official notice of issuance,
prior to the Effective Time.
6.2 UNITHOLDER APPROVAL. The Partnership shall use its best efforts to
obtain the approval of this Agreement by Unitholders holding a majority of the
outstanding Units.
6.3 INDEMNIFICATION. Form and after the Effective Time, the Company
agrees that it will indemnify and hold harmless, and advance expenses to, QSV
and, as applicable, each officer, director, partner or other person controlling
the QSV, and any affiliate of it, against any costs or expenses (including
reasonable attorneys' fees), judgment, fines, losses, claims, damages or
liabilities incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to the transactions contemplated hereby, whether asserted
or claimed prior to, at or after the Effective Time, to the fullest extent
permitted by law. In addition, the Company hereby assumes the Partnership's
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indemnity obligations under the Partnership Agreement with respect to
liabilities to the foregoing individuals and entities arising out of actions or
omissions occurring prior to the Effective Time.
7. CONDITIONS
7.1 CONDITIONS TO THE PARTNERSHIP'S OBLIGATION TO EFFECT THE MERGER. The
obligation of the Partnership to consummate the Merger is subject to
satisfaction of each of the following conditions:
(a) This Agreement shall have been duly approved by Unitholders
holding a majority of the Units outstanding as of _________________, 1997
(the "Record Date") in accordance with applicable law and the Partnership
Agreement;
(b) No statute, rule or regulation shall have been enacted or
promulgated by any governmental authority, nor shall there be any order or
injunction of a United States or state court of competent jurisdiction in
effect, which prohibits the exchange of Units for shares of Common Stock or
the consummation of the Merger;
(c) The Partnership shall have received an opinion of counsel to the
effect that the Merger will be treated as part of a transaction described
in Section 351 of the Internal Revenue Code of 1986, as amended (the
"Code");
(d) The Partnership shall have received a favorable letter ruling
from the Internal Revenue Service as to treatment of the Merger as part of
a transaction described in Section 351 of the Code;
(e) The shares of Common Stock issuable to the Unitholders pursuant
to this Agreement shall have been approved for listing on the NYSE upon
official notice of issuance; and
(f) Amendments to the Partnership Agreement to permit, among other
things, the withdrawal of QSV as managing general partner of the
Partnership, shall have been duly approved by Unitholders holding a
majority of the Units outstanding as of the Record Date in accordance with
applicable law and the Partnership Agreement, and a certificate of
amendment effecting such amendments shall have been duly filed with the
Secretary of State of the State of Delaware.
7.2 CONDITIONS TO THE COMPANY'S OBLIGATION TO EFFECT THE MERGER. The
obligation of the Company to consummate the Merger is subject to satisfaction of
the following conditions:
(a) No statute, rule or regulation shall have been enacted or
promulgated by any governmental authority, nor shall there be any order or
injunction of a United States or state court of competent jurisdiction in
effect, which prohibits the exchange of the Units for Common Stock or
consummation of the Merger; and
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(b) The contribution of the management compensation rights of QSV
under the terms of the Partnership Agreement and the partnership agreement
of the Operating Partnership to the Operating Partnership shall have been
effected.
8. TERMINATION
8.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after approval by the Unitholders, by mutual written consent of the Company and
the Partnership.
8.2 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and abandonment of the Merger pursuant to this Section 8, no
party hereto (or any of its directors, trustees, officers or partners, or
persons otherwise controlling or affiliated with any of the parties hereto or
any of their directors, officers or partners) shall have any liability or
further obligation to any other party to this Agreement.
9. MISCELLANEOUS AND GENERAL
9.1 MODIFICATION OR AMENDMENT. Subject to the applicable provisions of
the Maryland General Corporation Law and the Delaware RULPA, at any time prior
to the Effective Time, the parties hereto may modify or amend this Agreement by
mutual written consent.
9.2 COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same Agreement.
9.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
9.4 NO THIRD PARTY BENEFICIARIES. Except as provided in Section 6.3, this
Agreement is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
9.5 CAPTIONS. The section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
9.6 NO LIABILITY. No trustee, beneficiary or stockholder of the Company
shall have any personal liability for any obligations of the Company under this
Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the date first hereinabove written.
U.S. RESTAURANT PROPERTIES, INC.
By:
-----------------------------------
Name:
---------------------------
Title:
--------------------------
USRP MANAGING, INC.
By:
-----------------------------------
Name:
---------------------------
Title:
--------------------------
USRP ACQUISITION, L.P.
By: USRP Managing Inc., the General Partner
By:
-----------------------------------
Name:
---------------------------
Title:
--------------------------
U.S. RESTAURANT PROPERTIES
MASTER L.P.
By: U.S. Restaurant Properties, Inc.,
the Managing General Partner
By:
-----------------------------------
Name:
---------------------------
Title:
--------------------------
U.S. RESTAURANT PROPERTIES, INC.
By:
-----------------------------------
Name:
---------------------------
Title:
--------------------------
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[MORGAN KEEGAN & COMPANY, INC.]
_________________, 1997
Special Committee of the Board of Directors of
U.S. Restaurant Properties, Inc.
5310 Harvest Hill Road
Suite 270
Dallas, Texas 75230
Attn: Gerald H. Graham
Eugene G. Taper
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the unitholders of U.S. Restaurant Properties Master L.P. (the
"Partnership") of the consideration to be paid by the Partnership to the
Managing General Partner of the Partnership (the "Management Company") in
connection the withdrawal by the Management Company as the general partner of
the Partnership and the amendment of the Partnership Agreement to terminate the
fees payable to the Management Company (the "Transaction"). Capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to them
in the Withdrawal Agreement.
Morgan Keegan & Company, Inc. ("Morgan Keegan"), as part of its investment
banking business, is regularly engaged in the valuation of businesses and
securities in connection with merges and acquisitions, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for various purposes. We have been retained by the Special
Committee of the Board of Directors of the Managing General Partner of the
Partnership (the "Special Committee") for the purpose of, and will receive a fee
for, rendering this opinion. We have not advised any party in connection with
the Transaction other than the Special Committee.
In connection with our opinion, we have (1) reviewed the Partnership
Agreements (and the proposed amendments thereto); (2) reviewed the Withdrawal
Agreement; (3) held discussions with various members of management and
representatives of the Partnership and the Management Company concerning each
company's historical and current operations, financial condition and prospects;
(4) reviewed internal financial analyses, financial and operating forecasts,
reports and other information prepared by officers and representatives of the
Partnership and the Management Company; (5) reviewed certain publicly-available
information with respect to certain other companies that we believe to be
comparable to the Management Company and the trading markets for such other
companies' securities; (6) reviewed certain publicly-available information
concerning the
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terms of certain other transactions that we deemed relevant to our inquiry;
and (7) conducted such other financial studies, analyses and investigations as
we deemed appropriate for the purposes of this opinion.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information publicly available or provided to us by the Partnership and the
Management Company. We have not been engaged to, and have not independently
attempted to, verify any of such information. We have also relied upon the
management of the Partnership and the Management Company as to the
reasonableness and achievability of the financial and operating projections and
the assumptions and bases therefor provided to us and, with your consent, we
have assumed that such projections and the assumptions and bases therefor
provided to us and, with your consent, we have assumed that such projections,
including and without limitation projected cost savings and operating synergies
from the Transaction, reflect the best currently available estimates and
judgments of such respective managements of the Partnership and the Management
Company and that such projections and forecasts will be realized in the amounts
and time periods currently estimated by the managements of the Partnership and
the Management Company. We have not been engaged to assess the achievability of
such projections or the assumptions on which they were based and express no view
as to such projections or assumptions. In addition, we have not conducted a
physical inspection or appraisal of any of the assets, properties or facilities
of either the Partnership or the Management Company nor have we been furnished
with any such evaluation or appraisal. We have also assumed that the conditions
to the Transaction as set forth in the Withdrawal Agreement would be satisfied,
and that the Transaction will be consummated on a timely basis and in the manner
contemplated in the Withdrawal Agreement. Our opinion is based upon analyses of
the foregoing factors in light of our assessment of general economic, financial
and market conditions as they exist and can be evaluated by us as of the date
hereof. We express no opinion as to the advisability of the Conversion; the
price or trading range at which the Partnership's units will trade following the
date hereof, or upon completion of the Transaction, or upon completion of the
Conversion to a real estate investment trust ("REIT").
Morgan Keegan has provided other investment banking services to the
Partnership, including acting as the lead managing underwriter of the
Partnership's public offering on June 12, 1996. An affiliate of Morgan Keegan
provided a $20 million mortgage warehouse facility to the Partnership and was
paid customary fees and interest in connection therewith. This facility has
been paid in full. In the ordinary course of our business, we may trade the
Partnership's units for our own account and the accounts of our customers.
Accordingly, we may at any time hold long or short positions in the
Partnership's units.
It is understood that this opinion is not to be quoted or referred to, in
whole or in part (including excerpts or summaries), in any filing, report,
document, release or other communication used in connection with the Transaction
(unless required to be quoted or referred to by applicable regulatory
requirements), nor shall this opinion be used for any other purposes, without
our prior written consent, which consent shall not be unreasonably withheld.
Furthermore, our opinion is directed to the Special Committee of the Board of
Directors and does not constitute a recommendation to any unitholder of the
Partnership as to how such unitholder should vote at the special meeting held in
connection with the Transaction.
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Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the
consideration paid to the Management Company pursuant to the Transaction is
fair, from a financial point of view, to the unitholders of the Partnership.
Yours very truly,
MORGAN KEEGAN & COMPANY, INC.
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APPENDIX C
MATERIAL AMENDMENTS
TO MASTER PARTNERSHIP AGREEMENT
OTHER RESTAURANT PROPERTIES: Those certain properties for which food sales
account for 10% or more of the gross revenues generated by the improvements on
such properties (a) properties (regardless of use) acquired adjacent to such
properties or acquired in conjunction with the use or ownership of such
properties, (b) properties that were formerly such type of properties which are
not currently being used for any purpose, and (c) any unimproved land which is
adjacent to such a property or on which such a property is reasonably expected
to be constructed within one (1) year following the date of acquisition of such
land, in any case in which the Partnership, the REIT or any Affiliate or either
of them has acquired or acquires an interest, whether consisting of land to be
held in fee simple or as a leasehold and any improvements thereon (including all
real property and certain personal property associated therewith), together with
(i) any other properties acquired pursuant to Section 7.2(v) with respect to
such properties, (ii) any properties adjacent to such properties, (iii) any
buildings, improvements or other structures situated on such properties, and
(iv) any further right, title or interest acquired in such properties. "Other
Restaurant Property" means any one of the Other Restaurant Properties.
RETAIL PROPERTIES: Those certain properties, other than Other Restaurant
Properties and Restricted Restaurant Properties, for which the sales of goods or
services to the public account for substantially all of the gross revenues
generated by the improvements on such properties and (a) properties (regardless
of use) acquired adjacent to such properties or acquired in conjunction with the
use or ownership of such properties, (b) properties that were formerly such type
of properties which are not currently being used for any purpose, and (c) any
unimproved land which is adjacent to such a property or on which such a property
is reasonably expected to be constructed within one (1) year following the date
of acquisition of such land, in any case in which the Partnership, the REIT or
any Affiliate of either of them has acquired or acquires an interest, whether
consisting of land to be held in fee simple or as a leasehold and any
improvements thereon (including all real property and certain personal property
associated therewith), together with (i) any other properties acquired pursuant
to Section 7.2(v) with respect to such properties, (ii) any properties adjacent
to such properties, (iii) any buildings, improvements or other structures
situated on such properties, and (iv) any further right, title or interest
acquired in such properties. "Retail Property" means any one of the Retail
Properties.
3.1 PURPOSES AND BUSINESS.
The purposes of the Partnership shall be (a) to invest in, acquire, own,
hold a leasehold interest in, manage, maintain, operate, lease, sublease,
improve, finance, reconstruct, sell, exchange, franchise and otherwise dispose
of Partnership Properties and Ancillary Property, whether through the Operating
Partnership, other Persons or otherwise; (b) originate loans secured by liens on
real estate; (c) in connection therewith, to exercise all of the rights and
powers conferred upon the Partnership as the limited partner in the Operating
Partnership pursuant to the
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Operating Partnership Agreement; and (d) to enter into any lawful transaction
and engage in any lawful activities in furtherance of the foregoing purposes.
The Partnership shall not engage in any business or activity except as set
forth above without the written consent of the General Partner and a Majority
Vote of the Limited Partners.
3.2 POWERS.
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to, or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, the following:
- - -
(h) To originate loans secured by liens on real estate.
5.14 EXCHANGE OF UNITS.
(a) Subject to Section 5.14(b), on or after the date on which the Units
are no longer listed for trading on a National Securities Exchange (the
"Delisted Date"), each Limited Partner shall have the right (the "Exchange
Right") to require the REIT to acquire all or a portion of the Units held by
such Limited Partner in exchange for the REIT Stock Amount. The Exchange Right
shall be exercised pursuant to a Notice of Exchange delivered to the REIT (with
a copy to the Partnership) by the Limited Partner who is exercising the Exchange
Right (the "Exchanging Partner"). Notwithstanding anything herein to the
contrary, no Unit may be sold, pledged, hypothecated or otherwise transferred to
any Person (other than an Immediate Family member) unless, prior to such
transfer, such Unit is exchanged for shares of Common Stock pursuant to the
terms of this Section 5.14. A Limited Partner may not exercise the Exchange
Right for fewer than one hundred (100) Units or, if such Limited Partner holds
fewer than one hundred (100) Units, all of the Units held by such Partner. The
Exchanging Partner shall have no right, with respect to any Partnership Units so
exchanged, to receive any distributions paid with respect to the Partnership
Units on or after the date of the Notice of Exchange. The Assignee of any
Limited Partner may exercise the rights of such Limited Partner pursuant to this
Section 5.14(a), and such Limited Partner shall be deemed to have assigned such
rights to such Assignee and shall be bound by the exercise of such rights by
such Assignee. In connection with any exercise of such rights by an Assignee on
behalf of a Limited Partner, the REIT Stock Amount shall be paid by the REIT
directly to such Assignee and not to such Limited Partner.
(b) Notwithstanding the provisions of Section 5.14(a), a Partner shall not
be entitled to exercise the Exchange Right pursuant to Section 5.14(a) if the
delivery of shares of Common Stock to such Partner by the REIT pursuant to
Section 5.14(a) would be prohibited under the Amended Articles of Incorporation
of the REIT.
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7.2 POWERS OF MANAGING GENERAL PARTNER.
Subject to the limitation of Section 7.3, which vests certain voting rights
in the Limited Partners, and to the limitations and restrictions set forth in
Article VIII, the Managing General Partner (acting on behalf of the Partnership
and the Operating Partnership) shall have the right, power, and authority, in
the management of the business and affairs of the Partnership and Operating
Partnership, to do or cause to be done any and all acts, at the expense of the
Partnership or Operating Partnership, as the case may be, deemed by the Managing
General Partner to be necessary or appropriate to effectuate the business,
purposes, and objectives of the Partnership and the Operating Partnership. The
power and authority of the Managing General Partner pursuant to this Agreement
and the Operating Partnership Agreement shall be liberally construed to
encompass all acts and activities in which a partnership may engage under the
Delaware RULPA. The power and authority of the Managing General Partner shall
include, without limitation, the power and authority on behalf of the
Partnership and the Operating Partnership:
- - -
(n) To originate loans or otherwise provide financing, whether through
guarantees, letters of credit or otherwise, secured by liens on real estate to
borrowers who meet the Partnership's underwriting criteria, which shall be
established by the Managing General Partner.
9.1 COMPENSATION TO GENERAL PARTNERS.
Except as permitted under Section 5.5 or expressly provided in Section 9.3
or 9.4, no General Partner shall receive any compensation from the Partnership
or the Operating Partnership for services rendered in its capacity as a general
partner of the Partnership or the Operating Partnership. Notwithstanding
anything herein to the contrary, at such time as QSV ceases to be the Managing
General Partner or the managing general partner of the Operating Partnership,
whether as a result of the transfer of QSV's Partnership Interest pursuant to
Section 12.2 (or Section 11.2 of the Operating Partnership Agreement) or the
withdrawal or removal of QSV pursuant to Section 14.1 or 14.2 (or Section 13.1
of the Operating Partnership Agreement) (other than removal for "cause"), then
QSV shall have the option, in its sole discretion, to convert its Partnership
Interest and its partnership interest in the Operating Partnership and to either
assign to the Partnership or convert its rights (the "Rights") under the
provisions of Section 9.3 (and Section 9.3 of the Operating Partnership
Agreement) (collectively, the "Conversion") for the Acquisition Price (as
defined below), effective as of the date of such transfer, withdrawal or
removal, and upon such Conversion, the successor Managing General Partner shall
cause the Partnership to issue to QSV Units, and the Partnership shall cause the
Operating Partnership to issue interests therein, in the aggregate amounts
provided for below.
In exchange for the Conversion of the Rights, as provided for above, and
the conversion of QSV's partnership interest in the Operating Partnership, in
the event QSV elects to effect the Conversion, QSV will receive the "Acquisition
Price," consisting of (a) the Initial Unit Consideration and (b) the Contingent
Unit Consideration. The Initial Unit Consideration consists
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of 850,000 Units and/or interests in the Operating Partnership (which number
or classification shall be adjusted to give effect to any reclassification or
change of the Units, including, without limitation, a split, or any merger or
consolidation of the Partnership, except the merger of the Partnership with
the REIT or a subsidiary thereof, or sale of assets to another entity,
occurring after March 31, 1997), which number of Units or interests in the
Operating Partnership shall be reduced (on a one-for-one basis) by the number
of Units received by QSV in connection with the conversion of its Partnership
Interest pursuant to the provisions of this Section 9.1. In connection with
the Conversion, QSV's Partnership Interest shall be converted into such
number of Units as at such time represents 1% of the then outstanding Units,
after giving effect to the conversion of QSV's Partnership Interest. The
Initial Unit Consideration, including the number of Units issuable upon the
conversion of QSV's Partnership Interest, shall be issued by the Partnership,
and the Partnership shall cause the Operating Partnership to issue its
interests, as soon as practicable following the date of the Conversion, but
in no event no later than 30 days thereafter.
The Contingent Share Consideration consists of up to a maximum number of
550,000 Units and/or interests in the Operating Partnership (which number or
classification shall be adjusted to give effect to any reclassification or
change in the Common Stock or the Units, including, without limitation, a split,
or any merger or consolidation of the REIT or the Partnership, except the merger
of the Partnership with the REIT or any subsidiary thereof, or sale of assets to
another entity, occurring after March 31, 1997). The type and number of
securities issuable as the Contingent Share Consideration (subject to the next
sentence) shall be at the sole discretion of QSV. The exact number of Units
and/or interests in the Operating Partnership to be issued will be determined by
the dividing (i) the amount by which the MGP Net Income (as defined below) for
the 2000 Fiscal Year exceeds $3,612,500 by (ii) $4.25 and rounding the resulting
number up to the nearest whole number. "MGP Net Income" means the dollar amount
which would have been payable to QSV, as Managing General Partner and as
managing general partner of the Operating Partnership, by the Partnership and
Operating Partnership for the 2000 Fiscal Year, pursuant to the Rights, had QSV
operated the Partnership and the Operating Partnership on a continuous basis
from the date of the Conversion to December 31, 2000 plus the amounts that have
been payable to QSV pursuant to its aggregate 1.98% general partnership interest
in the Partnership and the Operating Partnership, less $775,000.
For example, if the MGP Net Income for the 2000 Fiscal Year would have been
$5,100,000 ($5,875,000 of revenues less $775,000) then the Contingent Unit
Consideration would be an additional 350,000 Units and/or interests in the
Operating Partnership.
The Contingent Unit Consideration, if any, shall be issued by the
Partnership, and the Partnership shall cause the Operating Partnership to so
issue any such consideration, as soon as practicable following the end of the
2000 Fiscal Year, but in no event later than March 31, 2001.
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9.3 OPERATIONAL EXPENSES.
In addition to any reimbursement pursuant to the indemnification set forth
in Section 7.10, the Partnership shall cause the Operating Partnership, pursuant
to Section 9.3 of the Operating Partnership Agreement, to pay the following:
(a) With respect to (i) the Partnership Properties held as of March
17, 1995 and (ii) the Partnership Properties and Ancillary Property related
thereto acquired thereafter with respect to the Partnership Properties referred
to in clause (i) above whether pursuant to Section 8.12 or otherwise, the
Partnership shall cause to be paid to the Managing General Partner with respect
to each Fiscal Year an aggregate amount equal to Four Hundred Thousand Dollars
($400,000) adjusted annually as set forth in Section 9.3(c), which amount shall
be in lieu of any reimbursement for expenses related to the management of the
business affairs of the Partnership and the Operating Partnership (other than
expenses described in clause (c) hereof) that are incurred by the Managing
General Partner or its Affiliates with respect to such Partnership Properties,
which amount shall be payable in equal quarterly installments within sixty (60)
days after the end of each fiscal quarter.
(b) With respect to any Partnership Property and Ancillary Property
related thereto acquired after March 17, 1995 (other than those referred to in
clause (a) above) and mortgage loans, if any, originated by the Partnership or
the Operating Partnership, (i) the Partnership shall cause to be paid to the
Managing General Partner (A) fee equal to 1% of the purchase price paid by the
Partnership or the Operating Partnership for such Partnership Property and
Ancillary Property related thereto, payable on the date of acquisition or
origination, as applicable, and (B) with respect to each Fiscal Year, an amount,
adjusted annually as set forth in the next paragraph below, accruing while such
property is held at the rate of 1% per annum (applied using the simple interest
method on the basis of a 365/366-day year and the actual number of days elapsed)
on the purchase price paid by the Partnership or the Operating Partnership for
such Partnership Property and Ancillary Property related thereto, and (ii) if
the Rate of Return attributable to all Partnership Properties and Ancillary
Property related thereto acquired after March 17, 1995 (other than those
referred to in clause (a) above) in respect of any Fiscal Year shall exceed 12%
per annum, the Partnership shall cause to be paid to the Managing General
Partner an amount equal to 25% of the amount of cash received by the Operating
Partnership representing such excess, which amounts shall be in lieu of any
reimbursement of expenses related to the management of the business affairs of
the Partnership and the Operating Partnership (other than expenses described in
clause (c) hereof) that are incurred by the Managing General Partner or its
Affiliates with respect to such Partnership Properties and (except as provided
in clause (i)(A) of this clause (b)) shall be payable in quarterly installments
within sixty (60) days after the end of each fiscal quarter (which may be
estimated in the case of the first three fiscal quarters); provided that there
shall be credited against the amounts, if any, payable pursuant to clause (ii)
of this clause (b) in respect of any Fiscal Year amounts payable to the Managing
General Partner in respect of its First Tier Residual Interest or Second-Tier
Residual Interest pursuant to Sections 6.5 and 6.6 in respect of such Fiscal
Year. For purposes of the calculations provided for in this Section 9.3, in the
event of a mortgage loan origination, the term "Partnership Properties" shall be
deemed to include any originated mortgage loans and the
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"purchase price" of such mortgage loans will be the principal balances
thereof at the beginning of any Fiscal Year.
(c) The Partnership shall either cause to be paid to the Managing
General Partner on a monthly basis, or cause the Managing General Partner to be
reimbursed for the payment of, all amounts payable to any Person for providing
goods or performing services (including, without limitation, legal, accounting,
auditing, record keeping, reporting, depositary, transfer agent, printing,
appraisal, servicing and consulting services) for or on behalf of the
Partnership or the Operating Partnership; provided, however, that the Operating
Partnership shall not cause to be paid to the Managing General Partner, or cause
the Managing General Partner to be reimbursed, for the payment of any amount to
an Affiliate or an officer, director, or employee of an Affiliate for legal,
accounting, managerial, or consulting services; and provided further, that the
Operating Partnership shall cause to be paid to, or shall cause the Managing
General Partner to be reimbursed for a payment to, an Affiliate or an officer,
director, or employee of an Affiliate for goods or other services only if the
price and the terms upon which such goods or services are provided to the
Partnership or the Operating Partnership are fair to the Partnership or the
Operating Partnership, as the case may be, and are not less favorable to the
Partnership or the Operating Partnership, as the case may be, than would be
incurred if the Partnership or the Operating Partnership were to obtain such
goods or services from an unrelated third party or were to engage employees to
provide such goods or services directly.
For 1987 and for each Fiscal Year thereafter, the amount payable pursuant
to Section 9.3(a) shall be increased by an amount equal to the product of Four
Hundred Thousand Dollars ($400,000) multiplied by the percentage increase in the
Price Index from January 1, 1986, through the last day of the immediately
preceding Fiscal Year. For each year after the year in which a Partnership
Property is acquired, the amount otherwise payable pursuant to Section
9.3(b)(i)(B) (the "Clause (b)(i)(B) Amount") shall be increased by an amount
equal to the product of the Clause (b)(i)(B) Amount multiplied by the percentage
increase in the Price Index from the first day of the immediately preceding
Fiscal Year or, in the case of the first year after the year in which the
Partnership Property is acquired, the first day of the month in which the
acquisition occurred through the last day of the Fiscal Year immediately
preceding such year or, if earlier, the last day of the month in which such
Partnership Property was disposed of. The percentage increase in the Price
Index through the last day of a particular period shall be determined by
calculating the increase, if any, in the Price Index for the last time period
during such period (the "Price Index Determination Period") with respect to
which the Price Index is published (currently a monthly period) over the Price
Index for the time period immediately preceding the first day of the Price Index
Determination Period, and expressing the amount of such increase as a percentage
of the Price Index for said time period immediately preceding the first day of
the Price Index Determination Period.
"RATE OF RETURN" in respect of any period shall mean and refer to the
quotient obtained by dividing (1) the aggregate revenues (calculated in
accordance with generally accepted accounting principles and before amortization
of unearned income on direct financing leases) received by the Partnership or
the Operating Partnership from the Partnership Properties and Ancillary Property
referred to in Section 9.3(b) above for such period, whether through
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operations, sale or other disposition, less (without duplication) (i) the
aggregate fees payable pursuant to Section 9.3(b)(i)(B) for such period in
respect of such properties, (ii) the aggregate expenses of the Partnership
(other than interest expense, depreciation, amortization and other non-cash
expenses and charges, and expenses described in Sections 9.3(b) and (c)
directly attributable to such property and interest expense on any debt
allocated thereto for such period, (iii) the general and administrative
expenses of the Partnership (other than non-cash expenses and charges and
expenses described in clauses (a) and (b) above) for such period allocated to
such properties (based on the ratio of Average Partnership Equity in such
property to the aggregate Average Partnership Equity in all Partnership
Properties) and (iv) the principal amount of debt allocated to such
properties repaid during such period and, if applicable, the cash costs and
expenses of any Kind or nature incurred in respect of the sale or other
disposition thereof, by (2) the Average Partnership Equity in such property
during such period. "AVERAGE PARTNERSHIP EQUITY" shall mean and refer to (A)
the average of the sums of the aggregate purchase prices therefor, the
aggregate fees paid pursuant to Section 9.3(b)(i)(A) above in respect thereof
and all other cash costs and expenses of any kind or nature incurred in
connection with the acquisitions thereof ("Property Costs") as of the last
day of each calendar month occurring during the period of determination, less
(B) the average outstanding principal amount of debt of the Partnership
outstanding as of the last day of each calendar month during such period and
allocated to such properties. The Rate of Return for any outstanding
mortgage loans will be evaluated separately with the mortgage loans
constituting a separate pool of "properties" for such calculation. The
general and administrative expenses allocable to such mortgage loans shall be
equal to the total amount of such expenses for any Fiscal Year multiplied by
a fraction, the numerator of which shall be the aggregate principal amount of
all mortgage loans outstanding at the beginning of such Fiscal Year and the
denominator of which shall be the total of all Property Costs and such
aggregate principal amount.
For the purposes of the foregoing, debt of the Partnership shall be
allocated among the Partnership Properties as follows: (1) non-recourse debt
shall be allocated to the property secured thereby and, if such debt is
secured by more than one property, such debt shall be allocated among the
properties secured thereby based on the relative Property Costs thereof-, and
(2) recourse debt shall be allocated to all of the Partnership Properties
based on the relative Property Costs thereof (reduced for this purpose by the
amounts of non-recourse debt allocated thereto in accordance with clause (1)
above).
9.4 REIMBURSEMENT OF THE GENERAL PARTNERS.
In the event that the provisions of Section 9.3 are terminated in
accordance with the terms of Section 9.1, the following compensation
provisions shall apply, to be effective upon the date of such termination.
(a) The General Partners shall not be compensated for their services as
general partner of the Partnership except as provided in elsewhere in this
Agreement (including the provisions of Article VI regarding distributions,
payments and allocations to which it may be entitled in its capacity as the
General Partner).
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(b) Subject to Section 9.4(c), the Partnership shall be liable for, and
shall reimburse the General Partners on a monthly basis, or such other basis
as the General Partners may determine in their sole and absolute discretion,
for all sums expended in connection with the Partnership's business or for
the benefit of the Partnership, including, without limitation, (i) expenses
relating to the ownership of interests in, and management and operation of,
or for the benefit of, the Partnership, (ii) compensation of officers and
employees, including, without limitation, payments under future employee
benefit plans of any General Partner, (iii) director fees and expenses, and
(iv) all costs and expenses of any General Partner being a public company,
including costs of filings with the Commission, reports and other
distributions to its stockholders.
(c) To the extent practicable, Partnership expenses shall be billed
directly to and paid by the Partnership reimbursements to the General Partner
of any of their Affiliates by the Partnership pursuant to this Section 9.4
shall be treated as "guaranteed payments" within the meaning of Section 707(c)
of the Code.
14.1 WITHDRAWAL OF GENERAL PARTNERS.
(a) The Managing General Partner shall not withdraw from the
Partnership unless (i) the Managing General Partner shall have transferred all
of its Partnership Interest as a General Partner in accordance with Section
12.2; or (ii) such withdrawal shall have been approved by a Majority Vote of the
Limited Partners; provided, however, that if QSV withdraws or is removed as the
Managing General Partner, and in either case, elects to convert its Partnership
Interest for the Acquisition Price, as provided for in Section 9.1, the REIT or
an Affiliate of the REIT, as designated by the REIT shall automatically succeed
QSV and shall be admitted to the Partnership pursuant to Section 13.3.
(b) Upon the occurrence of any one of the foregoing conditions, a
General Partner may withdraw from the Partnership' effective on at least thirty
(30) days' advance written notice to the Limited Partners, such withdrawal to
take effect on the date specified in such notice. The withdrawal of a General
Partner pursuant to this Section 14.1 also shall constitute the withdrawal of
such General Partner as a general partner of the Operating Partnership. The
General Partners shall have no liability to the Partnership or the Partners and
Assignees on account of any withdrawal in accordance with the terms of this
Section 14.1. If a General Partner shall give a notice of withdrawal pursuant to
this Section 14.1, then a Majority Vote of the Limited Partners, with the
separate written concurrence of any remaining General Partner, may elect a
successor General Partner. If no successor General Partner shall be elected in
accordance with this Section 14.1 and there shall be no remaining General
Partner, then the Partnership shall be dissolved pursuant to Article XV.
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APPENDIX D
MATERIAL AMENDMENTS
TO OPERATING PARTNERSHIP AGREEMENT
OTHER RESTAURANT PROPERTIES: Those certain properties for which food sales
account for 10% or more of the gross revenues generated by the improvements on
such properties and (a) properties (regardless of use) acquired adjacent to
such properties or acquired in conjunction with the use or ownership of such
properties, (b) properties that were formerly such type of properties which are
not currently being used for any purpose, and (c) any unimproved land which is
adjacent to such a property or on which such a property is reasonably expected
to be constructed within one (1) year following the date of acquisition of such
land, in any case in which the Partnership, the REIT or any Affiliate or either
of them has acquired or acquires an interest, whether consisting of land to be
held in fee simple or as a leasehold and any improvements thereon (including
all real property and certain personal property associated therewith), together
with (i) any other properties acquired pursuant to Section 7.2(v) with respect
to such properties, (ii) any properties adjacent to such properties, (iii) any
buildings, improvements, or other structures situated on such properties, and
(iv) any further right, title or interest acquired in such properties. "Other
Restaurant Property" means any one of the Other Restaurant Properties.
RETAIL PROPERTIES: Those certain properties, other than Other Restaurant
Properties and Restricted Restaurant Properties, for which the sales of goods or
services to the public account for substantially all of the gross revenues
generated by the improvements on such properties and (a) properties (regardless
of use) acquired adjacent to such properties or acquired in conjunction with the
use or ownership of such properties, (b) properties that were formerly such type
of properties which are not currently being used for any purpose, and (c) any
unimproved land which is adjacent to such a property or on which such a property
is reasonably expected to be constructed within one (1) year following the date
of acquisition of such land, in any case in which the Partnership, the REIT or
any Affiliate of either of them has acquired or acquires an interest, whether
consisting of land to be held in fee simple or as a leasehold and any
improvements thereon (including all real property and certain personal property
associated therewith), together with (i) any other properties acquired pursuant
to Section 7.2(v) with respect to such properties, (ii) any properties adjacent
to such properties, (iii) any buildings, improvements or other structures
situated on such properties, and (iv) any further right, title or interest
acquired in such properties. "Retail Property" means any one of the Retail
Properties.
3.1. PURPOSES AND BUSINESS.
The purposes of the Partnership shall be (a) to invest in, acquire, own,
hold a leasehold interest in, manage, maintain, operate, lease, sublease,
improve, finance, reconstruct, sell, exchange, franchise and otherwise dispose
of Partnership Properties and Ancillary Property, whether itself, through other
Persons or otherwise; (b) to originate loans secured by liens on real estate;
and (c) to enter into any lawful transaction and engage in any lawful activities
in furtherance of the foregoing purposes; provided, however, that such business
arrangements and
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interests may be limited to and conducted in such a manner so as to permit any
REIT Partner at all times to be classified as a real estate investment trust
under the Code.
3.2. POWERS.
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to, or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, the following:
- - -
(h) To originate loans secured by liens on real estate.
5.2. ADDITIONAL ISSUANCES OF PARTNERSHIP INTERESTS AND CAPITAL CONTRIBUTIONS.
(a) The Managing General Partner is hereby authorized to cause the
Partnership from time to time to issue to Partners (including the Managing
General Partner) or other persons (including, without limitation, in connection
with the contribution of property to the Partnership) additional Partnership
Interests in one or more classes, or one or more series of any of such classes,
with such designations, preferences and relative, participating, optional or
other special rights, powers and duties, including rights, powers and duties
senior to Limited Partner Partnership Interests, all as shall be determined by
the Managing General Partner in its sole and absolute discretion subject to
Delaware law, including, without limitation, (i) the allocations of items of
Partnership income, gain, loss, deduction and credit to each such class or
series of Partnership Interests; (ii) the right of each such class or series of
Partnership Interests to share in Partnership distributions; and (iii) the
rights of each such class or series of Partnership Interests upon dissolution
and liquidation of the Partnership; provided that no such additional Partnership
Interests shall be issued to the MLP or the REIT unless either (A)(1) the
additional Partnership Interests are issued in connection with the grant, award
or issuance of Units or shares of capital stock of the REIT, which Units or
shares have designations, preferences and other rights such that the economic
interests attributable to such Units or shares are substantially similar to the
designations, preferences and other rights of the additional Partnership
Interests issued to the MLP or the REIT in accordance with this Section 5.4(a)
and (2) the MLP or the REIT shall make a Capital Contribution to the Partnership
in an amount equal to the proceeds, if any, raised in connection with the
issuance of such Units or shares of capital stock, or (B) the additional
Partnership Interests are issued to all Partners in proportion to their
respective Percentage Interests (as defined in Article VI).
(b) After the Effective Date, neither the MLP nor the REIT shall grant,
award or issue any additional Units or shares of capital stock, or rights,
options, warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase such Units or shares of capital stock
(collectively "New Securities"), other than to all holders of such Units or
shares of capital stock unless (i) the Managing General Partner shall cause the
Partnership to issue to the MLP or the REIT Partnership Interests or rights,
options, warrants or convertible or exchangeable
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securities of the Partnership having designations, preferences and other
rights, all such that the economic interests are substantially the same as
those of the New Securities, and (ii) the MLP or the REIT makes a Capital
Contribution to the Partnership of the proceeds from the grant, award or
issuance of such New Securities and from the exercise of rights contained in
such New Securities. Without limiting the foregoing, the MLP and the REIT
are expressly authorized to issue New Securities for less than fair market
value, and the Managing General Partner is expressly authorized to cause the
Partnership to issue to the MLP and the REIT corresponding Partnership
Interests, so long as (A) the Managing General Partner concludes in good
faith that such issuance is in the interests of the Managing General Partner
and the Partnership (for example, and not by way of limitation, the issuance
of shares of Common Stock and corresponding Partnership Units pursuant to an
employee stock purchase plan providing for employee purchases of shares of
Common Stock at a discount from fair market value or employee stock options
that have an exercise price that is less than the fair market value of the
Common Stock, either at the time of issuance or at the time of exercise), and
(B) the MLP and the REIT makes a Capital Contribution to the Partnership of
all proceeds from such issuance and exercise.
5.3. CONTRIBUTION OF PROCEEDS OF ISSUANCE OF COMMON STOCK.
In connection with the initial public offering of Common Stock by the REIT
and any other issuance of Common Stock or New Securities pursuant to Section
5.2, the REIT shall contribute to the Partnership any proceeds (or a portion
thereof) raised in connection with such issuance; provided that if the proceeds
actually received by the REIT are less than the gross proceeds of such issuance
as a result of any underwriter's discount or other expenses paid or incurred in
connection with such issuance, then the REIT shall be deemed to have made a
Capital Contribution to the Partnership in the amount equal to the sum of the
net proceeds of such issuance plus the amount of such underwriter's discount and
other expenses paid by the Company (which discount and expense shall be treated
as an expense for the benefit of the Partnership for purposes of Section 9.4).
In the case of employee purchases of New Securities at a discount from fair
market value, the amount of such discount representing compensation to the
employee, as determined by the Managing General Partner, shall be treated as an
expense of the issuance of such New Securities.
5.4. EXCHANGE OF UNITS.
(a) Subject to Section 5.4(b), on or after the date hereof, each Limited
Partner (other than the REIT) shall have the right (the "Exchange Right") to
require the REIT to acquire all or a portion of the Partnership Units held by
such Limited Partner in exchange for the REIT Stock Amount. The Exchange Right
shall be exercised pursuant to a Notice of Exchange delivered to the REIT (with
a copy to the Partnership) by the Limited Partner who is exercising the Exchange
Right (the "Exchanging Partner"). A Limited Partner may not exercise the
Exchange Right for fewer than one thousand (1,000) Partnership Units or, if such
Limited Partner holds fewer than one thousand (1,000) Partnership Units, all of
the Partnership Units held by such Partner. The Exchanging Partner shall have
no right, with respect to any Partnership Units so exchanged, to receive any
distributions paid with respect to the Partnership Units on or after the date of
the
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Notice of Exchange. The Assignee of any Limited Partner may exercise the
rights of such Limited Partner pursuant to this Section 5.4(a), and such
Limited Partner shall be deemed to have assigned such rights to such
Assignee and shall be bound by the exercise of such rights by such Assignee.
In connection with any exercise of such rights by an Assignee on behalf of a
Limited Partner, the REIT Stock Amount shall be paid by the REIT directly to
such Assignee and not to such Limited Partner.
(b) Notwithstanding the provisions of Section 5.4(a), a Partner shall not
be entitled to exercise the Exchange Right pursuant to Section 5.4(a) if the
delivery of shares of Common Stock to such Partner by the REIT pursuant to
Section 5.4(a) would be prohibited under the Amended Articles of Incorporation
of the REIT.
7.2. POWERS OF MANAGING GENERAL PARTNER.
Subject to the limitation of Section 7.3, which vests certain approval
rights in the Limited Partners, and to the limitations and restrictions set
forth in Article VIII, the Managing General Partner (acting on behalf of the
Partnership) shall have the right, power, and authority, in the management of
the business and affairs of the Partnership, to do or cause to be done any and
all acts, at the expense of the Partnership, deemed by the Managing General
Partner to be necessary or appropriate to effectuate the business, purposes, and
objectives of the Partnership. The power and authority of the Managing General
Partner pursuant to this Agreement shall be liberally construed to encompass all
acts and activities in which a partnership may engage under the Delaware RULPA.
The power and authority of the Managing General Partner shall include, without
limitation, the power and authority on behalf of the Partnership:
- - -
(l) To originate loans or otherwise provide financing, whether through
guarantees, letters of credit or otherwise, secured by liens on real estate to
borrowers who meet the Partnership's underwriting criteria, which shall be
established by the Managing General Partner.
9.1. COMPENSATION TO GENERAL PARTNERS.
Except as expressly provided in Section 9.3 or 9.4, no General Partner
shall receive any compensation from the Partnership for services rendered in its
capacity as a general partner of the Partnership or the MLP. Notwithstanding
anything herein to the contrary, at such time as QSV ceases to be the Managing
General Partner or the managing general partner of the MLP, whether as a result
of the transfer of QSV's Partnership Interest pursuant to Section 11.2 (or
Section 12.2 of the Investors Partnership Agreement) or the withdrawal or
removal of QSV pursuant to Section 13.1 (or Section 14.1 or 14.2 of the
Investors Partnership Agreement) (other than removal for "cause," as defined in
the Investors Partnership Agreement), then QSV shall have the option, in its
sole discretion, to convert its Partnership Interest and its partnership
interest in the MLP and to either assign to the MLP or convert its rights (the
"Rights") under the provisions of Section 9.3 (and Section 9.3 of the Investors
Partnership Agreement) (collectively,
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the "Conversion") for the Acquisition Price (as defined below), effective as
of the date of such transfer, withdrawal or removal, and upon such Conversion
the successor Managing General Partner shall cause the Partnership to issue to
QSV Partnership Units in the amounts provided for below.
In exchange for the Conversion of the Rights, as provided for above, and
the conversion of the QSV's Partnership Interest, in the event QSV elects to
effect the Conversion, QSV will receive the "Acquisition Price," consisting
of (a) the Initial Unit Consideration and (b) the Contingent Unit
Consideration. The Initial Unit Consideration consists of 850,000 Partnership
Units (which number or classification shall be adjusted to give effect to any
reclassification or change of the shares of Common Stock or Units, including,
without limitation, a split, or any merger or consolidation of the REIT or
the MLP, except the merger of the MLP with the REIT or a subsidiary thereof,
or sale of assets to another entity, occurring after March 31, 1997), with
the number of Partnership Units issuable hereunder being reduced (on a
one-for-one basis) by the number of Units or shares of Common Stock otherwise
received by QSV in connection with the Conversion. The portion of the
Initial Unit Consideration consisting of Partnership Units shall be issued by
the Partnership as soon as practicable following the date of the Conversion,
but in no event later than 30 days thereafter.
The Contingent Share Consideration consists of up to a maximum number of
550,000 Partnership Units (which number or classification shall be adjusted to
give effect to any reclassification or change of the Common Stock or Units,
including, without limitation, a split, or any merger or consolidation of the
REIT or the MLP, except the merger of the MLP with the REIT or any subsidiary
thereof, or sale of assets to another entity, occurring after March 31, 1997).
The type and number of securities issuable as the Contingent Share Consideration
(subject to the next sentence) shall be at the sole discretion of QSV. The
exact number of Partnership Units to be issued (which number shall be reduced on
a one-for-one basis by the number of Units otherwise received by QSV as part of
the Contingent Share Consideration) will be determined by dividing the (i)
amount by which the MGP Net Income (as defined below) for the 2000 Fiscal Year
exceeds $3,612,500 by (ii) $4.25, and rounding the resulting number up to the
nearest whole number. "MGP Net Income" means the dollar amount of fees and
distributions which would have been payable to QSV, as Managing General Partner,
by the Partnership for the 2000 Fiscal Year, pursuant to the provisions of
Section 9.3, had QSV operated the Partnership on a continuous basis from the
date of the Conversion through December 31, 2000 plus the amounts that would
have been payable to QSV pursuant to its aggregate 1.98% general partnership
interests in the Partnership and the MLP, less $775,000.
For example, if the MGP Net Income for the 2000 Fiscal Year would have been
$5,100,000 ($5,875,000 revenues less $775,000) then the Contingent Unit
Consideration would be an additional 350,000 Partnership Units.
The Contingent Unit Consideration, if any, shall be issued by the
Partnership as soon as practicable following the end of the 2000 Fiscal Year,
but in no event later than March 31, 2001.
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9.3. OPERATIONAL EXPENSES.
In addition to any reimbursement pursuant to the indemnification set forth
in Section 7.10, the Partnership, pursuant to this Section 9.3 and Section 9.3
of the Investors Partnership Agreement, shall:
(a) With respect to (i) the Partnership Properties held as of March 17,
1995 and (ii) the Partnership Properties and Ancillary Property related thereto
acquired thereafter with respect to the Partnership Properties referred to in
clause (i) above whether pursuant to Section 8.12 or otherwise, the Partnership
shall cause to be paid to the Managing General Partner with respect to each
Fiscal Year an aggregate amount equal to Four Hundred Thousand Dollars
($400,000) adjusted annually as set forth in Section 9.3(c), which amount shall
be in lieu of any reimbursement for expenses related to the management of the
business affairs of the Partnership and the Limited Partner (other than expenses
described in Section 9.3 (c)) that are incurred by the Managing General Partner
or its Affiliates with respect to such Partnership Properties, which amount
shall be payable in equal quarterly installments within sixty (60) days after
the end of each fiscal quarter.
(b) With respect to any Partnership Property and Ancillary Property
related thereto acquired after March 17, 1995 (other than those referred to in
Section 9.3 (a)) and mortgage loans, if any, originated by the Partnership or
the MLP, (i) the Partnership shall pay to the Managing General Partner (A) an
acquisition fee equal to 1% of the purchase price paid by the Partnership or the
Limited Partner for such Partnership Property and Ancillary Property related
thereto, payable on the date of acquisition or origination, as applicable, and
(B) with respect to each Fiscal Year, an amount, adjusted annually as set forth
in Section 9.3(c), accruing while such property is held at the rate of 1% per
annum (applied using the simple interest method on the basis of a 365/366-day
year and the actual number of days elapsed) on the purchase price paid by the
Partnership or any of the Limited Partners for such Partnership Property and
Ancillary Property related thereto, and (ii) if the Rate of Return attributable
to all Partnership Properties and Ancillary Property related thereto acquired
after March 17, 1995 (other than those referred to in Section 9.3(a)) in respect
of any Fiscal Year shall exceed 12% per annum, the Partnership shall pay to the
Managing General Partner an amount equal to 25% of the amount of cash received
by the Partnership representing such excess, which amounts shall be in lieu of
any reimbursement of expenses related to the management of the business affairs
of the Partnership and the Limited Partners (other than expenses described in
Section 9.3(c)) that are incurred by the Managing General Partner or its
Affiliates with respect to such Partnership Properties and (except as provided
in clause (i)(A) of this Section 9.3(b)) shall be payable in quarterly
installments within sixty (60) days after the end of each fiscal quarter (which
may be estimated in the case of the first three fiscal quarters); provided that
there shall be credited against the amounts, if any, payable pursuant to clause
(ii) of this Section 9.3(b) in respect of any Fiscal Year amounts payable to the
Managing General Partner in respect of its First-Tier Residual Interest or
Second-Tier Residual Interest pursuant to Sections 6.5 and 6.6 of the Investors
Partnership Agreement in respect of such Fiscal Year. For purposes of the
calculations provided for in this Section 9.3 in the event of a mortgage loan
origination, the term "Partnership
D-6
<PAGE>
Properties" shall be deemed to include any originated mortgage loans and the
"purchase price" of such mortgage loans will be the principal balances
thereof at the beginning of any Fiscal Year.
(c) The Partnership shall either pay, or reimburse the Managing General
Partner on a monthly basis for the payment of, all amounts payable to any Person
for providing goods or performing services (including, without limitation,
legal, accounting, auditing, recordkeeping, reporting, depositary, transfer
agent, printing, appraisal, servicing and consulting services) for or on behalf
of the Partnership or the Limited Partners; provided, however, that the
Partnership shall not pay, or reimburse the Managing General Partner for, the
payment of any amount to an Affiliate or an officer, director, or employee of an
Affiliate for legal, accounting, managerial, or consulting services; and
provided further, that the Partnership shall pay, or shall reimburse the
Managing General Partner for, a payment to an Affiliate or an officer, director,
or employee of an Affiliate for goods or other services only if the price and
the terms upon which such goods or services are provided to the Partnership or
the Limited Partners are fair to the Partnership or the Limited Partners, as the
case may be, and are not less favorable to the Partnership or the Limited
Partners, as the case may be, than would be incurred if the Partnership or the
Limited Partners were to obtain such goods or services from an unrelated third
party or were to engage employees to provide such goods or services directly.
For 1987 and for each Fiscal Year thereafter, the amount payable pursuant
to Section 9.3(a) shall be increased by an amount equal to the product of Four
Hundred Thousand Dollars ($400,000) multiplied by the percentage increase in the
Price Index from January 1, 1986, through the last day of the immediately
preceding Fiscal Year. For each year after the year in which a Partnership
Property is acquired, the amount otherwise payable pursuant to Section 9.3
(b)(i)(B) (the "Section 9.3(b)(i)(B) Amount") shall be increased by an amount
equal to the product of the Section 9.3(b)(i)(B) Amount multiplied by the
percentage increase in the Price Index from the first day of the immediately
preceding Fiscal Year or, in the case of the first year after the year in which
the Partnership Property is acquired, the first day of the month in which the
acquisition occurred through the last day of the Fiscal Year immediately
preceding such year or, if earlier, the last day of the month in which such
Partnership Property was disposed of. The percentage increase in the Price
Index through the last day of a particular period shall be determined by
calculating the increase, if any, in the Price Index for the last time period
during such period (the "Price Index Determination Period") with respect to
which the Price Index is published (currently a monthly period) over the Price
Index for the time period immediately preceding the first day of the Price Index
Determination Period, and expressing the amount of such increase as a percentage
of the Price Index for said time period immediately preceding the first day of
the Price Index Determination Period.
"RATE OF RETURN" in respect of any period shall mean and refer to the
quotient obtained by dividing (1) the aggregate revenues (calculated in
accordance with generally accepted accounting principles and before
amortization of unearned income on direct financing leases) received by the
Partnership or the Limited Partners from the Partnership Properties and
Ancillary Property referred to in Section 9.3(b) for such period, whether
through operations, sale or other disposition, less (without duplication) (i)
the aggregate fees payable pursuant to Section 9.3(b)(i)(B) for such period in
respect of such properties, (ii) the aggregate expenses of the
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<PAGE>
Partnership (other than interest expense, depreciation, amortization and
other non-cash expenses and charges, and expenses described in Sections
9.3(b) and (c)) directly attributable to such property and interest expense
on any debt or distributions with respect to any interests (the "Preferred
Interests") of the Partnership issued to the REIT in exchange for the
proceeds from the issuance by the REIT of equity securities ranking senior to
the Common Stock with respect to the payment of dividends by the REIT
allocated thereto for such period, (iii) the general and administrative
expenses of the Partnership (other than non-cash expenses and charges and
expenses described in Sections 9.3(a) and (b)) for such period allocated to
such properties (based on the ratio of Average Partnership Equity in such
properties to the aggregate Average Partnership Equity in all Partnership
Properties), and (iv) the principal amount of debt and dollar amount of
Preferred Interests allocated to any such property properties repaid during
such period and, if applicable, the cash costs and expenses of any kind or
nature incurred in respect of the sale or other disposition thereof, by (2)
the Average Partnership Equity in such properties during such period.
"AVERAGE PARTNERSHIP EQUITY" shall mean and refer to (A) the average of the
sums of the aggregate purchase prices therefor, the aggregate fees paid
pursuant to (b)(i)(A) above Section 9.3(b)(i)(A) in respect thereof and all
other cash costs and expenses of any kind or nature incurred in connection
with the acquisitions thereof ("Property Costs") as of the last day of each
calendar month occurring during the period of determination, less (B) the
average outstanding principal amount of debt of the Partnership and the
aggregate dollar value of the Preferred Interests outstanding as of the last
day of each calendar month during such period and allocated to such
properties. The Rate of Return for any outstanding mortgage loans will be
evaluated separately with the mortgage loans constituting a separate pool of
"properties" for such calculation. The general and administrative expenses
allocable to such mortgage loans shall be equal to the total amount of such
expenses for any Fiscal Year multiplied by a fraction, the numerator of which
shall be the aggregate principal amount of all mortgage loans outstanding at
the beginning of such Fiscal Year and the denominator of which shall be the
total of all Property Costs and such aggregate principal amount.
For the purposes of the foregoing, debt of the Partnership and the
Preferred Interests shall be allocated among the Partnership Properties as
follows: (1) non-recourse debt shall be allocated to the property secured
thereby and, if such debt is secured by more than one property, such debt shall
be allocated among the properties secured thereby based on the relative Property
Costs thereof; and (2) recourse debt and the Preferred Interests shall be
allocated to all of the Partnership Properties based on the relative Property
Costs thereof (reduced for this purpose by the amounts of non-recourse debt
allocated thereto in accordance with clause (1) above).
9.4. REIMBURSEMENT OF THE GENERAL PARTNERS.
In the event that the provisions of Section 9.3 are terminated in
accordance with the terms of Section 9.1, the following compensation
provisions shall apply, to be effective upon the date of such termination.
(a) The General Partners shall not be compensated for their services as
general partner of the Partnership except as provided in elsewhere in this
Agreement (including the provisions
D-8
<PAGE>
of Article VI regarding distributions, payments and allocations to which it
may be entitled in its capacity as the General Partner).
(b) Subject to Sections 9.4(c) and 16.9, the Partnership shall be
liable for, and shall reimburse the General Partners on a monthly basis, or
such other basis as the General Partners may determine in their sole and
absolute discretion, for all sums expended in connection with the
Partnership's business or for the benefit of the Partnership, including,
without limitation, (i) expenses relating to the ownership of interests in,
and management and operation of, or for the benefit of, the Partnership, (ii)
compensation of officers and employees, including, without limitation,
payments under future employee benefit plans of any General Partner, (iii)
director fees and expenses, and (iv) all costs and expenses of any General
Partner being a public company, including costs of filings with the
Commission, reports and other distributions to its stockholders.
(c) To the extent practicable, Partnership expenses shall be billed
directly to and paid by the Partnership, subject to Section 16.9,
reimbursements to the General Partner of any of their Affiliates by the
Partnership pursuant to this Section 9.4 shall be treated as "guaranteed
payments" within the meaning of Section 707(c) of the Code.
13.1. WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS.
A General Partner may withdraw from the Partnership or be removed as a
General Partner without withdrawing as, or being removed as, a general partner
of the MLP. A General Partner shall withdraw from the Partnership or be
removed as a General Partner if the General Partner withdraws as, or is removed
as, a general partner of the MLP. Such withdrawal or removal shall be effective
at the time the Departing General Partner notifies the other General Partners of
such withdrawal or the Departing General Partner is notified by the Partnership
of such removal or at the same time as is the General Partner's withdrawal or
removal as a general partner of the MLP, as applicable. Except as provided
below, the Managing General Partner shall not withdraw from the Partnership
unless (i) the Managing General Partner shall have transferred all of its
Partnership Interest as a General Partner in accordance with Section 11.2; or
(ii) such withdrawal shall have been approved by a Majority Vote of the Limited
Partners. In the event QSV withdraws or is removed as a General Partner or as
a general partner of the MLP, and, in either case, elects to convert its
Partnership Interest for the Acquisition Price as provided in Section 9.1, the
REIT or an Affiliate of the REIT, as designated by the REIT, shall automatically
succeed the Departing Managing General Partner, provided that if the REIT or any
Affiliate thereof shall decline to serve as a successor General Partner then a
successor General Partner shall be selected upon the affirmative vote of all
Limited Partners. If no such successor General Partner is selected by the
Limited Partners and the Partnership has no remaining General Partner, then the
Partnership shall be dissolved pursuant to Section 14.2.
D-9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation, as amended or supplemented (the
"Articles of Incorporation"), provide certain limitations on the liability of
the Registrant's directors and officers for monetary damages to the Registrant.
The Articles of Incorporation obligate the Registrant to indemnify its directors
and officers, and permit the Registrant to indemnify its employees and other
agents, against certain liabilities incurred in connection with their service in
such capacities. These provisions could reduce the legal remedies available to
the Registrant and the stockholders against these individuals. See "Certain
Provisions of Maryland Law and of the REIT Corporation's Articles and
Bylaws--Limitation of Liability and Indemnification."
The Registrant's Articles of Incorporation require it to indemnify (a) the
Registrant's directors and officers (whether serving the Registrant or, at its
request, any other entity) who have been successful, on the merits or otherwise,
in the defense of a proceeding to which he was made a party by reason of his
service in that capacity, against reasonable expenses incurred by him in
connection with the proceeding unless it is established that (i) his act or
omission was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable cause
to believe that his act or omission was unlawful and (b) other employees and
agents of the Registrant to such extent as shall be authorized by the Board of
Directors or the Registrant's Bylaws and be permitted by law. In addition, the
Registrant's Articles of Incorporation require the Registrant to pay or
reimburse, in advance of the final disposition of a proceeding, reasonable
expenses incurred by a director or officer who is a party to a proceeding under
procedures provided for under the Maryland General Corporation Law (the "MGCL").
The Registrant's Bylaws also permit the Registrant to provide such other and
further indemnification or payment or reimbursement of expenses as the Board of
Directors deems to be in the interest of the Registrant and as may be permitted
by the MGCL for directors, officers and employees of Maryland corporations.
The Registrant has entered into indemnification agreements with each of the
Registrant's officers and directors. The indemnification agreements require,
among other things, that the Registrant indemnify its officers and directors to
the fullest extent permitted by law and advance to the officers and directors
all related expenses, subject to reimbursement if it is subsequently determined
that indemnification is not permitted. The Registrant must also indemnify and
advance all expenses incurred by officers and directors seeking to enforce their
rights under the indemnification agreements and cover officers and directors
under the Registrant's directors' and officers' liability insurance. Although
the indemnification agreements offer substantially the same scope of coverage
afforded by law, such agreements provide assurance to directors and officers
that indemnification will be available because such contracts cannot be modified
unilaterally in the future by the Board of Directors or the stockholders to
eliminate the rights they provide.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
EXHIBIT
NO. EXHIBIT
------- -------
2.1 Merger Agreement-Included as APPENDIX A to the Prospectus/Proxy
constituting a portion of the Registration Statement
3.1*** Amended Articles of Incorporation of the Registrant
3.2** Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
5.1* Opinion of Winstead Sechrest & Minick P.C. regarding legality of
the Common Stock
8.1* Opinion of Winstead Sechrest & Minick P.C. regarding tax matters
10.1** Third Amended and Restated Agreement of Limited Partnership of
U.S. Restaurant Properties Master L.P. ("USRP")
10.2** Third Amended and Restated Agreement of Limited Partnership of
U.S. Restaurant Properties Operating L.P. (the "Operating
Partnership")
10.3** Withdrawal Agreement dated _________________, 1997 by and among
the Registrant, USRP, the Operating Partnership, Robert J.
Stetson and Fred H. Margolin
10.4* Employment Agreement dated ___________________, 1997 by and
between the Registrant and Robert J. Stetson
10.5* Employment Agreement dated _________________, 1997 by and between
the Registrant and Fred H. Margolin
23.1** Consent of Deloitte & Touche LLP
23.2* Consent of Winstead Sechrest & Minick P.C. (included in Exhibit
5.1)
99.1 Form of Proxy Card
________________
*To be filed by amendment.
**Filed herewith.
***Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because the required information is included in
the Consolidated Financial Statements or the Notes thereto or is otherwise
inapplicable.
(c) REPORTS, OPINIONS OR APPRAISALS.
Opinion of Morgan Keegan & Company, Inc. - Included as APPENDIX B to the
Prospectus/Proxy Statement constituting a portion of the Registration Statement.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the Registration
Statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
II-3
<PAGE>
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by Form S-4 with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of Form S-4.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant 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 director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction 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.
(8) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
(9) To supply by means of post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing of this Amendment No. 1 to Form S-4 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Dallas, State of Texas, on the 4th day
of April, 1997.
U.S. RESTAURANT PROPERTIES, INC.
By: /s/ ROBERT J. STETSON
-------------------------------
Name: Robert J. Stetson
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT J. STETSON President and Chief Executive April 4, 1997
- --------------------------- Officer and Director (Principal
Robert J. Stetson Executive Officer and Principal
Financial Officer)
/s/ FRED H. MARGOLIN Chairman of the Board of April 4, 1997
- --------------------------- Directors, Secretary and
Fred H. Margolin Treasurer
II-5
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
U.S. RESTAURANT PROPERTIES, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Principal Office . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Additional Offices . . . . . . . . . . . . . . . . . . 1
ARTICLE II STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Annual Meeting . . . . . . . . . . . . . . . . . . . . 1
Section 2.2 Special Meetings . . . . . . . . . . . . . . . . . . . 2
Section 2.3 Place of Meeting . . . . . . . . . . . . . . . . . . . 2
Section 2.4 Notice of Meeting; Waiver of Notice. . . . . . . . . . 2
Section 2.5 Quorum; Adjournments . . . . . . . . . . . . . . . . . 3
Section 2.6 Voting . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.7 Organization . . . . . . . . . . . . . . . . . . . . . 4
Section 2.8 Proxies. . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.9 List of Stockholders . . . . . . . . . . . . . . . . . 5
Section 2.10 Stockholder Proposals. . . . . . . . . . . . . . . . . 5
Section 2.11 Conduct of Voting. . . . . . . . . . . . . . . . . . . 7
Section 2.12 Informal Action. . . . . . . . . . . . . . . . . . . . 7
ARTICLE III BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 General Powers . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Number, Tenure and Qualifications. . . . . . . . . . . 8
Section 3.3 Time and Place of Meetings . . . . . . . . . . . . . . 9
Section 3.4 Annual and Regular Meetings. . . . . . . . . . . . . . 9
Section 3.5 Special Meetings . . . . . . . . . . . . . . . . . . . 9
Section 3.6 Notice . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.7 Quorum . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.8 Voting . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.9 Participation By Conference Telephone. . . . . . . . . 11
Section 3.10 Informal Action. . . . . . . . . . . . . . . . . . . . 11
Section 3.11 Resignation; Vacancies . . . . . . . . . . . . . . . . 11
Section 3.12 Compensation . . . . . . . . . . . . . . . . . . . . . 12
Section 3.13 Removal. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.14 Loss of Deposit. . . . . . . . . . . . . . . . . . . . 13
Section 3.15 Surety Bonds . . . . . . . . . . . . . . . . . . . . . 13
Section 3.16 Advisory Directors . . . . . . . . . . . . . . . . . . 13
Section 3.17 Presumption of Assent. . . . . . . . . . . . . . . . . 13
ARTICLE IV COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.1 Number, Tenure and Qualifications. . . . . . . . . . . 14
Section 4.2 Powers . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.3 Meetings . . . . . . . . . . . . . . . . . . . . . . . 14
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
----
Section 4.4 Telephone Meetings . . . . . . . . . . . . . . . . . . 15
Section 4.5 Informal Action by Committees. . . . . . . . . . . . . 15
Section 4.6 Emergency. . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.1 General Provisions . . . . . . . . . . . . . . . . . . 16
Section 5.2 Election, Tenure, Removal and Resignation. . . . . . . 16
Section 5.3 Vacancies. . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.4 Chief Executive Officer. . . . . . . . . . . . . . . . 17
Section 5.5 Chief Operating Officer. . . . . . . . . . . . . . . . 18
Section 5.6 Chief Financial Officer. . . . . . . . . . . . . . . . 18
Section 5.7 Chairman of the Board. . . . . . . . . . . . . . . . . 18
Section 5.8 President. . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.9 Vice Presidents. . . . . . . . . . . . . . . . . . . . 19
Section 5.10 Secretary. . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.11 Treasurer. . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.12 Assistant and Subordinate Officers . . . . . . . . . . 21
Section 5.13 Salaries . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS . . . . . . . . . . . 21
Section 6.1 Contracts. . . . . . . . . . . . . . . . . . . . . . . 21
Section 6.2 Checks and Drafts. . . . . . . . . . . . . . . . . . . 22
Section 6.3 Deposits . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.1 Certificates . . . . . . . . . . . . . . . . . . . . . 22
Section 7.2 Transfers. . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.3 Lost Certificate . . . . . . . . . . . . . . . . . . . 23
Section 7.4 Closing of Transfer Books or Fixing of Record Date . . 24
Section 7.5 Stock Ledger . . . . . . . . . . . . . . . . . . . . . 25
Section 7.6 Fractional Stock; Issuance of Units. . . . . . . . . . 25
Section 7.7 Certification of Beneficial Owners . . . . . . . . . . 26
Section 7.8 Exemption from Control Share Acquisition Statute . . . 26
ARTICLE VIII ACCOUNTING YEAR . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IX DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.1 Declaration. . . . . . . . . . . . . . . . . . . . . . 27
Section 9.2 Contingencies. . . . . . . . . . . . . . . . . . . . . 27
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TABLE OF CONTENTS
(Continued)
Page
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ARTICLE X SUNDRY PROVISIONS . . . . . . . . . . . . . . . . . . . . . 27
Section 10.1 Investment Policy. . . . . . . . . . . . . . . . . . . 27
Section 10.2 Seal . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.3 Books and Records. . . . . . . . . . . . . . . . . . . 28
Section 10.4 Bonds. . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.5 Voting Upon Shares in Other Corporations . . . . . . . 28
Section 10.6 Mail . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 10.7 Execution of Documents . . . . . . . . . . . . . . . . 29
Section 10.8 Reliance . . . . . . . . . . . . . . . . . . . . . . . 29
Section 10.9 Certain Rights of Directors, Officers,
Employees and Agents. . . . . . . . . . . . . . . . . 29
ARTICLE XI ANNUAL STATEMENT OF AFFAIRS . . . . . . . . . . . . . . . . 30
ARTICLE XII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.1 Procedure. . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.2 Exclusivity, Etc . . . . . . . . . . . . . . . . . . . 31
Section 12.3 Severability; Definitions. . . . . . . . . . . . . . . 32
ARTICLE XIII AMENDMENT OF BYLAWS . . . . . . . . . . . . . . . . . . . . 32
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BYLAWS
OF
U.S. RESTAURANT PROPERTIES, INC.
(THE "CORPORATION")
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. The principal office of the Corporation
shall be located at such place or places as the Board of Directors may
designate.
SECTION 1.2 ADDITIONAL OFFICES. The Corporation may have such other
offices at such other places both within and without the State of Maryland as
the Board of Directors from time to time may designate or as the business of
the Corporation from time to time may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING. The Corporation shall hold an annual
meeting of its stockholders commencing with the year 1998 to elect directors
and transact any other business within its powers or as may be properly
brought before the meeting, either on the last Thursday in April in each year
if not a legal holiday, or on such other day within 30 days thereafter as
shall be set by the Board of Directors. If no other hour shall be so
designated, such meeting shall be held at 10:00 a.m. Except as the Articles
of Incorporation of the Corporation, as the same may be amended or restated
from time to time (the "Charter"), or statute provides otherwise, any
business may be considered at an annual meeting without the purpose of the
meeting having been specified in the notice. Failure to hold an annual
meeting does not invalidate the Corporation's existence or affect any
otherwise valid corporate acts.
<PAGE>
SECTION 2.2 SPECIAL MEETINGS. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of
the Corporation) with or without a meeting. Special meetings of the
stockholders shall be called by the Secretary on the written request of
stockholders entitled to cast such percentage of all the votes entitled to be
cast at the meeting which represents the maximum percentage as may be
permitted for such purpose under the Corporations and Associations Article of
the Annotated Code of Maryland (the "MGCL"). A request for a special meeting
shall state the purpose of the meeting and the matters proposed to be acted
on at such meeting. The Secretary shall inform the stockholders who make the
request of the reasonable estimated costs of preparing and mailing a notice
of the meeting and, on payment of these costs to the Corporation, notify each
stockholder entitled to notice of the meeting. Unless requested by
stockholders entitled to cast a majority of all the votes entitled to be cast
at the meeting, a special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at any special meeting
of stockholders held in the preceding 12 months. Notwithstanding the
foregoing, whenever holders of one or more classes or series of Preferred
Stock shall have the right, voting separately as a class or series, to elect
directors, such holders may call special meetings of such holders pursuant to
the terms of such classes or series.
SECTION 2.3 PLACE OF MEETING. Meetings of stockholders shall be held
at such place in the United States as is set from time to time by the Board
of Directors.
SECTION 2.4 NOTICE OF MEETING; WAIVER OF NOTICE. Written notice,
stating the place, day and hour of the meeting and, in the case of a special
meeting or if notice of the purpose is
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required by statute, the purpose or purposes for which the meeting is called,
shall be prepared and delivered by the Secretary of the Corporation, not less
than ten (10) days nor more than ninety (90) days before the date of the
meeting, personally, by mail, or by leaving it at his residence or usual
place of business, to each stockholder of record entitled to vote at such
meeting and to each other stockholder or other person, if any, entitled to
notice of the meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon
prepaid, addressed to the stockholder at his or her address as it appears on
the records of the Corporation. Notwithstanding the foregoing provisions,
each person who is entitled to notice waives notice if he or she before or
after the meeting signs a waiver of the notice which is filed with the
records of stockholders' meetings, or is present at the meeting in person or
by proxy.
SECTION 2.5 QUORUM; ADJOURNMENTS. Except as otherwise provided by law
or by the Charter, the holders of a majority of all of the shares then
outstanding and entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, except that when specified
business is to be voted on by a class or series voting as a class, the
holders of a majority of the shares of such class or series shall constitute
a quorum for the transaction of such business. Whether or not a quorum is
present at any meeting of the stockholders, a meeting of stockholders
convened on the date for which it was called may be adjourned from time to
time without further notice by (i) the Chairman of the meeting, (ii) the
Board of Directors or (iii) a majority vote of the stockholders present in
person or by proxy, in each case to a date not more than 120 days after the
original record date. Any business which might have been
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transacted at the meeting as originally notified may be deferred and
transacted at any such adjourned meeting at which a quorum shall be present.
SECTION 2.6 VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient
to elect a director. Each share may be voted for as many individuals as
there are directors to be elected and for whose election the share is
entitled to be voted. A majority of the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient
to approve any other matter which may properly come before the meeting,
unless more than a majority of the votes cast is required by statute or by
the Charter of the Corporation.
SECTION 2.7 ORGANIZATION. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, (or in his or her
absence or if one shall not have been elected, the President) shall act as
chairman of the meeting. The Secretary (or in his or her absence or
inability to act, the person whom the chairman of the meeting shall appoint
secretary of the meeting) shall act as secretary of the meeting and keep the
minutes thereof.
SECTION 2.8 PROXIES. Unless the Charter provides otherwise, each
outstanding share of stock, regardless of class, is entitled to one vote on
each matter submitted to a vote at a meeting of stockholders. In all
elections for directors, each share of stock entitled to vote may be voted
for as many individuals as there are directors to be elected and for whose
election the share is entitled to be voted. A stockholder may vote the stock
he or she owns of record either in person or by proxy. A stockholder may
sign a writing authorizing another person to act as proxy. Signing may be
accomplished by the stockholder or the stockholder's authorized agent signing
the writing or causing the stockholder's signature to be affixed to the
writing by any
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reasonable means, including facsimile signature. A stockholder may authorize
another person to act as proxy by transmitting, or authorizing the
transmission of, a telegram, cablegram, datagram, or other means of
electronic transmission to the person authorized to act as proxy or to a
proxy solicitation firm, proxy support service organization, or other person
authorized by the person who will act as proxy to receive the transmission.
Unless a proxy provides otherwise, it is not valid more than 11 months after
its date. A proxy is revocable by a stockholder at any time without
condition or qualification unless the proxy states that it is irrevocable and
the proxy is coupled with an interest. The interest with which the proxy may
be coupled includes an interest in the stock to be voted under the proxy or
another general interest in the Corporation or its assets or liabilities.
SECTION 2.9 LIST OF STOCKHOLDERS. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by
the Secretary.
SECTION 2.10 STOCKHOLDER PROPOSALS. For any stockholder proposal to be
presented in connection with an annual meeting of stockholders of the
Corporation, including any proposal relating to the nomination of a director
to be elected to the Board of Directors of the Corporation, the stockholders
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Corporation not less than
60 days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of
the annual meeting is advanced by more than 30 days or delayed by more
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than 60 days from such anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the 90th day prior to such
annual meeting and not later than the close of business on the later of the
60th day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as
a director if elected); (b) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf the proposal
is made; and (c) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (i) the
name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner and (ii) the class and number of shares
of stock of the Corporation which are owned beneficially and of record by
such stockholders and such beneficial owner. For the 1998 annual meeting the
previous year's meeting shall be deemed to have taken place on April 24,
1997; provided that this sentence shall cease to be a part of the Bylaws
after the holding of the 1998 annual meeting and any adjournments thereof.
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SECTION 2.11 CONDUCT OF VOTING. At all meetings of stockholders,
unless the voting is conducted by inspectors, the proxies and ballots shall
be received, and all questions touching the qualification of voters and the
validity of proxies, the acceptance or rejection of votes and procedures for
the conduct of business not otherwise specified by these Bylaws, the Charter
or law, shall be decided or determined by the chairman of the meeting. If
demanded by stockholders, present in person or by proxy, entitled to cast 10%
in number of votes entitled to be cast, or if ordered by the chairman, the
vote upon any election or question shall be taken by ballot and, upon like
demand or order, the voting shall be conducted by two inspectors, in which
event the proxies and ballots shall be received, and all questions touching
the qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided, by such inspectors. Unless so demanded
or ordered, no vote need be by ballot and voting need not be conducted by
inspectors. The stockholders at any meeting may choose an inspector or
inspectors to act at such meeting, and in default of such election the
chairman of the meeting may appoint an inspector or inspectors. No candidate
for election as a director at a meeting shall serve as an inspector thereat.
SECTION 2.12 INFORMAL ACTION. Any action required or permitted to be
taken at a meeting of stockholders may be taken without a meeting if a
consent in writing, setting forth such action, is signed by each stockholder
entitled to vote on the matter and any other stockholder entitled to notice
of a meeting of stockholders (but not to vote thereat) has waived in writing,
any right to dissent from such action, and such consent and waiver are filed
with the minutes of proceedings of the stockholders.
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ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 GENERAL POWERS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
All powers of the Corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to the stockholders by
statute or by the Charter or By-laws.
SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS. The Corporation shall
have at least the minimum number of directors required by Maryland Law and
shall have the number of directors provided in the Charter until changed as
herein provided. At any regular meeting or at any special meeting called for
that purpose, a majority of the entire Board of Directors may increase or
decrease the number of directors, provided that the number thereof shall
never be less than the minimum number required by the MGCL, nor more than 15,
and further provided that the tenure of office of a director shall not be
affected by any decrease in the number of directors. Pursuant to the Charter
of the Corporation, the directors have been divided into classes with terms
of three years, with the term of office of one class expiring at the annual
meeting of stockholders in each year. Each class shall consist, as nearly as
possible, of one-third of the total number of directors constituting the
entire Board of Directors. Except as otherwise provided in the Charter, each
director shall serve for a term ending on the date of the third annual
meeting of stockholders next following the annual meeting at which such
director was elected. Each director shall hold office for the term for which
he is elected and until his successor is elected and qualified or until such
director's earlier death, resignation or removal. Directors need not be
stockholders.
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SECTION 3.3 TIME AND PLACE OF MEETINGS. The Board of Directors shall
hold its meetings at such place, either within or without the State of
Maryland, and at such time as may be determined from time to time by the
Board of Directors (or the Chairman in the absence of a determination by the
Board of Directors).
SECTION 3.4 ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Board of Directors for the purpose of organization, to elect officers and to
consider other business shall be held without notice other than this Section
3.4. In the event that no other time and place are specified by resolution
of the Board, the President or the Chairman, with notice in accordance with
Section 3.6, the Board of Directors shall meet immediately after, and at the
same place as, each annual meeting of stockholders. In the event such
annual meeting is not so held, the annual meeting of the Board of Directors
may be held at such place either within or without the State of Maryland, on
such date and at such time as shall be specified in a notice thereof given as
hereinafter provided in Section 3.6 of these By-laws or in a waiver of notice
thereof signed by any director who chooses to waive the requirement of
notice. After the place and time of regular meetings of the Board of
Directors shall have been determined and notice thereof shall have been once
given to each member of the Board of Directors, regular meetings at such
place and time may be held without further notice being given.
SECTION 3.5 SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
Chief Executive Officer, the President or by a majority of the Board of
Directors by vote at a meeting or in writing with or without a meeting. The
Board of Directors may fix the place and time of the meeting. In the absence
of designation, such meeting shall be held at such place as may be designated
in the call.
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SECTION 3.6 NOTICE. Except as provided in Section 3.4, the Secretary
shall give notice to each director of each regular and special meeting of the
Board of Directors. The notice shall state the time and place of the
meeting. Notice is given to a director when it is delivered personally to
him, left at his residence or usual place of business, or sent by telegraph,
facsimile transmission or telephone, at least 24 hours before the time of the
meeting or, in the alternative by mail to his address as it shall appear on
the records of the Corporation, at least 72 hours before the time of the
meeting. Unless the Bylaws or a resolution of the Board of Directors
provides otherwise, the notice need not state the business to be transacted
at or the purposes of any regular or special meeting of the Board of
Directors. No notice of any meeting of the Board of Directors need be given
to any director who attends except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened, or to any director who, in
writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. Any meeting of the Board of
Directors, regular or special, may adjourn from time to time to reconvene at
the same or some other place, and no notice need be given of any such
adjourned meeting other than by announcement.
SECTION 3.7 QUORUM. A majority of the entire Board of Directors shall
constitute a quorum for transaction of business at any meeting of the Board
of Directors, provided that, if less than a majority of such directors are
present at said meeting, a majority of the directors present without notice
other than by announcement may adjourn the meeting from time to time. At any
such adjourned meeting at which a quorum shall be present, any business may
be transacted which might have been transacted at the meeting as originally
notified. If, pursuant to the
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Charter of the Corporation or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also
include a majority of such group.
The Board of Directors present at a meeting which has been duly called
and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a
quorum.
SECTION 3.8 VOTING. The action of the majority of the directors present
at a meeting at which a quorum is present shall be the action of the Board of
Directors, unless the occurrence of a greater proportion is required for such
action by applicable statute or the Charter.
SECTION 3.9 PARTICIPATION BY CONFERENCE TELEPHONE. Unless otherwise
restricted by the Charter or these Bylaws, members of the Board of Directors
may participate in a meeting of such Board by means of a conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time, and
participation in a meeting pursuant to this Section 3.9 shall constitute
presence in person at such meeting.
SECTION 3.10 INFORMAL ACTION. Unless otherwise restricted by the
Charter or these Bylaws, any action required or permitted to be taken at any
meeting of the Board of Directors may be taken without a meeting, if a
consent in writing to such action is signed by each director and such written
consent is filed with the minutes of proceedings of the Board of Directors.
SECTION 3.11 RESIGNATION; VACANCIES. Any director may resign at any time
by giving written notice to the Board of Directors or to the Secretary of the
Corporation. The resignation of any director shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice; and
unless otherwise specified therein, the acceptance of such
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resignation shall not be necessary to make it effective. The stockholders
may elect a successor to fill a vacancy on the Board of Directors which
results from the removal of a director. A director elected by the
stockholders to fill a vacancy which results from the removal of a director
serves for the balance of the term of the removed director. Any vacancy on
the Board of Directors for any cause other than an increase in the number of
directors shall be filled by a majority of the remaining directors, although
such majority is less than a quorum. Any vacancy in the number of directors
created by an increase in the number of directors may be filled by a majority
vote of the entire Board of Directors. A director elected by the Board of
Directors to fill a vacancy serves until the next annual meeting of
stockholders and until his or her successor is elected and qualifies.
SECTION 3.12 COMPENSATION. Unless otherwise restricted by the Charter
or these Bylaws, directors shall not receive any stated salary for their
services as directors but, by resolution of the Board of Directors, fixed
sums per year and/or per meeting including reimbursement of expenses, if any,
may be allowed to directors for attendance at each annual, regular or special
meeting of the Board of Directors or of any committee thereof, but nothing
herein contained shall be construed to preclude any directors from serving
the Corporation in any other capacity and receiving compensation therefor,
pursuant to a resolution of the directors. Directors who are full-time
employees of the Corporation need not be paid for attendance at meetings of
the Board or committees thereof for which fees are paid to other directors.
SECTION 3.13 REMOVAL. Subject to the rights of the holders of any class
or series of Preferred Stock to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only
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by the affirmative vote of the holders of at least two-thirds percent of the
then outstanding capital stock entitled to vote generally in the election of
directors, voting together as a single class. "Cause" means acts or
omissions constituting active and deliberate dishonesty established by a
final judgment or actual receipt of an improper benefit or profit in money,
property or services.
SECTION 3.14 LOSS OF DEPOSIT. No director shall be liable for any loss
which may occur by reason of the failure of any bank, trust company, savings
and loan association, or other institution with whom moneys or stock of the
Corporation have been deposited.
SECTION 3.15 SURETY BONDS. Unless required by law, no director shall be
obligated to give any bond or surety or other security for the performance of
any of his or her duties.
SECTION 3.16 ADVISORY DIRECTORS. The Board of Directors may by
resolution appoint advisory directors to the Board, who may also serve as
directors emeriti, and shall have such authority and receive such
compensation and reimbursement as the Board of Directors shall provide.
Advisory directors or directors emeriti shall not have the authority to
participate by vote in the transaction of business.
SECTION 3.17 PRESUMPTION OF ASSENT. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who votes in favor of such action.
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ARTICLE IV
COMMITTEES
SECTION 4.1 NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors
may appoint from among its members an Executive Committee, an Audit Committee
and other committees, composed of one or more directors, to serve at the
pleasure of the Board of Directors.
SECTION 4.2 POWERS. The Board of Directors may delegate to committees
appointed under Section 4.1 above any of the powers of the Board of Directors,
except the power to authorize dividends or other distributions on stock, issue
stock other than as provided in the next sentence, recommend to the stockholders
any action which requires stockholder approval, amend the Bylaws, or approve any
merger or share exchange which does not require stockholder approval. If the
Board has given general authorization for the issuance of stock providing for or
establishing a method or procedure for determining the maximum number of shares
to be issued, a committee of the Board, in accordance with that general
authorization or any stock option plan or other program adopted by the Board,
may authorize or fix the terms of stock subject to classification or
reclassification and the terms on which any stock may be issued, including all
terms and conditions required or permitted to be established or authorized by
the Board.
SECTION 4.3 MEETINGS. Each committee may fix rules of procedure for its
business. A majority of the members of a committee shall constitute a quorum
for the transaction of business and the act of a majority of those present at a
meeting at which a quorum is present shall be the act of the committee. In the
event of absence or disqualification of any member of
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any such committee, the members thereof present at any meeting, whether or
not they constitute a quorum, may appoint another director to act in the
place of such absent member.
SECTION 4.4 TELEPHONE MEETINGS. Unless restricted by the Charter or
these Bylaws, members of a committee of the Board of Directors may participate
in a meeting by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other at the
same time. Participation in a meeting by these means shall constitute presence
in person at the meeting.
SECTION 4.5 INFORMAL ACTION BY COMMITTEES. Unless restricted by the
Charter or these Bylaws, any action required or permitted to be taken at any
meeting of a committee of the Board of Directors may be taken without a meeting,
if a consent in writing to such action is signed by each member of the committee
and such written consent is filed with the minutes of proceedings of such
committee.
SECTION 4.6 EMERGENCY. In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Corporation by its directors and officers as contemplated by the Charter and
the Bylaws, any one or more available members of the then incumbent Executive
Committee shall constitute a quorum of that Committee for the full conduct and
management of the affairs and business of the Corporation in accordance with the
provisions of Section 4.1. In the event of the unavailability, at such time, of
a minimum of one member of the then incumbent Executive Committee, the available
directors shall elect an Executive Committee consisting of one or more other
members of the Board of Directors, whether or not they be officers of the
Corporation, which such member or members shall constitute the Executive
Committee for the full conduct and management of the affairs of
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the Corporation in accordance with the foregoing provisions of this Section.
This Section shall be subject to implementation by resolution of the Board of
Directors passed from time to time for that purpose. and any provisions of
the Bylaws (other than this Section) and any resolutions which are contrary
to the provisions of this Section or to the provisions of any such
implementary resolutions shall be suspended until it shall be determined by
any interim Executive Committee acting under this Section that it shall be to
the advantage of the Corporation to resume the conduct and management of its
affairs and business under all the other provisions of the Bylaws.
ARTICLE V
OFFICERS
SECTION 5.1 GENERAL PROVISIONS. The officers of the Corporation shall
include a chief executive officer, a president, a secretary and a treasurer and
may include a chairman of the board (or one, or more co-chairmen of the board),
a vice chairman of the board, one or more vice presidents, a chief operating
officer, a chief financial officer and one or more assistant or subordinate
officers as may be established by the Board of Directors. In addition, the
Board of Directors may from time to time elect such other officers with such
powers and duties as they shall deem necessary or desirable. The Chairman of
the Board shall be a director, the other officers may be directors. Any two or
more offices except president and vice president may be held by the same person.
SECTION 5.2 ELECTION, TENURE, REMOVAL AND RESIGNATION. The Board of
Directors shall elect the officers. The Board of Directors may from time to
time authorize any committee or officer to appoint assistant and subordinate
officers. Election or appointment of an officer,
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employee or agent shall not of itself create contract rights. All officers
shall be appointed to hold their offices, respectively, during the pleasure
of the Board. Any officer or agent of the Corporation may be removed by the
Board of Directors (or as to any assistant or subordinate officer, any
committee or officer authorized by the Board) at any time if in its judgment
the best interests of the Corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed. Any officer of the Corporation may resign at any time by
giving written notice of his resignation to the Board of Directors, the
chairman of the board (or any co-chairman of the board if more than one), the
president or the secretary. Any resignation shall take effect at any time
subsequent to the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. The
acceptance of a resignation shall not be necessary to make it effective
unless otherwise stated in the resignation.
SECTION 5.3 VACANCIES. A vacancy in any office may be filled by the
Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board).
SECTION 5.4 CHIEF EXECUTIVE OFFICER. The Board of Directors shall
designate a chief executive officer. In the absence of such designation, the
chairman of the board (or, if more than one, the co-chairmen of the board in the
order designated at the time of their election or, in the absence of any
designation, then in the order of their election) shall be the chief executive
officer of the Corporation. In the absence of the chairman of the board, or if
there be none, the president shall be the chief executive officer. The chief
executive officer shall have general
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responsibility for implementation of the policies of the Corporation, as
determined by the Board of Directors, and for the management of the business
and affairs of the corporation.
SECTION 5.5 CHIEF OPERATING OFFICER. The Board of Directors may designate
a chief operating officer who shall have supervision of the operations of the
Corporation. In the absence of any designation, the president shall serve as
chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer. The same person may be both chief executive officer and
chief operating officer.
SECTION 5.6 CHIEF FINANCIAL OFFICER. The Board of Directors may designate
a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
SECTION 5.7 CHAIRMAN OF THE BOARD. The Board of Directors shall designate
a chairman of the board (or one or more co-chairmen of the board). The chairman
of the board shall preside over the meetings of the Board of Directors and of
the stockholders at which he shall be present. Unless otherwise specified by
the Board of Directors, he or she shall be the chief executive officer of the
Corporation and perform the duties customarily performed by the chief executive
officer, and may perform any duties of the President. If there be more than
one, the co-chairmen designated by the Board of Directors will perform such
duties. The chairman of the board shall perform such other duties as may be
assigned to him or them by the Board of Directors.
SECTION 5.8 PRESIDENT. The president or chief executive officer, as the
case may be, shall in general supervise and control all of the business and
affairs of the corporation. In the
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absence of a designation of a chief operating officer by the Board of Directors,
the president shall be the chief operating officer. He may execute, in the name
of the Corporation, any authorized deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation or shall be required by law to be otherwise executed;
and in general shall perform all duties incident to the office of president and
such other duties as may be assigned to him or her by the Board of Directors or
the chief executive officer from time to time.
SECTION 5.9 VICE PRESIDENTS. In the absence of the president, during
his or her inability to serve, at the request of the chief executive officer or
the president, or in the event of a vacancy in such office, the vice president
(or in the event there be more than one vice president, the vice presidents in
the order designated at the time of their election or, in the absence of any
designation, then in the order of their election) shall perform the duties of
the president and when so acting shall have all the powers of and be subject to
all the restrictions upon the president; and shall perform such other duties as
from time to time may be assigned to him by the president, the chief executive
officer, or by the Board of Directors. The Board of Directors may designate one
or more vice presidents as executive vice president or as vice president for
particular areas of responsibility.
SECTION 5.10 SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the stockholders, the Board of Directors and committees of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the records and of the seal of the
Corporation; (d) keep a register of the post office address of each stockholder
which shall
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be furnished to the secretary by such stockholder; (e) have general charge of
the share transfer books of the Corporation; and (f) in general perform all
duties incident to the office of a secretary of a corporation and such other
duties as from time to time may be assigned to him by the chief executive
officer, the president or by the Board of Directors.
SECTION 5.11 TREASURER. The treasurer shall have the custody of the
funds and securities of the Corporation and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation
and shall deposit all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may be designated by
the Board of Directors. In general, he or she shall perform all duties
incident to the office of a treasurer of a corporation, and such other duties
as are from time to time assigned to him by the Board of Directors, the chief
executive officer, or the president. In the absence of a designation of a
chief financial officer by the Board of Directors, the treasurer shall be the
chief financial officer of the Corporation.
The treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at
the regular meetings of the Board of Directors or whenever it may so require,
an account of all his transactions as treasurer and of the financial
condition of the Corporation.
If required by the Board of Directors, he shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his
office and for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, all books, papers, vouchers,
moneys and
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other property of whatever kind in his possession or under his control belonging
to the Corporation.
SECTION 5.12 ASSISTANT AND SUBORDINATE OFFICERS. The assistant and
subordinate officers of the Corporation are all officers below the office of
vice-president, secretary or treasurer. The assistant and subordinate officers
shall perform such duties as shall be assigned to them by the president, the
chief executive officer or the Board of Directors. The assistant treasurers
shall, if required by the Board of Directors, give bonds for the faithful
performance of their duties in such sums and with such surety or sureties as
shall be satisfactory to the Board of Directors.
SECTION 5.13 SALARIES. The salaries and other compensation and
remuneration, of whatever kind, of the officers shall be fixed from time to
time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation. The Board of Directors may authorize any committee or officer,
upon whom the power of appointing assistant and subordinate officers may have
been conferred, to fix the salaries, compensation and remuneration of such
assistant and subordinate officers.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 6.1 CONTRACTS. To the extent permitted by applicable law, and
except as otherwise prescribed by the Charter or these Bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee or agent of the Corporation to enter into any contract or to execute
and deliver any instrument in the name of and on behalf of the Corporation and
such authority may be general or confined to specific instances.
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SECTION 6.2 CHECKS AND DRAFTS. All checks, drafts or other orders of
other payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by the Board of Directors.
SECTION 6.3 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may designate.
ARTICLE VII
STOCK
SECTION 7.1 CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him or her in the Corporation. Each stock
certificate shall include on its face the name of the Corporation, the name of
the stockholder or other person to whom it is issued, and the class of stock and
number of shares it represents. It shall be in such form, not inconsistent with
law or with the Charter, as shall be approved by the Board of Directors or any
officer or officers designated for such purpose by resolution of the Board of
Directors. Each certificate shall be signed by the chairman of the board, the
president or a vice president and countersigned by the secretary or an assistant
secretary or the treasurer or an assistant treasurer and may be sealed with the
actual corporate seal or a facsimile of it or in any other form. The signatures
may be either manual or facsimile. Certificates shall be consecutively
numbered; and if the Corporation shall, from time to time, issue several classes
of stock, each class may have its own number series. A certificate is valid and
may be issued whether or not an officer who signed it is still an officer
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when it is issued. A certificate may not be issued until the stock
represented by it is fully paid. Each certificate representing shares which
are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion
of the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation,
preference or redemption provision, or a summary thereof, plainly stated on
the certificate. In lieu of such statement or summary, the Corporation may
set forth upon the face or back of the certificate a statement that the
Corporation will furnish to any stockholder, upon request and without charge,
a full statement of such information.
SECTION 7.2 TRANSFERS. Upon surrender to the Corporation or the
transfer agent of the Corporation of a stock certificate duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
The Corporation shall be entitled to treat the holder of record of any
share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share
on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State
of Maryland.
Notwithstanding the foregoing, transfers of shares of any class of stock
will be subject in all respects to the Charter of the Corporation and all of
the terms and conditions contained therein.
SECTION 7.3 LOST CERTIFICATE. The Board of Directors (or any officer
designated by it) may direct a new certificate to be issued in place of any
certificate previously issued by the
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Corporation alleged to have been lost, stolen or destroyed upon the making of
an affidavit of that fact by the person claiming the certificate to be lost,
stolen or destroyed. When authorizing the issuance of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or his legal representative to advertise the same in such manner
as they shall require and/or to give bond, with sufficient surety, to the
Corporation to indemnify it against any loss or claim which may arise as a
result of the issuance of a new certificate. In their discretion, the Board
of Directors or such designated officer or officers may refuse to issue such
new certificate save upon the order of some court having jurisdiction in the
premises.
SECTION 7.4 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders, or stockholders entitled to receive payment of any dividend or
the allotment of any other rights, or in order to make a determination of
stockholders for any other proper purpose. Such date, in any case, shall not
be prior to the close of business on the day the record date is fixed and
shall be not more than 90 days and, in the case of a meeting of stockholders,
not less than ten days, before the date on which the meeting or particular
action requiring such determination of stockholders is to be held or taken.
In lieu of fixing a record date, the Board of Directors may provide that
the stock transfer books shall be closed for a stated period but not longer
than 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the day
of such meeting.
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If no record date is fixed and the stock transfer books are not closed
(a) the record date for the determination of stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business
on the day on which the notice of meeting is mailed or the 30th day before
the meeting, whichever is later; and (b) the record date for the determination
of stockholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the board of directors, declaring the dividend or allotment of rights, is
adopted, but the payment or allotment may not be made more than 60 days after
the date on which the resolution is adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except where the determination has
been made through the closing of the transfer books and the stated period of
closing has expired.
SECTION 7.5 STOCK LEDGER. The Corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer
agent, an original or duplicate stock ledger containing the name and address
of each stockholder and the number of shares of each class held by such
stockholder. The stock ledger may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection.
SECTION 7.6 FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors
may issue fractional shares of stock or provide for the issuance of scrip or may
issue units consisting of different securities of the Corporation, all on such
terms and under such conditions as they may determine.
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SECTION 7.7 CERTIFICATION OF BENEFICIAL OWNERS. The Board of Directors
may adopt by resolution a procedure by which a stockholder of the Corporation
may certify in writing to the Corporation that any shares of stock registered in
the name of the stockholder are held for the account of a specified person other
than the stockholder. The resolution shall set forth the class of stockholders
who may certify; the purpose for which the certification may be made; the form
of certification and the information to be contained in it; if the certification
is with respect to a record date or closing of the stock transfer books, the
time after the record date or closing of the stock transfer books within which
the certification must be received by the Corporation; and any other provisions
with respect to the procedure which the Board of Directors considers necessary
or desirable. On receipt of a certification which complies with the procedure
adopted by the Board of Directors in accordance with this Section, the person
specified in the certification is, for the purpose set forth in the
certification, the holder of record of the specified stock in place of the
stockholder who makes the certification.
SECTION 7.8 EXEMPTION FROM CONTROL SHARE ACQUISITION STATUTE. The
provisions of Title 3, Subtitle 7 of the MGCL shall not apply to any share of
the capital stock of the Corporation and such shares of capital stock are
exempted from such Subtitle to the fullest extent permitted by Maryland law.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix the
fiscal year of the Corporation by a duly adopted resolution. Unless otherwise
provided by the Board of
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Directors, the fiscal year of the Corporation shall be the twelve months
ending December 31 in each year.
ARTICLE IX
DIVIDENDS
SECTION 9.1 DECLARATION. Dividends upon the stock of the Corporation
may be declared by the Board of Directors, subject to the provisions of law and
the Charter of the Corporation. Dividends may be paid on its shares in cash,
property or shares of the capital stock of the Corporation, subject to the
provisions of law and the Charter.
SECTION 9.2 CONTINGENCIES. Before payment of any dividends, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors may from time to time, in its absolute
discretion, think proper as a reserve fund for contingencies, for equalizing
dividends, for repairing or maintaining any property of the Corporation or for
such other purpose as the Board of Directors shall determine to be in the best
interest of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
ARTICLE X
SUNDRY PROVISIONS
SECTION 10.1 INVESTMENT POLICY. Subject to the provisions of the Charter
of the Corporation, the Board of Directors may from time to time adopt, amend,
revise or terminate any policy or policies with respect to investments by the
Corporation as it shall deem appropriate in its sole discretion.
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SECTION 10.2 SEAL. The Board of Directors may authorize the adoption of
a seal by the Corporation which shall be in the charge of the secretary. The
seal shall have inscribed thereon the name of the Corporation and the year of
its organization. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. Whenever the Corporation is required
to place its seal to a document, it shall be sufficient to meet the requirements
of any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Corporation.
SECTION 10.3 BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors.
The books and records of a Corporation may be in written form or in any other
form which can be converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written form but may be
maintained in the form of a reproduction. The original or a certified copy of
the Bylaws, including any amendments to them, shall be kept at the principal
office of the Corporation.
SECTION 10.4 BONDS. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
SECTION 10.5 VOTING UPON SHARES IN OTHER CORPORATIONS. Stock of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a VicePresident, or a proxy appointed by either of them.
The Board of Directors, however, may by
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resolution appoint some other person to vote such shares, in which case such
person shall be entitled to vote such shares upon the production of a
certified copy of such resolution.
SECTION 10.6 MAIL. Any notice or other document which is required by
these Bylaws to be mailed shall be deposited in the United States mails, postage
prepaid.
SECTION 10.7 EXECUTION OF DOCUMENTS. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 10.8 RELIANCE. Each director, officer, employee and agent of the
Corporation shall, in the performance of his or her duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
SECTION 10.9 CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
The directors shall have no responsibility to devote their full time to the
affairs of the Corporation. Any director or officer, employee or agent of the
corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to those
of or relating to the Corporation.
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ARTICLE XI
ANNUAL STATEMENT OF AFFAIRS
The President or chief financial officer shall prepare annually a full
and correct statement of the affairs of the Corporation, to include a balance
sheet and a financial statement of operations for the preceding fiscal year.
The statement of affairs shall be submitted at the annual meeting of the
stockholders and, within 20 days after the meeting, placed on file at the
Corporation's principal office.
ARTICLE XII
INDEMNIFICATION
SECTION 12.1 PROCEDURE. Any indemnification, or payment of expenses in
advance of the final disposition of any proceeding, shall be made promptly, and
in any event within 60 days, upon the written request of the director or officer
entitled to seek indemnification (the "Indemnified Party"). The right to
indemnification and advances hereunder shall be enforceable by the Indemnified
Party in any court of competent jurisdiction, if (i) the Corporation denies such
request, in whole or in part, or (ii) no disposition thereof is made within 60
days. The Indemnified Party's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such action shall also be reimbursed by the Corporation. It shall be a
defense to any action for advance for expenses that (a) a determination has been
made that the facts then known to those making the determination would preclude
indemnification or (b) the Corporation has not received both (i) an undertaking
as required by law to repay such advances in the event it shall ultimately be
determined that the standard of conduct has not been met and (ii) a written
affirmation by the Indemnified Party of such
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Indemnified Party's good faith belief that the standard of conduct necessary
for indemnification by the Corporation has been met.
SECTION 12.2 EXCLUSIVITY, ETC. The indemnification and advance of
expenses provided by the Charter and these Bylaws shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
advance of expenses may be entitled under any law (common or statutory), or
any agreement, vote of stockholders or disinterested directors or other
provision that is consistent with law, both as to action in his official
capacity and as to action in another capacity while holding office or while
employed by or acting as agent for the Corporation, shall continue in respect
of all events occurring while a person was a director or officer after such
person has ceased to be a director or officer, and shall inure to the benefit
of the estate., heirs, executors and administrators of such person. All
rights to indemnification and advance of expenses under the Charter of the
Corporation and hereunder shall be deemed to be a contract between the
Corporation and each director or officer of the Corporation who serves or
served in such capacity at any time while this By-Law is in effect. Nothing
herein shall prevent the amendment of this By-Law, provided that no such
amendment shall diminish the rights of any person hereunder with respect to
events occurring or claims made before its adoption or as to claims made
after its adoption in respect of events occurring before its adoption. Any
repeal or modification of this By-Law shall not in any way diminish any
rights to indemnification or advance of expenses of such director or officer
or the obligations of the Corporation arising hereunder with respect to
events occurring, or claims made, while this By-Law or any provision hereof
is in force.
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SECTION 12.3 SEVERABILITY; DEFINITIONS. The invalidity or
unenforceability of any provision of this Article XII shall not affect the
validity or enforceability of any other provision hereof The phrase "this
By-Law" in this Article XII means this Article XII in its entirety.
ARTICLE XIII
AMENDMENT OF BYLAWS
Subject to the special provisions of Section 3.2, these Bylaws may be
repealed, altered, amended or rescinded and new Bylaws may be adopted (a) by
the stockholders of the Corporation by vote of not less than two-thirds of
the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at any meeting of the stockholders called for that purpose
(provided that notice of such proposal is included in the notice of such
meeting) or (b) by the Board of Directors by a vote of not less than
two-thirds of the Board of Directors at a meeting held in accordance with the
provisions of these Bylaws.
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EXHIBIT 10.1
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF U.S. RESTAURANT PROPERTIES MASTER L.P.
(FORMERLY BURGER KING INVESTORS MASTER L.P.)
<PAGE>
TABLE OF CONTENTS
PAGE
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ARTICLE I - CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - FORMATION; NAME; PLACE OF BUSINESS. . . . . . . . . . . . . 16
2.1 Formation of Partnership; Certificate of Limited
Partnership. . . . . . . . . . . . . . . . . . . . . . 16
2.2 Name of Partnership. . . . . . . . . . . . . . . . . . . 16
2.3 Place of Business. . . . . . . . . . . . . . . . . . . . 17
2.4 Registered Office and Registered Agent.. . . . . . . . . 17
ARTICLE III - PURPOSES, NATURE OF BUSINESS, AND POWERS OF PARTNERSHIP. . 17
3.1 Purposes and Business. . . . . . . . . . . . . . . . . . 17
3.2 Powers.. . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IV - TERM OF PARTNERSHIP . . . . . . . . . . . . . . . . . . . . 19
4.1 Term.. . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE V - CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1 Capital Contributions of Managing General Partner. . . . 19
5.2 Capital Contributions of Special General Partner.. . . . 19
5.3 Capital Contribution of Organizational Limited Partner.. 20
5.4 Capital Contributions of Initial Limited Partners. . . . 20
5.5 Additional Issuances of Units and Capital Contributions. 20
5.6 No Fractional Units. . . . . . . . . . . . . . . . . . . 21
5.7 Splits and Combinations. . . . . . . . . . . . . . . . . 21
5.8 Capital Accounts.. . . . . . . . . . . . . . . . . . . . 22
5.9 Negative Capital Accounts. . . . . . . . . . . . . . . . 25
5.10 No Interest on Amounts in Capital Account. . . . . . . . 26
5.11 Advances to Partnership. . . . . . . . . . . . . . . . . 26
5.12 Liability of Limited Partners. . . . . . . . . . . . . . 26
5.13 Return of Capital. . . . . . . . . . . . . . . . . . . . 26
5.14 Exchange of Units. . . . . . . . . . . . . . . . . . . . 26
5.15 No Preemptive Rights . . . . . . . . . . . . . . . . . . 27
ARTICLE VI - ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS OF
CASH FLOW AND CERTAIN PROCEEDS . . . . . . . . . . . . . 27
6.1 Certain Definitions. . . . . . . . . . . . . . . . . . . 27
6.2 Allocations for Capital Account Purposes.. . . . . . . . 31
6.3 Allocations for Tax Purposes.. . . . . . . . . . . . . . 37
6.4 Allocation of Income and Less with Respect to Interests
Transferred. . . . . . . . . . . . . . . . . . . . . . . 38
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TABLE OF CONTENTS
(Continued)
PAGE
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6.5 Distributions of Cash Flow.. . . . . . . . . . . . . . . 39
6.6 Distribution of Proceeds from Interim Capital
Transactions . . . . . . . . . . . . . . . . . . . . . 40
6.7 Distribution of Proceeds from Terminating Capital
Transactions; Liquidation Distributions. . . . . . . . 41
ARTICLE VII - MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . 41
7.1 Management and Control of Partnership. . . . . . . . . . 41
7.2 Powers of Managing General Partner.. . . . . . . . . . . 42
7.3 Restrictions on Authority of Managing General Partner. . 48
7.4 Title to Partnership Assets. . . . . . . . . . . . . . . 50
7.5 Working Capital Reserve. . . . . . . . . . . . . . . . . 50
7.6 Other Business Activities of Partners. . . . . . . . . . 51
7.7 Transactions with Managing General Partner or
Affiliates . . . . . . . . . . . . . . . . . . . . . . 51
7.8 Net Worth Representation; Independent Judgment.. . . . . 51
7.9 Liability of General Partners to Partnership and
Limited Partners.. . . . . . . . . . . . . . . . . . . 52
7.10 Indemnification of General Partners and Affiliates . . . 52
7.11 No Management by Limited Partners and Assignees. . . . . 53
7.12 Other Matters Concerning General Partners. . . . . . . . 54
7.13 Revolving Line of Credit; Other Loans to or from
a General Partner. . . . . . . . . . . . . . . . . . . 54
7.14 Purchase or Sale of Units; Registration Rights of
General Partners.. . . . . . . . . . . . . . . . . . . 55
7.15 Periodic Consideration of Sale or Refinancing. . . . . . 57
7.16 Other Limitations. . . . . . . . . . . . . . . . . . . . 57
ARTICLE VIII - ACQUISITION, OPERATION, AND DISPOSITION OF
RESTRICTED RESTAURANT PROPERTIES . . . . . . . . . . . 58
8.1 General. . . . . . . . . . . . . . . . . . . . . . . . . 58
8.2 Contribution to Operating Partnership; Acquisition
of Restaurant Properties . . . . . . . . . . . . . . . 59
8.3 Use and Other Restrictions . . . . . . . . . . . . . . . 59
8.4 Restrictions on Transfer of Restricted Restaurant
Properties.. . . . . . . . . . . . . . . . . . . . . . 65
8.5 Rent Relief. . . . . . . . . . . . . . . . . . . . . . . 67
8.6 Successor Policy.. . . . . . . . . . . . . . . . . . . . 69
8.7 Competitive Facilities.. . . . . . . . . . . . . . . . . 71
8.8 Acquisition of Restricted Restaurant Properties By
the General Partners or Affiliates . . . . . . . . . . 72
8.9 Termination of Lease for Restricted Restaurant Property
Following Termination of BKC Franchise Agreement . . . 72
8.10 Independent Consultant.. . . . . . . . . . . . . . . . . 73
8.11 Consent to Use of Name and Trademarks. . . . . . . . . . 75
8.12 Acquisition of Fee Title to Properties Subject to
Primary Leases . . . . . . . . . . . . . . . . . . . . 75
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8.13 Location of Other Restaurant Properties. . . . . . . . . 75
ARTICLE IX - COMPENSATION OF GENERAL PARTNERS: PAYMENT OF
PARTNERSHIP EXPENSES . . . . . . . . . . . . . . . . . . 76
9.1 Compensation to General Partners.. . . . . . . . . . . . 76
9.2 Expenses in Connection With Organization of
Partnership and Initial Public Offering. . . . . . . . 77
9.3 Operational Expenses.. . . . . . . . . . . . . . . . . . 78
9.4 Reimbursement of the General Partners. . . . . . . . . . 81
ARTICLE X - BANK ACCOUNTS; BOOKS AND RECORDS; FISCAL YEAR;
STATEMENTS; TAX MATTERS. . . . . . . . . . . . . . . . . . 81
10.1 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . 81
10.2 Books and Records. . . . . . . . . . . . . . . . . . . . 82
10.3 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . 83
10.4 Financial Statements and Information.. . . . . . . . . . 83
10.5 Accounting Decisions.. . . . . . . . . . . . . . . . . . 84
10.6 Where Maintained.. . . . . . . . . . . . . . . . . . . . 85
10.7 Preparation of Tax Returns.. . . . . . . . . . . . . . . 85
10.8 Tax Elections. . . . . . . . . . . . . . . . . . . . . . 85
10.9 Tax Controversies. . . . . . . . . . . . . . . . . . . . 85
10.10 Organizational Expense . . . . . . . . . . . . . . . . . 86
10.11 Taxation as a Partnership. . . . . . . . . . . . . . . . 86
10.12 Determination of Adjusted Basis in Connection with
Section 754 Election . . . . . . . . . . . . . . . . . 86
10.13 Withholding in Respect of Foreign Partners . . . . . . . 86
10.14. Qualification as a REIT. . . . . . . . . . . . . . . . . 88
ARTICLE XI - ISSUANCE AND DEPOSIT OF CERTIFICATE OF PARTNERSHIP
INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . 89
11.1 Issuance of Certificates of Partnership Interest.. . . . 89
11.2 Deposit of Certificates of Partnership Interest;
Issuance of Depositary Receipts. . . . . . . . . . . . 89
11.3 Lost, Stolen, or Destroyed Certificates. . . . . . . . . 89
11.4 Record Holder. . . . . . . . . . . . . . . . . . . . . . 90
ARTICLE XII - TRANSFER OF INTERESTS AND UNITS. . . . . . . . . . . . . . 90
12.1 Transfer.. . . . . . . . . . . . . . . . . . . . . . . . 90
12.2 Transfer of Interests of General Partners. . . . . . . . 91
12.3 Transfer of Units. . . . . . . . . . . . . . . . . . . . 92
12.4 Transfer of Depositary Receipts. . . . . . . . . . . . . 92
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12.5 Restrictions on Transfer.. . . . . . . . . . . . . . . . 93
ARTICLE XIII - ADMISSION OF PARTNERS . . . . . . . . . . . . . . . . . . 94
13.1 Admission of Initial Limited Partners. . . . . . . . . . 94
13.2 Admission of Substituted Limited Partners. . . . . . . . 94
13.3 Admission of a Successor General Partner.. . . . . . . . 95
ARTICLE XIV - WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS;
WITHDRAWAL OF LIMITED PARTNERS . . . . . . . . . . . . . 96
14.1 Withdrawal of General Partners.. . . . . . . . . . . . . 96
14.2 Removal of General Partners. . . . . . . . . . . . . . . 97
14.3 Limitations on Withdrawal or Removal of a General
Partner and Election of a Successor General Partner. . 97
14.4 Amendment of Agreement and Certificate of Limited
Partnership. . . . . . . . . . . . . . . . . . . . . . 97
14.5 Interest of Departing Partner and Successor. . . . . . . 98
14.6 Withdrawal of Limited Partners.. . . . . . . . . . . . . 100
ARTICLE XV - DISSOLUTION AND LIQUIDATION . . . . . . . . . . . . . . . . 100
15.1 No Dissolution.. . . . . . . . . . . . . . . . . . . . . 100
15.2 Events Causing Dissolution.. . . . . . . . . . . . . . . 100
15.3 Right to Continue Business of Partnership. . . . . . . . 101
15.4 Dissolution. . . . . . . . . . . . . . . . . . . . . . . 102
15.5 Liquidation. . . . . . . . . . . . . . . . . . . . . . . 102
15.6 Reasonable Time for Winding Up.. . . . . . . . . . . . . 103
15.7 Termination of Partnership.. . . . . . . . . . . . . . . 104
ARTICLE XVI - AMENDMENTS; MEETINGS; RECORD DATE. . . . . . . . . . . . . 104
16.1 Amendment to be Adopted Solely by the Managing
General Partner. . . . . . . . . . . . . . . . . . . . 104
16.2 Amendment Procedures.. . . . . . . . . . . . . . . . . . 105
16.3 Amendment Restrictions.. . . . . . . . . . . . . . . . . 106
16.4 Meetings.. . . . . . . . . . . . . . . . . . . . . . . . 106
16.5 Notice of a Meeting. . . . . . . . . . . . . . . . . . . 107
16.6 Record Date. . . . . . . . . . . . . . . . . . . . . . . 107
16.7 Adjournment. . . . . . . . . . . . . . . . . . . . . . . 107
16.8 Waiver of Notice; Consent to Meeting; Approval
of Minutes . . . . . . . . . . . . . . . . . . . . . . 108
16.9 Quorum.. . . . . . . . . . . . . . . . . . . . . . . . . 108
16.10 Conduct of Meeting . . . . . . . . . . . . . . . . . . . 108
16.11 Voting and Other Rights. . . . . . . . . . . . . . . . . 109
16.12 Action Without a Meeting . . . . . . . . . . . . . . . . 109
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TABLE OF CONTENTS
(Continued)
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ARTICLE XVII - POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . 110
ARTICLE XVIII - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . 111
18.1 Additional Actions and Documents.. . . . . . . . . . . . 111
18.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 111
18.3 Severability.. . . . . . . . . . . . . . . . . . . . . . 112
18.4 Survival.. . . . . . . . . . . . . . . . . . . . . . . . 113
18.5 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 113
18.6 Exercise of Rights.. . . . . . . . . . . . . . . . . . . 113
18.7 Binding Effect.. . . . . . . . . . . . . . . . . . . . . 113
18.8 Limitation on Benefits of this Agreement.. . . . . . . . 113
18.9 Force Majeure. . . . . . . . . . . . . . . . . . . . . . 114
18.10 Consent of Limited Partners and Assignees. . . . . . . . 114
18.11 Entire Agreement . . . . . . . . . . . . . . . . . . . . 114
18.12 Pronouns . . . . . . . . . . . . . . . . . . . . . . . . 114
18.13 Headings . . . . . . . . . . . . . . . . . . . . . . . . 114
18.14 Governing Law. . . . . . . . . . . . . . . . . . . . . . 115
18.15 Execution in Counterparts. . . . . . . . . . . . . . . . 115
ARTICLE XIX - EXECUTION. . . . . . . . . . . . . . . . . . . . . . . . . 116
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Dated as of ___________________, 1997
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF U.S. RESTAURANT PROPERTIES MASTER L.P.
(FORMERLY BURGER KING INVESTORS MASTER L.P.)
THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") is entered into as of ______________, 1997, by and among QSV
Properties Inc., a Delaware corporation having its principal office at 5310
Harvest Hill Road, Suite 270, Dallas, Texas 75230 (the "Managing General
Partner") (or any other person or entity who shall in the future execute and
deliver this Agreement as a Substituted General Partner pursuant to the
provisions hereof) as the general partner (the "General Partner"), and all other
persons and entities who are or shall in the future become limited partners of
this limited partnership in accordance with the provisions hereof (the "Limited
Partners") (the Limited Partners are sometimes hereinafter referred to as a
"Limited Partner," individually, and the "Limited Partners," collectively, and
the General Partner and the Limited Partners sometimes hereinafter referred to
as a "Partner," individually, and as the "Partners," collectively).
WHEREAS, the Partners and Burger King Corporation, a Florida corporation
("BKC"), as the Special General Partner, heretofore have entered into an
Agreement of Limited Partnership dated as of December 10, 1985;
WHEREAS, the Partners and BKC amended and restated such Agreement of
Limited Partnership in its entirety as of January 6, 1986 and February 3, 1986,
and further amended such Agreement of Limited Partnership by Amendments Nos. 1
through 100 thereto through February 28, 1995;
WHEREAS, BKC has withdrawn as Special General Partner effective as of
November 30, 1994;
WHEREAS, the Partners amended and restated such Agreement of Limited
Partnership in its entirety as of March 17, 1995 (the "Second Amended and
Restated Agreement"); and
WHEREAS, the Partners desire to further amend and restate such Second
Amended and Restated Agreement in its entirety as hereinafter set forth;
NOW, THEREFORE, for and in consideration of the foregoing, and of the
covenants and agreements hereinafter set forth, it is hereby agreed as follows:
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ARTICLE I
CERTAIN DEFINITIONS
Unless the context otherwise specifies or requires, the terms defined in
this Article I shall, for the purposes of this Agreement, have the meanings
herein specified. Certain other capitalized terms used in this Agreement are
defined in Articles VI, VIII and XIV. Unless otherwise specified, all
references herein to Articles or Sections are to Articles or Sections of this
Agreement.
ACCOUNTING FIRM: The independent public accountants who are
responsible for assisting in maintaining Partnership tax accounting and
allocation records and advising the Managing General Partner with respect
thereto, as selected and approved by the Managing General Partner from time
to time, in its sole and absolute discretion. The Accounting Firm and the
Auditing Firm are not required to be the same.
ADDITIONAL LIMITED PARTNER. A Person who is admitted to the
Partnership as a Limited Partner pursuant to Sections 5.5(a) and 13.1.
ADJUSTED BASIS: The basis for determining gain or loss for federal
income tax purposes from the sale or other disposition of property, as
defined in Section 1011 of the Code.
ADJUSTED CAPITAL ACCOUNT DEFICIT: With respect to a Partner or Assignee,
the deficit balance, if any, in that Partner's or Assignee's Capital Account as
of the end of the relevant taxable year, after giving effect to the following
adjustments:
(a) The Capital Account will be increased by any amount that the
Partner or Assignee is obligated to restore, if any, including any amount he
is deemed to be obligated to restore under the penultimate sentences of
Treasury Regulations Section 1.704-2(g)(1) or 1.704-2(i)(5); and
(b) The Capital Account will be decreased by the items described in
Treasury Regulations Sections 1.704-1(b)(2) (ii)(d)(4), (5) and (6).
This definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d).
ADJUSTED PROPERTY: Any property the Carrying Value of which has been
adjusted pursuant to Section 5.8(d)(i) or Section 5.8(d)(ii), in the case of a
distribution described in Section 5.8(d)(ii)(A).
AFFILIATE: (a) Any Person (as hereinafter defined) directly or
indirectly owning, controlling, or holding power to vote ten percent (10%) or
more of the outstanding voting securities of the Person in question; (b) any
Person ten percent (10%) or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to
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vote by the Person in question; (c) any Person directly or indirectly
controlling, controlled by, or under common control with the Person in
question; (d) if the Person in question is a corporation, any executive
officer or director of the Person in question or of any corporation directly
or indirectly controlling the Person in question; and (e) if the Person in
question is a partnership, any general partner owning or controlling ten
percent (10%) or more of either the capital or profits interests in such
partnership. As used in this definition of "Affiliate," the term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
AGGREGATE OFFERING PROCEEDS: The total amount of proceeds received by
the Partnership from the Initial Public Offering (including any proceeds
received pursuant to Section 5.4(b) in connection with the over-allotment
option described therein).
AGREEMENT: This Third Amended and Restated Agreement of Limited
Partnership, as it may be further amended or supplemented from time to time.
AMENDED AGREEMENT: The Amended and Restated Agreement of Limited
Partnership of Burger King Investors Master L.P., dated as of February 3, 1986,
entered into by and among the Managing General Partner, BKC, the Organizational
Limited Partner, and the Limited Partners, as amended through February 28, 1995.
ANCILLARY PROPERTY: Personal property (other than personal property
included in the definitions of "Other Restaurant Properties," "Restricted
Restaurant Properties" and "Retail Properties") of whatever kind used in
connection with a Partnership Property, including, without limitation, supplies,
furnishings, equipment, trade dress and franchise, license and other rights.
APPRAISER: Real Estate Research Corporation or its successor, or in the
event that Real Estate Research Corporation or its successor is not available
for any reason to provide an appraisal with respect to any matter hereunder,
Arthur D. Little and Company or its successor, or in the event that both Real
Estate Research Corporation or its successor and Arthur D. Little and Company or
its successor are not available for any reason to provide an appraisal with
respect to any matter hereunder, Marshall and Stevens, Incorporated or its
successor, or in the event that all of the foregoing companies are not available
for any reason to provide an appraisal with respect to any matters hereunder,
such other independent, nationally recognized real estate valuation firm
selected by the Managing General Partner in its reasonable discretion.
ASSIGNEE: A Person to whom one or more Units or Depositary Units
have been transferred, by assignment of a Depositary Receipt or otherwise, in
a manner permitted under this Agreement, but who has not been admitted to the
Partnership as a Substituted Limited Partner with respect to such Units. The
rights of any such Person in the Partnership with respect to Units for which
such Person has not been admitted to the Partnership as a Substituted Limited
Partner shall be (i) limited to the rights and obligations appurtenant to
such Units to share in the allocations and distributions of the Partnership,
including liquidating distributions of the
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Partnership, and (ii) except as expressly provided herein, otherwise subject
to the limitations under the Delaware RULPA on the rights of an assignee who
has not become a substitute limited partner. An Assignee shall not be
entitled to vote on any matter requiring the vote of Limited Partners, unless
such Assignee has been admitted as a Substituted Limited Partner.
AUDITING FIRM: The independent public accountants who are responsible
for auditing the financial statements of the Partnership as set forth in
Section 10.4, as selected and approved by the Managing General Partner from
time to time, in its sole and absolute discretion. The Auditing Firm and the
Accounting Firm are not required to be the same.
BKC: Burger King Corporation, and the successors and assigns of Burger
King Corporation.
BKC FRANCHISE AGREEMENT: A franchise agreement, whether now existing or
hereafter entered into, between a BKC Franchisee and BKC authorizing the BKC
Franchisee to operate a BK Restaurant, as the same may be amended, renewed, or
extended by BKC.
BKC FRANCHISEES: Persons who operate BK Restaurants pursuant to BKC
Franchise Agreements.
BK RESTAURANTS: Burger King "fast food" restaurants, whether operated by
BKC, an Affiliate of BKC, or a BKC Franchisee. "BK Restaurant" means any one of
the BK Restaurants.
BUSINESS DAY: Monday through Friday of each week, except that a legal
holiday recognized as such by the Government of the United States or the State
of Texas shall not be regarded as a Business Day.
CAPITAL ACCOUNT: The capital account established and maintained for each
Partner and Assignee pursuant to Section 5.8.
CAPITAL CONTRIBUTION: Any property (including cash) contributed to the
Partnership by or on behalf of a Partner.
CARRYING VALUE: (a) With respect to a property contributed to the
Partnership, the fair market value of such propeRty at the time of contribution,
reduced (but not below zero) by all deductions for depreciation, amortization,
cost recovery, and expense in lieu of depreciation debited to the Capital
Accounts of Partners and Assignees, pursuant to Section 5.8(a) with respect to
such property as of the time of determination, and (b) with respect to any other
property, the Adjusted Basis of such property as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Sections 5.8(b) and 5.8(c), and to reflect changes, additions or
other adjustments to the Carrying Value for dispositions, acquisitions or
improvements of Partnership properties, as deemed to be necessary or appropriate
by the Managing General Partner.
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CERTIFICATE: A non-negotiable certificate issued by the Partnership,
substantially in the form of Exhibit A to this Agreement, evidencing ownership
of one or more Units.
CERTIFICATE OF LIMITED PARTNERSHIP: The Certificate of Limited
Partnership, and any and all amendments thereto, filed on behalf of the
Partnership with the Recording Office as required under the Delaware RULPA.
CLOSING: The "closing time" as defined in the Underwriters Purchase
Agreement.
CLOSING DATE: The date on which the Closing occurs.
CODE: The Internal Revenue Code of 1986, as amended to date and
hereafter amended. Any reference herein to a specific section or sections of
the Code shall be deemed to include a reference to any corresponding
provision of future law.
COMMISSION: The Securities and Exchange Commission.
COMMON STOCK: The common stock, par value $.001 per share, of the REIT.
CONTRIBUTED PROPERTY: Each Contributing Partner's interest in each
property (or interest therein), or other consideration, but excluding cash
and cash equivalents, contributed directly or indirectly to the Partnership
by such Contributing Partner (or deemed contributed to the Partnership upon
termination thereof pursuant to Section 708 of the Code). Once the Carrying
Value of a Contributed Property is adjusted pursuant to Section 5.8(d), such
Property shall no longer constitute a Contributed Property for purposes of
Section 6.3(b), but shall be deemed an Adjusted Property for such purposes.
CONTRIBUTING PARTNER: Each Partner or Assignee contributing directly or
indirectly (or deemed to have contributed upon termination of the Partnership
pursuant to Section 708 of the Code) a Contributed Property to the Partnership
in exchange for a Partnership Interest.
CONVERSION FACTOR: 1.0, provided that in the event that the REIT (a)
declares or pays a dividend on its outstanding shares of Common Stock in shares
of Common Stock or makes a distribution to all holders of its outstanding shares
of Common Stock; (b) subdivides its outstanding shares of Common Stock; or (c)
combines its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, the Conversion Factor shall be adjusted by multiplying the
Conversion Factor by a fraction, the numerator of which shall be the number of
shares of Common Stock issued and outstanding on the record date for such
dividend, distribution, subdivision or combination, assuming for such purpose
that such dividend, distribution, subdivision or combination has occurred as of
such time, and the denominator of which shall be the actual number of shares of
Common Stock (determined without the above assumption) issued and outstanding on
the record date for such dividend, distribution, subdivision or combination.
Any adjustment to the Conversion Factor shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.
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DATE OF DELIVERY: The "date of delivery," as defined in the Underwriters
Purchase Agreement.
DELAWARE RULPA: The Delaware Revised Uniform Limited Partnership Act
(Del. Code Ann. tit. 6 Section 17-101 ET SEQ.), as amended to date and as it
may be amended from time to time hereafter, and any successor to such Act.
DEPARTING PARTNER: A General Partner who has withdrawn or been removed
pursuant to Section 14.1 or 14.2, as the case may be, as of the effective date
of the withdrawal or removal of such General Partner.
DEPOSIT ACCOUNT: The account established by the Depositary pursuant to
the Deposit Agreement.
DEPOSIT AGREEMENT: The agreement so designated, to be entered into
by and among the Managing General Partner, for itself and in its capacity
both as Managing General Partner and as attorney-in-fact of the Initial
Limited Partners, and the Depositary, as it may be amended or supplemented
from time to time.
DEPOSITARY: The Partnership's depositary, as selected and approved
by the Managing General Partner from time to time, in its sole and absolute
discretion, or any successor to it as depositary under the Deposit Agreement.
DEPOSITARY RECEIPT: A depositary receipt, issued by the Depositary or
agents appointed by the Depositary in accordance with the Deposit Agreement,
evidencing ownership of one or more Depositary Units.
DEPOSITARY UNIT: A Unit on deposit with the Depositary pursuant to the
Deposit Agreement.
DRIP: A distribution reinvestment plan under which the Partnership
issues Units to electing Limited Partners and Assignees in lieu of making
cash distributions to them, which Units could either be issued directly to
such Limited Partners and Assignees or deposited with the Depositary and be
evidenced by Depositary Receipts issued to them.
EFFECTIVE DATE: The date as of which the Managing General Partner on
its own behalf and the Managing General Partner on behalf of the Limited
Partners execute this Agreement after the approval of this Agreement by a
Majority Vote of the Limited Partners.
EXCHANGE ACT: Securities Exchange Act of 1934, as amended, and the
regulations of the Commission promulgated thereunder.
EXTRAORDINARY INCOME AND EXTRAORDINARY LOSS: For each taxable year or
shorter period, the positive sum, in the case of Extraordinary Income, and the
negative sum, in the case of
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Extraordinary Loss, of all items of gain or loss recognized by the
Partnership from Capital Transactions (other than items allocated pursuant to
the Special Allocations) occurring in such taxable period and determined in
accordance with Section 5.8(b).
FISCAL YEAR: The fiscal year of the Partnership for financial
accounting purposes, and for federal, state, and local income tax purposes,
which shall be the calendar year unless changed by the Managing General
Partner in accordance with Section 10.3.
FOREIGN PARTNER: Any Partner or Assignee who is a foreign person
(within the meaning of Section 1445 or 1446 of the Code and Treasury
Regulations promulgated thereunder) and/or who is not a citizen or resident
of the United States (within the meaning of Section 1.1441-5 of the Treasury
Regulations).
GENERAL PARTNERS: The Managing General Partner and any Substituted
General Partner. "General Partner" means one of the General Partners.
IMMEDIATE FAMILY: With respect to any natural Person, such natural
Person's spouse and such natural Person's natural Person's adoptive Parents,
descendants (whether natural or adopted), nephews, nieces, brothers, sisters,
sons and daughters-in-law.
INCAPACITY OR INCAPACITATED: (a) As to any individual Partner, death,
total physical disability or entry by a court of competent jurisdiction
adjudicating him or her incompetent to manage his or her Person or his or her
estate; (b) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (c) as to any partnership which is a Partner, the
dissolution and commencement of winding up of the partnership; (d) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership; (e) as to any trustee of a trust which is
a Partner, the termination of the trust (but not the substitution of a new
trustee); or (f) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (i) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency
or other similar law nor or thereafter in effect, (ii) the Partner is
adjudged as bankrupt or insolvent, or a final and nonappealable order for
relief under any bankruptcy, insolvency or similar law now or thereafter in
effect has been entered against the Partner, (iii) the Partner executes and
delivers a general assignment for the benefit of the Partner's creditors,
(iv) the Partner files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against the Partner in
any proceeding of the nature described in clause (ii) above, (v) the Partner
seeks, consents to or acquiesces in the appointment of a trustee, receiver or
liquidator for the Partner or for all or any substantial part of the
Partner's properties, (vi) any proceeding seeking liquidation, reorganization
or other relief of or against such Partner under any bankruptcy, insolvency
or other similar law now or hereafter in effect has not been dismissed
without one hundred twenty (120) days after the commencement thereof, (vii)
the appointment without the Partner's consent or acquiescence of a trustee,
receiver or liquidator has not been vacated or stayed within ninety (90) days
of such appointment, or (viii) an appointment referred to in clause
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(g) which has been stayed is not vacated within ninety (90) days after the
expiration of any such stay.
INDEPENDENT CONSULTANT: Agribusiness Associates, Inc., or in the
event Agribusiness Associates, Inc. is unable or unwilling to advise the
Managing General Partner on a particular matter or informs the Managing
General Partner that it no longer is willing to serve as Independent
Consultant, or in the event Agribusiness Associates, Inc., is terminated as
the Independent Consultant in accordance with Section 8.10(b), any substitute
consultant selected by the Managing General Partner in accordance with
Section 8.10(b).
INITIAL LIMITED PARTNERS: Each Underwriter purchasing Units in the
Initial Public Offering in accordance with Section 5.4 and the Underwriters
Purchase Agreement.
INITIAL PUBLIC OFFERING: The initial public offering of Units, completed
on _________________.
INITIAL UNIT PRICE: Twenty Dollars ($20).
LIMITED PARTNERS: The Organizational Limited Partner, the Initial
Limited Partners, the Additional Limited Partners and the Substituted Limited
Partners, each for so long as they are limited partners hereunder. "Limited
Partner" means one of the Limited Partners. An Assignee who has not been
admitted as a Substituted Limited Partner with respect to some or all of the
Units owned by such Assignee shall not be considered a Limited Partner with
respect to such Units for the purposes of this Agreement.
LIQUIDATING TRUSTEE: The Managing General Partner, unless the
dissolution of the Partnership is caused by the withdrawal, bankruptcy,
removal, or dissolution of the Managing General Partner, in which event the
Liquidating Trustee shall be the Person or Persons selected pursuant to
Section 15.5.
MAJORITY VOTE OF THE LIMITED PARTNERS: The written consent of, or an
affirmative vote in accordance with Section 16.4 by, Limited Partners of record
who are Limited Partners (and not Assignees) with respect to more than fifty
percent (50%) of the total number of all outstanding Units held by all Limited
Partners of record, as Limited Partners (rather than as Assignees).
MANAGING GENERAL PARTNER: QSV or any successor appointed pursuant to
Section 12.2, 14.1, 14.2 or 15.3 hereof, as the case may be.
NASDAQ: The National Association of Securities Dealers Automated
Quotations System.
NATIONAL SECURITIES EXCHANGE: An exchange registered with the Commission
under Section 6(a) of the Exchange Act.
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NET INCOME AND NET LOSS: For each taxable year or shorter period, the
positive sum, in the case of Net Income, or the negative sum, in the case of Net
Loss, of all items of income, gain, deduction and loss (other than items
included in computing Extraordinary Income and Extraordinary Loss or allocated
pursuant to the Special Allocations) recognized by the Partnership during such
taxable period and determined in accordance with Section 5.8(b).
NON-FOREIGN CERTIFICATE: The certificate issued by any Partner or
Assignee who is not a Foreign Partner pursuant to Section 10.13 to the
Partnership by such. Partner or Assignee. Such Certificate shall (i)
provide that such Partner or Assignee is not a foreign person (within the
meaning of Section 1445 or 1446 of the Code) and be in the form prescribed in
the Treasury Regulations promulgated under Sections 1445 and 1446 of the Code
or (ii) provide that such Partner or Assignee is a citizen or resident of the
United States.
NONRECOURSE DEDUCTIONS: The meaning ascribed to it in Treasury
Regulations Section 1.704-2(b)(1).
NOTICE OF EXCHANGE: The Notice of Exchange substantially in the form of
EXHIBIT ___ to this Agreement.
OPERATING PARTNERSHIP: U.S. Restaurant Properties Operating L.P., a
Delaware limited partnership (formerly Burger King Operating Limited
Partnership) which was formed concurrently herewith for the purpose of
acquiring, holding, operating and disposing of the Partnership Properties, and
any successor limited partnership.
OPERATING PARTNERSHIP AGREEMENT. The third amended and restated limited
partnership agreement, dated concurrently herewith, by and among the Managing
General Partner, as general partner, and the Partnership, as sole limited
partner, pursuant to which the Operating Partnership was organized and is
existing, as it may be further amended or supplemented from time to time.
OPINION OF INDEPENDENT COUNSEL: A written opinion of the law firm of
Winstead Sechrest & Minick P.C. or other counsel designated by or acceptable to
the Managing General Partner, in its sole and absolute discretion.
ORGANIZATIONAL LIMITED PARTNER: QSV.
ORIGINAL AGREEMENT: The Agreement of Limited Partnership of Burger King
Investors Master L.P., dated as of December 10, 1985, entered into by and among
the General Partner, BKC and the Organizational Limited Partner.
OTHER RESTAURANT PROPERTIES: Those certain properties for which food
sales account for 10% or more of the gross revenues generated by the
improvements on such properties (a) properties (regardless of use) acquired
adjacent to such properties or acquired in conjunction with the use or
ownership of such properties, (b) properties that were formerly such type of
properties which are not currently being used for any purpose, and (c) any
unimproved land which is
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adjacent to such a property or on which such a property is reasonably
expected to be constructed within one (1) year following the date of
acquisition of such land, in any case in which the Partnership, the REIT or
any Affiliate or either of them has acquired or acquires an interest, whether
consisting of land to be held in fee simple or as a leasehold and any
improvements thereon (including all real property and certain personal
property associated therewith), together with (i) any other properties
acquired pursuant to Section 7.2(v) with respect to such properties, (ii) any
properties adjacent to such properties, (iii) any buildings, improvements or
other structures situated on such properties, and (iv) any further right,
title or interest acquired in such properties. "Other Restaurant Property"
means any one of the Other Restaurant Properties.
PARTNER: A General Partner or a Limited Partner. "Partners" means the
General Partners and all Limited Partners. An Assignee who has not been
admitted as a Substituted Limited Partner with respect to some or all of the
Units held by such Assignee shall not be considered a Partner with respect to
such Units for purposes of this Agreement.
PARTNER MINIMUM GAIN: The meaning ascribed to it in Treasury Regulations
Section 1.704-2(i)(2).
PARTNER NONRECOURSE DEBT: The meaning ascribed to it in Treasury
Regulations Section 1.704-2(b)(4).
PARTNER NONRECOURSE DEDUCTIONS: The meaning ascribed to it in Treasury
Regulations Section 1.704-2(i)(2).
PARTNERSHIP: The limited partnership created by this Agreement and any
successor partnership thereto continuing the business of the Partnership which
is a reformation or reconstitution of the partnership governed by this
Agreement.
PARTNERSHIP ASSETS: All assets and property, whether tangible or
intangible and whether real, personal, or mixed, at any time owned by the
Partnership, including, without limitation the Partnership's limited
partnership interest in the Operating Partnership and its proportionate
interest in all assets and properties (including, without limitation, the
Partnership Properties) owned by the Operating Partnership.
PARTNERSHIP INTEREST: As to any Partner, all of the interests of that
Partner in the Partnership, including, without limitation, such Partner's (a)
right to a distributive share of the profits and losses of the Partnership, (b)
right to a distributive share of Partnership Assets, and (c) right, if a General
Partner, to participate in the management of the business and affairs of the
Partnership.
PARTNERSHIP MINIMUM GAIN: The meaning ascribed to it in Treasury
Regulations Section 1.704-2(b)(2).
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PARTNERSHIP PROPERTIES: The Other Restaurant Properties, the Restricted
Restaurant Properties and the Retail Properties. "Partnership Property" means
any one of the Partnership Properties.
PERCENTAGE INTEREST: As to any Partner, its interest in the Partnership
as determined by dividing the Units owned by such Partner by the total number of
Units then outstanding.
PERSON: Any individual, corporation, association, partnership, joint
venture, trust, estate, or other entity or organization.
PRICE INDEX: The Consumer Price Index for Urban Wage Earners and
Clerical Workers, all items, All Urban, Base 1967 = 100, issued by the Bureau
of Labor Statistics of the U.S. Department of Labor; provided, however, that
if such Consumer Price Index shall be discontinued with no successor or
comparable successor consumer price index, the Managing General Partner, in
its sole and absolute discretion, shall designate a substitute formula.
PRIMARY LEASE: A lease, whether now existing or hereafter entered into,
pursuant to which the Operating Partnership, as the lessee (either in its own
name or as an assignee of BKC pursuant to the Real Estate Purchase Agreement or
otherwise), holds the right to occupy and use a Partnership Property or any
portion thereof.
QSV: QSV Properties Inc., a Delaware corporation.
REAL ESTATE PURCHASE AGREEMENT: The amended and restated Purchase
and Sale Agreement entered into concurrently with the execution of the
Amended Agreement by and between the Operating Partnership, as purchaser, and
BKC, as seller, pursuant to which the Operating Partnership purchased from
BKC, and BKC sold to the Operating Partnership, certain of the Partnership
Properties.
RECAPTURE INCOME: Any gain recognized by the Partnership (but computed
without regard to any adjustment required by Section 734 or 743 of the Code)
upon the disposition of any property or asset of the Partnership that does not
constitute capital gain for federal income tax purposes because such gain
represents the recapture of deductions previously taken with respect to such
property or assets (determined without regard to Section 291(a)(1) of the Code).
RECORDING OFFICE: The Secretary of State of the State of Delaware.
RECORD DATE: The date established by the Managing General Partner, in
its discretion, subject to Section 6.5(b) in the case of the Record Date for
a distribution pursuant to Article VI, for determining (i) the identity of
Limited Partners entitled to notice of or to vote at any meeting of Limited
Partners or entitled to exercise rights in respect of any other lawful action
of Limited Partners, or (ii) the identity of Partners and Assignees entitled
to receive any report pursuant to Section 10.4 or distribution pursuant to
Article VI.
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RECORD HOLDER: As applied to the Limited Partners, the Persons shown as
Limited Partners on the records of the Partnership as of the close of business
on a particular day; as applied to a Depositary Receipt, the Person in whose
name the Depositary Receipt is issued, and in whose name the Depositary Units
evidenced thereby are registered on the books of the Depositary or a Transfer
Agent as of the close of business on a particular day; and as applied to the
holder of a Unit that is not on deposit in the Deposit Account, the Person shown
as the owner of such Unit on the records of the Partnership as of the close of
business on a particular day. For purposes of Section 6.5, a Unitholder who
acquires a Depositary Unit in a transaction on a National Securities Exchange
and who is registered on the books of the Depositary or a Transfer Agent as the
owner thereof shall be considered to be a Record Holder as of the close of
business on the "trade date" pursuant to which such Unitholder acquired such
Depositary Unit, irrespective of the actual date on which such Unitholder's name
is entered on the books of the Depositary or a Transfer Agent, and a Unitholder
who disposes of a Depositary Unit in a transaction on a National Securities
Exchange that subsequently is registered on the books of the Depositary or a
Transfer Agent shall cease to be considered to be a Record Holder prior to the
close of business on the "trade date" pursuant to which such Unitholder
transferred such Depositary Unit, irrespective of the actual date on which such
transfer is recorded on the books of the Depositary or a Transfer Agent. For
purposes of determining the Record Holder of a Unit or Depositary Unit entitled
to a distribution of Cash Flow pursuant to Section 6.5 or Net Proceeds of a
Capital Transaction pursuant to Section 6.6 or 6.7, the Partnership shall adopt
and apply conventions from time to time that conform with the conventions
applied by the National Securities Exchange on which the Depositary Units are
listed for ascertaining the entitlement between a selling shareholder and a
purchasing shareholder to dividends declared by a corporation.
REIT: U.S. Restaurant Properties, Inc., a Maryland corporation.
REIT STOCK AMOUNT: A number of shares of Common Stock equal to the
product of the number of Units offered for exchange by a Partner, multiplied
by the Conversion Factor, provided that in the event the REIT issues to all
holders of Common Stock rights, options, warrants or convertible or
exchangeable securities entitling the stockholders to subscribe for or
purchase shares of Common Stock, or any other securities or property
(collectively, the "rights"), then the REIT Stock Amount shall also include
such rights that a holder of that number of shares of Common Stock would be
entitled to receive.
RESTRICTED RESTAURANT PROPERTIES: Those certain restaurant properties,
consisting of the land in which the Partnership holds fee simple title or a
leasehold interest and the improvements thereon (including all real property and
certain personal property associated therewith), (a) held as of the Effective
Date or (b) if (and so long as) a BK Restaurant is located thereon, acquired
after the Effective Date, together with (i) any other properties acquired
pursuant to Section 7.2(w) with respect to such properties after the Effective
Date, (ii) any properties adjacent to such properties that are acquired by the
Partnership after the Effective Date, (iii) any buildings, improvements, or
other structures situated on such properties after the Effective Date, and (iv)
any further right, title or interest acquired in such properties after the
Effective Date (including,
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without limitation, fee title acquired pursuant to Section 8.12). "Restricted
Restaurant Property" means any one of the Restricted Restaurant Properties.
RETAIL PROPERTIES: Those certain properties, other than Other
Restaurant Properties and Restricted Restaurant Properties, for which the
sales of goods or services to the public account for substantially all of the
gross revenues generated by the improvements on such properties and (a)
properties (regardless of use) acquired adjacent to such properties or
acquired in conjunction with the use or ownership of such properties, (b)
properties that were formerly such type of properties which are not currently
being used for any purpose, and (c) any unimproved land which is adjacent to
such a property or on which such a property is reasonably expected to be
constructed within one (1) year following the date of acquisition of such
land, in any case in which the Partnership, the REIT or any Affiliate of
either of them has acquired or acquires an interest, whether consisting of
land to be held in fee simple or as a leasehold and any improvements thereon
(including all real property and certain personal property associated
therewith), together with (i) any other properties acquired pursuant to
Section 7.2(v) with respect to such properties, (ii) any properties adjacent
to such properties, (iii) any buildings, improvements or other structures
situated on such properties, and (iv) any further right, title or interest
acquired in such properties. "Retail Property" means any one of the Retail
Properties.
SECTION 754 ELECTION: An election under Section 754 of the Code
relating to the adjustment of Adjusted Basis of Partnership Assets, as
provided in Sections 734 and 743 of the Code.
SECURITIES ACT: Securities Act of 1933, as amended, and the
regulations of the Commission promulgated thereunder.
SHARE PRICE: As of any date of determination: (a) if the shares of
Common Stock are listed or admitted to trading on one or more National
Securities Exchanges, the average of the last reported sale prices per share
regular way or, in case no such reported sale takes place on any such day,
the average of the last reported bid and asked prices per share regular way,
in either case on the principal National Securities Exchange on which the
shares of Common Stock are listed or admitted to trading, for the five (5)
trading days immediately preceding the date of determination; (b) if the
shares of Common Stock are not listed or admitted to trading on a National
Securities Exchange but are quoted by Nasdaq, the average of the last
reported sales prices per share regular way or, in case no reported sale
takes place on any such day or the last reported sales prices are not then
quoted, the average of the closing bid prices per share, for the five (5)
trading days immediately preceding such date of determination, as furnished
by the National Quotation Bureau Incorporated or such other nationally
recognized quotation service as may be selected by the Managing General
Partner for such purpose, if such Bureau is not at the time furnishing
quotations; or (c) if the shares of Common Stock are not listed or admitted
to trading on a National Securities Exchange or quoted by Nasdaq, an amount
equal to the fair market value of a share as of such date of determination,
as determined by the Managing General Partner using any reasonable method of
valuation.
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SPECIAL ALLOCATIONS: The special allocations of items of income, gain,
deduction and loss pursuant to Sections 6.2(d) and (e).
SUBSTITUTED GENERAL PARTNER: A Person who is admitted to the
Partnership as an additional or successor General Partner in accordance with
Section 13.3.
SUBSTITUTED LIMITED PARTNER: A Person who is admitted to the
Partnership as a Limited Partner pursuant to this Agreement in place of, and
with all the rights of, a Limited Partner pursuant to Section 13.2.
SUCCESSOR POLICY: The "successor policy" of BKC relating to the
extension and/or renewal of BKC Franchise Agreements with BKC Franchisees,
which policy, in connection with such extensions and/or renewals, makes
provision for replacing, reconstructing, expanding, and/or otherwise
improving BK Restaurants. All references are to the "successor policy" as in
effect on the date hereof, as the same may be modified, amended,
supplemented, superseded, or replaced by BKC from time to time in its sole
and absolute discretion.
SUPER-MAJORITY VOTE OF THE LIMITED PARTNERS: The written consent of,
or an affirmative vote in accordance with Section 16.4 by, Limited Partners
of record who are Limited Partners (and not Assignees) with respect to more
than eighty percent (80%) of the total number of all outstanding Units held
by all Limited Partners of record, as Limited Partners (rather than as
Assignees).
TERMINATION DATE: December 31, 2035.
TPC: The Pillsbury Company, a Delaware corporation and the owner on the
date of the Amended Agreement of all of the issued and outstanding stock of BKC.
TRANSFER AGENT: The Depositary or any bank, trust company, or other
Person (including the Managing General Partner or any of its affiliates)
appointed by the Managing General Partner from time to time, in its sole and
absolute discretion, to act as transfer agent for Depositary Receipts.
TRANSFER APPLICATION: An application and agreement for transfer of
Depositary Units in the form set forth on the back of the Depositary Receipt
or in a form substantially to the same effect in a separate instrument by
which an Assignee (or his broker, dealer, or nominee holder acting on his
behalf) requests admission to the Partnership as a Substituted Limited
Partner, agrees to be bound by the terms and conditions of this Agreement and
the Deposit Agreement, and grants a power of attorney to the Managing General
Partner pursuant to Article XVII.
TREASURY REGULATIONS: The Income Tax Regulations promulgated under
the Code, as hereafter amended. Any reference herein to a specific section
or sections of specific Treasury Regulations shall be deemed to include a
reference to any corresponding provision of future Treasury Regulations.
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TREATY CERTIFICATE: Any certificate or statement issued pursuant to
Section 10.13 to the Partnership by a Foreign Partner. Such certificate or
statement shall be in the form either (i) prescribed in the United States
Income Tax Convention under which such Foreign Partner is entitled to an
exemption from withholding of United States income tax or to a reduction in
the otherwise applicable United States withholding rate or (ii) prescribed in
Treasury Regulations Section 1.1441-6.
UNDERWRITERS: Those underwriting firms listed in the Underwriters
Purchase Agreement or in an exhibit or schedule thereto that purchased Units
distributed in the Initial Public Offering in accordance with the terms of
the Underwriters Purchase Agreement.
UNDERWRITERS PURCHASE AGREEMENT: That agreement entered into prior to
the Closing Date by and among the Partnership, the Operating Partnership,
BKC, and the Underwriters with respect to the purchase of certain Units by
the Underwriters in connection with the Initial Public Offering.
UNIT: A unit representing an equal undivided interest in a Limited
Partner's Partnership Interest.
UNIT PRICE: Of a Unit or a Depositary Unit, as of any date of
determination: (a) if the Depositary Units are listed or admitted to trading
on one or more National Securities Exchanges, the average of the last
reported sale prices per Depositary Unit regular way or, in case no such
reported sale takes place on any such day, the average of the last reported
bid and asked prices per Depositary Unit regular way, in either case on the
principal National Securities Exchange on which the Depositary Units are
listed or admitted to trading, for the five (5) trading days immediately
preceding the date of determination; (b) if the Depositary Units are not
listed or admitted to trading on a National Securities Exchange but are
quoted by Nasdaq, the average of the last reported sales prices per
Depositary Unit regular way or, in case no reported sale takes place on any
such day or the last reported sales prices are not then quoted, the average
of the closing bid prices per Depositary Unit, for the five (5) trading days
immediately preceding such date of determination, as furnished by the
National Quotation Bureau Incorporated or such other nationally recognized
quotation service as may be selected by the Managing General Partner for such
purpose, if such Bureau is not at the time furnishing quotations; or (c) if
the Depositary Units are not listed or admitted to trading on a National
Securities Exchange or quoted by Nasdaq, an amount equal to the fair market
value of a Unit as of such date of determination, as determined by the
Managing General Partner using any reasonable method of valuation.
UNREALIZED GAIN: The excess, if any, of the fair market value of such
Partnership Asset as of the date of determination over the Carrying Value of
the Partnership Asset as of such date of determination.
UNREALIZED LOSS: The excess, if any, of the Carrying Value of a
Partnership Asset as of the date of determination over the fair market value
of such Partnership Asset as of the date of determination.
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WITHHOLDING CERTIFICATE: A certificate that provides for reduction or
elimination of the withholding rates or taxes provided for in Section 1445 or
1446 of the Code and Treasury Regulations promulgated thereunder.
WORKING CAPITAL RESERVE: The reserve for working capital established
by the Managing General Partner pursuant to Section 7.5.
ARTICLE II
FORMATION; NAME; PLACE OF BUSINESS
2.1 FORMATION OF PARTNERSHIP; CERTIFICATE OF LIMITED PARTNERSHIP.
The General Partner, BKC and the Organizational Limited Partner
agreed to continue the limited partnership formed as of December 10, 1985,
pursuant to the provisions of the Delaware RULPA and the terms and conditions
of the Original Agreement and the Amended Agreement. Promptly after the
execution of the Original Agreement, the Managing General Partner, in
accordance with the Delaware RULPA, filed with the Recording Office the
Certificate of Limited Partnership. Subsequently, the Managing General
Partner, in accordance with the Delaware RULPA, filed with the Recording
Office amendments to the Certificate of Limited Partnership regarding the
withdrawal of BKC as the Special General Partner and the change in the name
of the Partnership. If the laws of any jurisdiction in which the Partnership
transacts business so require, the Managing General Partner also shall file
with the appropriate office in that jurisdiction a copy of the Certificate of
Limited Partnership and any other necessary for the Partnership to qualify to
transact business in such jurisdiction and shall use its best efforts to file
with the appropriate office in that jurisdiction a copy of the Certificate of
Limited Partnership and any other documents necessary to establish and
maintain the Limited Partners' limited liability in such jurisdiction. The
Partners further agree and obligate themselves to execute, acknowledge, and
cause to be filed for record, in the place or places and manner prescribed by
law, any amendments to the Certificate of Limited Partnership as may be
required, either by the Delaware RULPA, by the laws of a jurisdiction in
which the Partnership transacts business, or by this Agreement, to reflect
changes in the information contained therein or otherwise to comply with the
requirements of law for the continuation, preservation, and operation of the
Partnership as a limited partnership under the Delaware RULPA.
2.2 NAME OF PARTNERSHIP.
The name under which the Partnership shall conduct its business is
U.S. Restaurant Properties Master L.P. The business of the Partnership may be
conducted under any other name deemed necessary or desirable by the Managing
General Partner, in its sole and absolute discretion, except that such other
name may not include the surname of any Limited Partner unless such surname
is also the name or surname of the Managing General Partner. The words
"Limited Partnership" shall be included in the name of the Partnership where
necessary for complying with the laws of any jurisdiction that so requires.
The Managing General Partner
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(and, if necessary, any other General Partners) promptly shall execute, file,
and record any assumed or fictitious name certificates required by the laws
of Delaware or any other state in which the Partnership transacts business,
and shall publish such certificates or other statements or certificates as
are required by the laws of Delaware or any other state in which the
Partnership transacts business.
2.3 PLACE OF BUSINESS.
The principal place of business of the Partnership on the date hereof
is located at 5310 Harvest Hill Road, Suite 270, Dallas, Texas 75230. The
Managing General Partner may hereafter change the principal place of business
of the Partnership to such other place or places within the United States as
the Managing General Partner may determine from time to time, in its sole and
absolute discretion, provided that the Managing General Partner shall give
written notice thereof to the Limited Partners within ninety (90) days after
the effective date of any such change and, in connection therewith, shall, if
necessary, amend the Certificate of Limited Partnership in accordance with
applicable requirements of the Delaware RULPA. The Managing General Partner
may, in its sole and absolute discretion, establish and maintain such other
offices and additional places of business of the Partnership, either within
or without the State of Delaware, as it deems appropriate.
2.4 REGISTERED OFFICE AND REGISTERED AGENT.
The street address of the registered office of the Partnership shall
be at 1209 Orange Street, Wilmington, Delaware 19801, and the Partnership's
registered agent at such address shall be The Corporation Trust Company.
ARTICLE III
PURPOSES, NATURE OF BUSINESS, AND POWERS OF
PARTNERSHIP
3.1 PURPOSES AND BUSINESS.
The purposes of the Partnership shall be (a) to invest in, acquire, own,
hold a leasehold interest in, manage, maintain, operate, lease, sublease,
improve, finance, reconstruct, sell, exchange, franchise and otherwise dispose
of Partnership Properties and Ancillary Property, whether through the Operating
Partnership, other Persons or otherwise; (b) originate loans secured by liens on
real estate; (c) in connection therewith, to exercise all of the rights and
powers conferred upon the Partnership as the limited partner in the Operating
Partnership pursuant to the Operating Partnership Agreement; and (d) to enter
into any lawful transaction and engage in any lawful activities in furtherance
of the foregoing purposes. The Partnership shall not engage in any business or
activity except as set forth above without the written consent of the General
Partner and a Majority Vote of the Limited Partners.
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3.2 POWERS.
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to, or convenient for
the furtherance and accomplishment of the purposes and business described
herein and for the protection and benefit of the Partnership, including,
without limitation, the following:
(a) To borrow money and issue evidences of indebtedness, and to
secure the same by mortgages, deeds of trust, security interests,
pledges, or other liens on all or any part of the Partnership Assets;
(b) To secure and maintain insurance against liability or other
loss with respect to the activities and assets of the Partnership
(including, without limitation, insurance against liabilities under
Section 7.10);
(c) To employ or retain such persons as may be necessary or
appropriate for the conduct of the Partnership's business, including
permanent, temporary, or part-time employees and independent attorneys,
accountants, consultants, and contractors;
(d) To acquire, own, hold a leasehold interest in, maintain,
use, lease, sublease, manage, operate, sell, exchange, transfer, or
otherwise deal in assets and property as may be necessary or convenient
for the purposes and business of the Partnership;
(e) To incur expenses and to enter into, guarantee, perform,
and carry out contracts or commitments of any kind, to assume
obligations, and to execute, deliver, acknowledge, and file documents
in furtherance of the purposes and business of the Partnership;
(f) To pay, collect, compromise, arbitrate, litigate, or
otherwise adjust, contest, or settle any and all claims or demands of
or against the Partnership;
(g) To invest in interest-bearing accounts and short-term
investments, including, without limitation, obligations of Federal,
state, and local governments and their agencies, mutual funds
(including money market funds), commercial paper, time deposits, and
certificates of deposit of commercial banks, savings banks, or
savings and loan associations;
(h) To originate loans secured by liens on real estate; and
(i) To engage in any kind of activity and to enter into and
perform obligations of any kind necessary to or in connection with,
or incidental to, the accomplishment of the purposes and business of
the Partnership, so long as said activities and obligations may be
lawfully engaged in or performed by a limited partnership under the
Delaware RULPA.
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ARTICLE IV
TERM OF PARTNERSHIP
4.1 TERM.
The Partnership commenced on the date upon which the Certificate of
Limited Partnership was duly filed with the Recording Office pursuant to
Section 2.1 and shall continue until the Termination Date unless dissolved
and liquidated before the Termination Date in accordance with the provisions
of Article XV.
ARTICLE V
CAPITAL
5.1 CAPITAL CONTRIBUTIONS OF MANAGING GENERAL PARTNER.
(a) INITIAL CONTRIBUTION. Concurrently with the execution of
the Original Agreement, the Managing General Partner made a Capital
Contribution in the amount of One Thousand Dollars ($1,000) in cash.
(b) ADDITIONAL CONTRIBUTION. Concurrently with the Closing
(and, in the case of the over-allotment option described in Section 5.4(b),
concurrently with the Date of Delivery), the Managing General Partner
contributed to the Partnership an amount equal to the excess of (i) one and
one-hundredth percent (1.01%) of the Aggregate Offering Proceeds (including
any proceeds received pursuant to Section 5.4(b) in connection with the
over-allotment option), over (ii) One Thousand Dollars ($1,000).
5.2 CAPITAL CONTRIBUTIONS OF SPECIAL GENERAL PARTNER.
(a) INITIAL CONTRIBUTION. Concurrently with the execution of
the Original Agreement, BKC, as Special General Partner, made a Capital
Contribution in the amount of One Thousand Dollars ($1,000) in cash.
(b) ADDITIONAL CONTRIBUTION. Concurrently with the Closing
(and, in the case of the over-allotment option described in Section 5.4(b),
concurrently with the Date of Delivery), BKC, as the Special General Partner,
contributed to the Partnership an amount equal to the excess of (i) .01
percent (.01%) of the Aggregate Offering Proceeds (including any proceeds
received pursuant to Section 5.4(b) in connection with the over-allotment
option), over (ii) One Thousand Dollars ($ 1,000).
(c) WITHDRAWAL. Effective as of November 30, 1994, BKC
withdrew as a General Partner pursuant to Section 14.1(a)(ii). The
Partnership paid BKC not more than $8,000 for BKC's right to receive the fair
market value of its former Partnership Interest in Units as contemplated
under Section 14.5.
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5.3 CAPITAL CONTRIBUTION OF ORGANIZATIONAL LIMITED PARTNER.
Concurrently with the execution of the Original Agreement, the
Organizational Limited Partner made a Capital Contribution in the amount of One
Hundred Dollars ($100) in cash. Concurrently with the Closing, the Capital
Contribution of the Organizational Limited Partner was returned to it, without
interest, the Organizational Limited Partner withdrew from the Partnership, and
the Organizational Limited Partner, as such, has no further rights, claims, or
interests as a Partner in and to the Partnership.
5.4 CAPITAL CONTRIBUTIONS OF INITIAL LIMITED PARTNERS.
(a) INITIAL PUBLIC OFFERING. Pursuant to the Underwriters
Purchase Agreement, the Underwriters purchased Units from the Partnership in
connection with the Initial Public Offering, as more fully described in the
Registration Statement. Concurrently with the Closing, each Underwriter, as
an Initial Limited Partner, contributed to the Partnership, in exchange for
that number of Units designated in the Underwriters Purchase Agreement to be
purchased by each such Underwriter, cash in an amount equal to the product of
the Initial Unit Price multiplied by the number of Units designated in the
Underwriters Purchase Agreement to be purchased by each such Underwriter.
(b) OVER-ALLOTMENT OPTION. On the Date of Delivery, in
addition to Units purchased pursuant to Section 5.4(a), to cover
over-allotments as provided in the Underwriters Purchase Agreement, each
Underwriter contributed to the Partnership, in exchange for that number of
Units purchased by such Underwriter pursuant to the exercise of such option,
cash in an amount equal to the product of the Initial Unit Price multiplied
by the number of Units purchased by each such Underwriter pursuant to the
exercise of such option. For purposes of this Agreement all Units issued
pursuant to this Section 5.4(b) shall be deemed issued concurrently with the
Closing irrespective of whether or not the Date of Delivery coincided with
the Closing Date.
5.5 ADDITIONAL ISSUANCES OF UNITS AND CAPITAL CONTRIBUTIONS.
(a) In order to raise additional capital or to acquire
property or for or in furtherance of any other Partnership purpose, the
Managing General Partner is authorized to cause the Partnership to issue
Units (and Depositary Units), with such characteristics as may be required
under Section 6.3, in addition to those issued pursuant to Section 5.4, at
any time or from time to time to Partners, holders of Units or Depositary
Units, holders of options to purchase Units or Depositary Units, Assignees or
other Persons and, in its sole and complete discretion, to admit them to the
Partnership as Additional Limited Partners, all without any consent or
approval of any Limited Partner. The Managing General Partner shall have
sole and absolute discretion in determining the Capital Contribution to be
made or other consideration to be received (which may be property) and terms
and conditions with respect to any such future issuance of Units. The
Managing General Partner is also authorized to cause the Partnership to issue
options, rights, warrants or appreciation rights to purchase or relating to
any Units or debt
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obligations of the Partnership convertible into any Units from time to time
on terms and conditions established in the sole and absolute discretion of
the Managing General Partner without the approval at the time of any Limited
Partner; provided that any such issuance to the Managing General Partner or
its executive officers, directors or employees, shall be approved by a
Majority Vote of the Limited Partners unless issued pursuant to a plan or
arrangement approved by a Majority Vote of the Limited Partners. The
Managing General Partner shall do all things it deems to be appropriate or
necessary to comply with the Delaware RULPA and is authorized and directed to
do things it deems to be necessary or advisable in connection with any such
future issuances, including compliance with any statute, rule, regulation or
guideline of any federal, state or other governmental agency or securities
exchange on which the Units are listed for trading. No Limited Partner or
Assignee or any other Person shall have any preemptive right with respect to
the issuance or sale of any Units or any debt obligations or any options,
rights, warrants or appreciation rights relating thereto.
(b) Except as specifically provided for in Sections 5.5(a),
5.7 and 14.5(b) or in Section 13.3(b) of the Operating Partnership Agreement,
no Units except those Units issued by the Partnership pursuant to Section 5.4
shall be offered for sale or issued by the Partnership.
(c) No Partner or Assignee shall be required or allowed to
make any Capital Contribution, except as specifically set forth in Sections
5.1, 5.2, 5.3, 5.4, or 5.5(a), 5.9(b), 6.5(b), 10.13 or in Section 13.3(a) of
the Operating Partnership Agreement. AR Capital Contributions provided for
in Section 5.4 shall be paid on the Closing Date or the Date of Delivery, as
the case may be, and shall not be deferred for any reason.
5.6 NO FRACTIONAL UNITS.
No fractional Units shall be issued by the Partnership.
5.7 SPLITS AND COMBINATIONS.
(a) The Managing General Partner may (i) make a distribution
in Units to all Record Holders or may effect a subdivision or combination of
Units, but in each case only on a pro rata basis so that, after such
distribution, subdivision, or combination, each Partner and Assignee shall,
subject to Section 5.7(d), have the same Percentage Interest (as defined in
Article VI) in the Partnership as before such distribution, subdivision, or
combination.
(b) Whenever such a distribution, subdivision, or combination
is declared , the Managing General Partner shall select a Record Date as of
which the distribution, subdivision, or combination shall be effective and
shall send notice of the distribution, subdivision, or combination at least
twenty (20) days prior to such Record Date to each Record Holder as of the
date ten (10) days prior to the date of such notice. The Managing General
Partner also may cause the Accounting Firm or another firm of independent
public accountants selected by it to calculate the number of Units to be held
by each Record Holder after giving effect to such distribution, subdivision,
or combination. The Managing General Partner shall be entitled to rely
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on any certificate provided by such firm as conclusive evidence of the
correctness of such a calculation.
(c) Promptly following any such distribution, subdivision, or
combination, the Managing General Partner may cause Certificates or
Depositary Receipts, as the case may be, to be issued to the Record Holders
of Units as of the applicable Record Date representing the new number of
Units or Depositary Units held by such Record Holder, or the Managing General
Partner may adopt such other procedures as it may deem appropriate to reflect
such distribution, subdivision, or combination; provided, however, that in
the event any such distribution, subdivision, or combination results in a
smaller total number of Units outstanding, the Managing General Partner shall
require, as a condition to the delivery to a Record Holder of such new
Certificate or Depositary Receipt, the surrender of any Certificate or
Depositary Receipt representing the Units held by such Record Holder
immediately prior to such Record Date.
(d) The Partnership shall not be required to issue fractional
Units upon any distribution, subdivision, or combination of Units. In the
event any distribution, subdivision, or combination of Units would result in
the issuance of fractional Units but for the provisions of Section 5.6 and
this Section 5.7(d), each fractional Unit shall be rounded to the nearest
whole Unit.
5.8 CAPITAL ACCOUNTS.
(a) A separate Capital Account shall be established and
maintained for each Partner and Assignee. The Capital Account of each
Partner and Assignee shall be (i) credited with (A) the cash and the initial
Carrying Value of any property (net of liabilities secured by such
Contributed Property that the Partnership is considered to assume or take
subject to under Section 752 of the Code) contributed to the Partnership by
such Partner or Assignee, and (B) all items of Partnership income or gain
(including income or gain exempt from tax) computed in accordance with
Section 5.8(b) and allocated to such Partner or Assignee pursuant to Article
VI, and shall be (ii) debited with (A) all items of Partnership deduction and
loss computed in accordance with Section 5.8(b) and allocated to such Partner
or Assignee pursuant to Article VI, and (B) all cash and the fair market
value of any property (net of liabilities secured by such distributed
property that such Partner or Assignee is considered to assume or take
subject to under Code Section 752) distributed by the Partnership to such
Partner or Assignee pursuant to Article VI. Notwithstanding anything to the
contrary contained herein, the Capital Account of a Partner or Assignee shall
be determined in all events solely in accordance with the rules set forth in
Treasury Regulations Section 1.704-1(b)(2)(iv), as the same may be amended or
revised thereafter. Any references in any Section or subsection of this
Agreement to the Capital Account of a Partner or Assignee shall be deemed to
refer to such Capital Account as the same may be credited or debited from
time to time as set forth above.
(b) For purposes of computing the amount of any item of
income, gain, deduction or loss to be reflected in Capital Accounts, the
determination, recognition and classification of each such item shall be the
same as its determination, recognition and
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classification for federal income tax purposes (including any method of
depreciation, cost recovery or amortization used for this purpose), provided
that:
(i) Solely for purposes of the application of the
provisions hereof, the Partnership shall be treated as owning
directly its proportionate share of all property owned by the
Operating Partnership (as determined by the Managing General
Partner based on the provisions of the Operating Partnership
Agreement).
(ii) In accordance with the requirements of Treasury
Regulations Section 1.704-1(b)(2)(iv)(g), any deductions for
depreciation, cost recovery or amortization, attributable to
a Partnership Asset contributed to the Partnership shall be
determined as if the Adjusted Basis of such Partnership Asset
on the date it was acquired by the Partnership were equal to
the Carrying Value of such Partnership Asset as of such date.
Upon an adjustment pursuant to Section 5.8(d) to the
Carrying Value of any Partnership property subject to
depreciation, cost recovery or amortization, any further
deductions for such depreciation, cost recovery or
amortization attributable to such property shall be
determined (A) as if the Adjusted Basis of such property were
equal to the Carrying Value of such property immediately
following such adjustment and (B) using a predetermined rate
of depreciation, cost recovery or amortization derived from
the same method for useful life as is applied for federal
income tax purposes. As a result, the amount of depreciation,
cost recovery or amortization deductions computed for
purposes of this Section 5.8(b) with respect to any Adjusted
Property shall bear the same relationship to the Carrying
Value of such property as the depreciation, cost recovery or
amortization computed for federal income tax purposes with
respect to such property bears to the Adjusted Basis of such
property. Solely for the purposes of this Section 5.8(b),
depreciation, cost recovery or amortization deductions with
respect to property with an Adjusted Basis of zero shall be
at the rate which would apply for tax purposes if (1) in the
case of Contributed Property, such property were placed in
service on the date contributed, and (2) in the case of
Adjusted Property, such property were placed in service on
the date of adjustment required pursuant to Section 5.8(d)(i)
or 5.8(d)(ii), provided that if such Adjusted Property was
Contributed Property, which was contributed with the tax
basis of zero and such property is not fully depreciated for
Capital Account purposes at the day of the adjustment, all
deductions for depreciation, cost recovery or amortization of
such property shall be derived from the method and useful
life theretofore determined pursuant to clause (1) above;
(iii) Any income, gain, or loss attributable to the
taxable disposition of any Partnership Asset shall be determined
by the Partnership as if the Adjusted Basis of such Partnership
Asset as of such date of disposition were equal in amount to
the Partnership's Carrying Value with respect to such
Partnership Asset as of such date;
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(iv) If the Partnership's Adjusted Basis in any depreciable
property is reduced pursuant to Section 48(q) of the Code, then the
amount of such reduction shall be treated as an expense for the
year in which such reduction occurs and allocated to the Partners
and Assignees in the ratio in which depreciation with respect to
such property is allocable. Any restoration of any such reduction
in Adjusted Basis shall be allocated to the Partners and Assignees
to whom the expense was chargeable;
(v) Immediately prior to the distribution of any Partnership
Asset, any Unrealized Gain or Unrealized Loss attributable to such
Partnership Asset shall, for purposes hereof, be deemed to be gain
or loss recognized by the Partnership and shall be allocated among
the Partners in accordance with Article VI. In determining such
Unrealized Gain or Unrealized Loss, the fair market value of such
Partnership Asset shall be determined pursuant to Section 8.8;
(vi) All fees and other expenses incurred (or treated as
incurred) by the Partnership to promote the sale of (or to sell)
interests in the Partnership that can neither be deducted nor
amortized under Section 709 of the Code shall, for purposes of
Capital Account maintenance, be treated as an item of deduction and
shall be allocated among the Partners and Assignees, pursuant to
Article VI; and
(vii) Except as otherwise provided in Treasury Regulations
1.707-1(b)(2)(iv)(m), the computation of all items of income, gain,
loss, and deduction shall be made without regard to any Section 754
Election that may be made by the Partnership, and as to those items
described in Section 705(a)(1)(A) or 705(a)(2)(B) of the Code,
without regard to the fact that such items are not included in
gross income or are neither currently deductible nor capitalized
for federal income tax purposes.
(c) Generally, a transferee (including any Assignee) of a
Partnership Interest will succeed to the Capital Account relating to the
Partnership Interest transferred. However, if the transfer causes a
termination of the Partnership under Section 708(b)(1)(B) of the Code,
the Partnership properties shall be deemed to have been distributed in
liquidation of the Partnership to the Partners and Assignees and deemed
recontributed by such Partners and Assignees in reconstitution of the
Partnership. In such event, the Carrying Values of the Partnership
properties shall be adjusted immediately prior to such deemed
distribution pursuant to Section 5.8(d)(ii). The Capital Accounts of
such reconstituted Partnership shall be maintained in accordance with
the principles of this Section 5.8.
(d) (i) Consistent with the provisions of Treasury Regulation
Section 1.704-1(b)(2)(iv)(f), upon an issuance of additional Partnership
Interests for cash or Contributed Property, the Capital Accounts of all
Partners and Assignees shall,
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immediately prior to such issuance, be adjusted (consistent with the
provisions hereof) upwards or downwards to reflect any Unrealized Gain
or Unrealized Loss attributable to each Partnership property (as if such
Unrealized Gain or Unrealized Loss had been recognized upon an actual
sale of each such property, immediately prior to such issuance, and had
been allocated to the Partners and Assignees, at such time, pursuant to
Section 6.2). In determining such Unrealized Gain or Unrealized Loss,
the aggregate fair market value of Partnership properties as of any date
of determination shall be determined in the discretion of the Managing
General Partner. The Carrying Values of all Partnership properties
shall be adjusted to reflect their relative fair market values, as
determined hereunder by the Managing General Partner in its sole and
absolute discretion. Once the aggregate fair market value has been
determined, the Managing General Partner shall allocate such aggregate
value among the properties of the Partnership, in a manner it deems
reasonable, to determine a fair market value for individual properties.
(ii) In accordance with Treasury Regulations Section
1.704-1(b)(2)(iv)(f), immediately prior to the actual or deemed
distribution of any Partnership property, the Capital Accounts of all
Partners and Assignees shall, immediately prior to any such
distribution, be adjusted (consistent with the provisions hereof)
upwards or downwards to reflect any Unrealized Gain or Unrealized Loss
attributable to each Partnership property, as if such Unrealized Gain or
Unrealized Loss had been recognized upon an actual sale of each
property, immediately prior to such distribution, and had been allocated
to the Partners and Assignees, at such time, pursuant to Section 6.2. In
determining such Unrealized Gain or Unrealized Loss, the aggregate fair
market value of Partnership properties as of any date of determination
shall be determined in the discretion of the Managing General Partner.
The Managing General Partner shall allocate such aggregate market value
among the properties of the Partnership, in a manner it deems
reasonable, to determine a fair market value for individual properties.
5.9 NEGATIVE CAPITAL ACCOUNTS.
(a) Except to the extent provided in Section 5.9(b), and except to the
extent that the Partners are required to make Capital Contributions under
Sections 5.1, 5.2, 5.3, 5.4, and 5.5(a), no Partner or Assignee shall be
required to pay to the Partnership or any other Partner or Assignee any
deficit or negative balance which may exist from time to time in such
Partner's or Assignee's Capital Account.
(b) Notwithstanding the foregoing, if any General Partner has a deficit
balance in its Capital Account following the liquidation of its Partnership
Interest, as determined after taking into account all Capital Account
adjustments for the Partnership Fiscal Year during which such liquidation
occurs, it is unconditionally obligated to restore the amount of such deficit
or negative balance to the Partnership by the end of such Fiscal Year (or, if
later, within 90 days after the date of such liquidation), which such amount
shall, upon liquidation of the Partnership, be paid to creditors of the
Partnership or distributed to other Partners or Assignees in accordance with
their positive Capital Account balances.
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5.10 NO INTEREST ON AMOUNTS IN CAPITAL ACCOUNT.
No Partner or Assignee shall be entitled to receive any interest on its
outstanding Capital Account balance.
5.11 ADVANCES TO PARTNERSHIP.
If any Partner or Assignee shall advance funds to the Partnership in
excess of the amounts required hereunder to be contributed by it to the
capital of the Partnership, the making of such advances shall not result in
any increase in the amount of the Capital Account of such Partner or Assignee
or entitle such Partner or Assignee to any increase in its Percentage Interest
(as defined in Article VI), First-Tier Residual Interest (as defined in
Article VI), or Second-Tier Residual Interest (as defined in Article VI). The
amounts of any such advances shall be a debt of the Partnership to such
Partner or Assignee and shall be payable or collectible only out of the
Partnership Assets in accordance with the terms and conditions upon which such
advances are made.
5.12 LIABILITY OF LIMITED PARTNERS.
Except as provided in the Delaware RULPA, Section 7.10(e) and Section
10.13, (a) none of the Limited Partners or Assignees shall be personally liable
for any debts, liabilities, contracts, or obligations of the Partnership; (b) a
Limited Partner shall be liable only to make payments of such Limited Partner's
Capital Contribution pursuant to Section 5.4 or 5.5(a); and (c) after such
Limited Partner's Capital Contribution shall be fully paid, no Limited Partner
shall be required to make any further Capital Contributions or to lend any funds
to the Partnership.
5.13 RETURN OF CAPITAL.
Except upon the dissolution of the Partnership or as otherwise
specifically provided in this Agreement, no Partner or Assignee shall have the
right to demand or to receive the return of all or any part of the Capital
Account or Capital Contributions of such Partner or Assignee.
5.14 EXCHANGE OF UNITS.
(a) Subject to Section 5.14(b), on or after the date hereof, each
Limited Partner shall have the right (the "Exchange Right") to require the
REIT to acquire all or a portion of the Units held by such Limited Partner in
exchange for the REIT Stock Amount. The Exchange Right shall be exercised
pursuant to a Notice of Exchange delivered to the REIT (with a copy to the
Partnership) by the Limited Partner who is exercising the Exchange Right (the
"Exchanging Partner"). A Limited Partner may not exercise the Exchange Right
for fewer than one hundred (100) Units or, if such Limited Partner holds fewer
than one hundred (100) Units, all of the Units held by such Partner. The
Exchanging Partner shall have no right, with respect to any Partnership Units
so exchanged, to receive any distributions paid with respect to the
Partnership Units on or after the date of the Notice of Exchange. The
Assignee of any Limited Partner may
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exercise the rights of such Limited Partner pursuant to this Section 5.14(a),
and such Limited Partner shall be deemed to have assigned such rights to such
Assignee and shall be bound by the exercise of such rights by such Assignee.
In connection with any exercise of such rights by an Assignee on behalf of a
Limited Partner, the REIT Stock Amount shall be paid by the REIT directly to
such Assignee and not to such Limited Partner.
(b) Notwithstanding the provisions of Section 5.14(a), a Partner shall
not be entitled to exercise the Exchange Right pursuant to Section 5.14(a) if
the delivery of shares of Common Stock to such Partner by the REIT pursuant to
Section 5.14(a) would be prohibited under the Amended Articles of
Incorporation of the REIT.
5.15 NO PREEMPTIVE RIGHTS.
No Person shall have any preemptive, preferential or other similar right
with respect to (a) additional Capital Contributions or loans to the
Partnership; or (b) issuance or sale of any Units.
ARTICLE VI
ALLOCATION OF PROFITS AND LOSSES;
DISTRIBUTIONS OF CASH FLOW AND CERTAIN PROCEEDS
6.1 CERTAIN DEFINITIONS.
(a) "Cash Flow" shall mean and refer to the sum of the following:
(i) the taxable income (or loss) of the Partnership for federal
income tax purposes as shown on the books of the Partnership for the
period for which such determination is being made, excluding taxable
income or gain or loss from Capital Transactions (as defined in Section
6.1(b)); increased by (A) the amount of cost recovery or depreciation
deductions or amortization or similar deductions in lieu thereof
deductible by the Partnership in computing such taxable income, and any
other non-cash accruals deductible in determining federal taxable income
or loss, for such period and (B) any non-taxable income or receipts of
the Partnership for such period (including, without limitation, any
amounts received during such period that were included in taxable income
in a prior period) except (1) Capital Contributions to the Partnership
pursuant to Article V and (2) the proceeds of any loans to the
Partnership; and reduced by (w) payments from the sum of the foregoing
upon the principal of any loans to the Partnership, (x) expenditures
from the sum of the foregoing for the acquisition, improvement or
replacement of property (including, without limitation, expenditures in
connection with the Successor Policy pursuant to Section 8.6), the
financing of tenants or other reinvestment or use in the business of the
Partnership (all as determined by the Managing General Partner in its
sole and absolute discretion) not financed through Capital Contributions
to the Partnership, loans to the Partnership, or any
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reserves previously set aside by the Partnership for such purposes, and
for the payment of items attributable to the acquisition, improvement,
or replacement of property which are not deductible in determining
federal taxable income when paid, (y) any amounts included in
determining gross income for such period that were not received by the
Partnership during such period, and (z) transfers from the sum of the
foregoing to reserves for the acquisition, improvement, or replacement
of property, for the repayment of loans and other indebtedness, for
security deposits or other necessary escrows or deposits, to meet
anticipated expenses, and/or for other reinvestment or use as the
Managing General Partner shall deem to be necessary or advisable in its
sole and absolute discretion (including, without limitation,
expenditures to purchase or otherwise acquire Units or Depositary Units
by purchasing or acquiring the respective Depositary Receipts, and the
creation of or additions to the Working Capital Reserve established
pursuant to Section 7.5 and any reserves established by the Managing
General Partner either to implement the Successor Policy pursuant to
Section 8.6, to acquire title to any Restaurant Property subject to a
Primary Lease pursuant to Section 8.12, or to set aside cash for the
purpose of making future distributions of Cash Flow to the Partners and
Assignees consistent with a policy of avoiding fluctuations in the
amount of quarterly distributions of Cash Flow to the extent
practicable); plus
(ii) any other funds (including amounts previously set aside as
reserves by the Managing General Partner if and to the extent the
Managing General Partner no longer regards such reserves as reasonably
necessary in the efficient conduct of the business of the Partnership)
deemed available for distribution and designated as Cash Flow by the
Managing General Partner.
The Managing General Partner shall determine, in its sole and absolute
discretion, whether funds are derived from or financed through a particular
source or used for a particular purpose for purposes of determining Partnership
Cash Flow for any period. In determining the Cash Flow for any quarterly period
within a Fiscal Year, the Managing General Partner shall have the authority to
apportion expenses and revenues of the Partnership among quarterly periods
within the Fiscal Year in any reasonable manner consistent with the principles
applied in determination of the Partnership's Net Income or Net Loss, as the
case may be, for such Fiscal Year.
(b) "CAPITAL TRANSACTION" means an "Interim Capital Transaction" or a
"Terminating Capital Transaction," as the case may be. An "Interim Capital
Transaction" shall refer to (i) a transaction pursuant to which the
Partnership borrows funds, (ii) a sale, condemnation, exchange, abandonment,
casualty not followed by reconstruction, or other disposition, whether by
foreclosure or otherwise, of a portion (but less than substantially all) of
the Partnership Assets, or (iii) an insurance recovery or any other
transaction which, in accordance with generally accepted accounting
principles, is considered capital in nature, but which is not a Terminating
Capital Transaction. Notwithstanding the foregoing, no transaction shall be
considered to be an Interim Capital Transaction for purposes of this Agreement
if the "net proceeds" thereof ("net proceeds" shall mean the proceeds received
by the Partnership after the payment of all costs and expenses of any kind or
nature incurred by the Partnership in
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connection with such transaction) are not material in amount and, in such
instance, any income, gain or loss, and any proceeds attributable to such
transaction shall be included in computing Net Income or Net Loss, as the case
may be, and Cash Flow. A "Terminating Capital Transaction" shall refer to any
sale, condemnation, exchange, abandonment, or other disposition, whether by
foreclosure or otherwise, of all or substantially all of the then remaining
Partnership Assets and/or any other transaction which will result in a
dissolution and liquidation of the Partnership. Any sale or other disposition
of any Partnership Assets in connection with the dissolution and liquidation
of the Partnership pursuant to Article XV shall be considered a "Terminating
Capital Transaction" for purposes of this Article VI.
(c) "NET PROCEEDS OF A CAPITAL TRANSACTION" means the proceeds received
by the Partnership in connection with a Capital Transaction, after (i) the
payment of all costs and expenses of any kind or nature incurred by the
Partnership in connection with such Capital Transaction, (ii) the utilization
of any such proceeds in connection with the discharge of debts and other
obligations of the Partnership required or intended (as determined by the
Managing General Partner, in its sole and absolute discretion) to be
discharged with the proceeds of such Capital Transaction, (iii) the purchase
or other acquisition of Units or Depositary Units by purchasing or acquiring
the respective Depositary Receipts, the retention of such proceeds or a
portion thereof in connection with creation of or addition to the Working
Capital Reserve established pursuant to Section 7.5 or the acquisition,
improvement or replacement of property, the financing of tenants or
reinvestment or other use in the business of the Partnership (all determined
by the Managing General Partner, in its sole and absolute discretion), (iv)
the retention of such proceeds or a portion thereof in connection with the
creation of or addition to any reserves established by the Managing General
Partner to provide for any amounts required to be paid by the Partnership
either pursuant to Section 8.6 in connection with the "Successor Policy,"
pursuant to Section 8.12 in connection with the purchase of a title to any
Restricted Restaurant Property subject to a Primary Lease or for other
reinvestment or use, all as the Managing General Partner shall deem necessary
or advisable in its sole and absolute discretion. In the event the proceeds of
any Interim Capital Transaction are to be paid in more than one installment,
then each such installment shall be treated as a separate Interim Capital
Transaction for purposes of this Article VI.
(d) "UNRECOVERED CAPITAL" means, with respect to Units issued in the
Initial Public Offering, the Aggregate Offering Proceeds, reduced, as and when
made, by the previous distributions, if any, made to the Limited Partners and
Assignees pursuant to Section 6.6(a). If the Partnership issues additional
Units, the amount of Unrecovered Capital, if any, attributable to such new
Units shall be the amount necessary to preserve the uniformity of Units,
unless the Managing General Partner shall decide in its sole and absolute
discretion that a different amount of Unrecovered Capital is more appropriate.
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(e) "PERCENTAGE INTEREST" of the Managing General Partner and the
Limited Partners and Assignees are as follows:
Managing General Partner--1.00 percent (1.00%)
Limited Partners and Assignees--99.00 percent (99.00%)
The Percentage Interest of each Limited Partner or Assignee is equal to the
product of (i) 99.00 percent (99.00%) multiplied by (ii) a fraction, the
numerator of which is the number of Depositary Units and undeposited Units held
by such Limited Partner or Assignee as of the date of such determination and the
denominator of which is the total number of Depositary Units and undeposited
Units outstanding as of the date of such determination (the "Unit Fraction").
(f) "FIRST-TIER RESIDUAL INTERESTS" of the Managing General Partner
and the Limited Partners and Assignees, are as follows:
Managing General Partner-24.00 percent (24.00%)
Limited Partners and Assignees-76.00 percent (76.00%)
The First-Tier Residual Interest of each Limited Partner or Assignee is equal to
the product of (i) 76.00 percent (76.00%) multiplied by (ii) the Unit Fraction.
(g) "Second-Tier Residual Interests" of the Managing General Partner
and the Limited Partners and Assignees are as follows:
Managing General Partner-39.00 percent (39.00%)
Limited Partners and Assignees-61.00 percent (61.00%)
The Second-Tier Residual Interest of each Limited Partner or Assignee is equal
to the product of (i) 61.00 percent (61.00%) multiplied by (ii) the Unit
Fraction.
(h) "PRIMARY PREFERENCE" means, with respect to Units issued in the
Initial Public Offering, an amount equal to the product of (i) twelve percent
(12%) per annum (applied using the simple interest method for the period from
the Closing Date through the date for which such determination is being made on
the basis of a 365/366-day year and the actual number of days elapsed)
multiplied by (ii) the total daily average outstanding balance of the
Unrecovered Capital (taking into account the distributions, if any, made to the
Limited Partners and Assignees pursuant to Section 6.6(a) which distributions
shall result in a reduction of the Unrecovered Capital on the date made). If
the Partnership issues additional Units, the amount of Primary Preference and
Unrecovered Primary Preference, if any, attributable to such new Units shall be
the amount necessary to preserve the uniformity of Units, unless the Managing
General Partner
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shall decide in its sole and absolute discretion that a different amount of
Primary Preference and Unrecovered Primary Preference is appropriate.
(i) Except as may be determined by the Managing General Partner in
the case of new Units, pursuant to Section 6.1(h), "UNRECOVERED PRIMARY
PREFERENCE" means at any given time an amount equal to the excess of (i) the
Primary Preference over (ii) the sum of all previous distributions made to the
Limited Partners and Assignees by the Partnership pursuant to Sections 6.5 and
6.6(b).
(j) "SECONDARY PREFERENCE" means, with respect to Units issued in
the Initial Public Offering, an amount equal to the product of (i) five and one-
half percent (51/2%) per annum (applied using the simple interest method for the
period from the Closing Date through the date for which such determination is
being made on the basis of a 365/366-day year and the actual number of days
elapsed) multiplied by (ii) the total daily average outstanding balance of the
Unrecovered Capital (taking into account the distributions, if any, made to the
Limited Partners and Assignees pursuant to Section 6.6(a), which distributions
shall result in a reduction of the Unrecovered Capital on the date made). If
the Partnership issues additional Units, the amount of Secondary Preference and
Unrecovered Secondary Preference, if any, attributable to such new Units shall
be the amount necessary to preserve the uniformity of Units, unless the Managing
General Partner shall decide in its sole and absolute discretion that a
different amount of Secondary Preference and Unrecovered Secondary Preference is
appropriate.
(k) Except as may be determined by the Managing General Partner in
the case of new Units, pursuant to Section 6.10), "UNRECOVERED SECONDARY
PREFERENCE" means at any given time an amount equal to (i) the sum of the
Primary Preference and the Secondary Preference, less (ii) the sum of all
previous distributions made to the Limited Partners and Assignees by the
Partnership pursuant to Sections 6.5, 6.6(b), and 6.6(c).
(l) "PROPORTIONATE SHARE" means, as to any Limited Partner or
Assignee with respect to the Unrecovered Capital, the Unrecovered Primary
Preference, or the Unrecovered Secondary Preference, as the case may be, an
amount equal to the product of (i) the Unrecovered Capital, Unrecovered Primary
Preference, or Unrecovered Secondary Preference, as the case may be, multiplied
by (ii) the Unit Fraction.
6.2 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES.
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners and Assignees among themselves, the following allocations
shall be made:
(a) Each item of income, gain, loss and deduction attributable to
operations of the Partnership conducted during any taxable period, determined in
accordance with Section 5.8(b) and taken into account in computing Net Income or
Net Loss, shall be allocated among the Partners and Assignees, pro rata, in
proportion to the distributions of Cash Flow to the Partners and Assignees with
respect to such taxable period in accordance with Section 6.5
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(including distributions of Cash Flow made in the first ninety (90) days of a
subsequent taxable period with respect to the last quarter of the taxable
period for -which the Net Income is being allocated); provided, however, that
if the Net Income or Net Loss to be allocated pursuant to this Section 6.2 for
such taxable period exceeds the Cash Flow distributions made with respect to
such taxable period, such excess Net Income or such Net Loss, as the case may
be, of the Partnership for such taxable period shall be allocated among the
Partners and Assignees, pro rata, in accordance with the manner in which the
same amount of Cash Flow would have been distributed to the Partners and
Assignees with respect to such taxable period in accordance with Section 6.5.
(b) Each item of income, gain, loss and deduction taken into
account in computing Extraordinary Income or Extraordinary Loss attributable
to Interim Capital Transactions, determined in accordance with Section 5.8(b),
shall be allocated in the manner described below. All allocations under this
Section 6.2(b) shall be made after Capital Account balances have been adjusted
by Net Income and Net Loss allocations under Section 6.2(a).
(i) Extraordinary Income of the Partnership resulting from an
Interim Capital Transaction shall be allocated as follows and in the
following order of priority:
(A) FIRST: to the extent that the Extraordinary Income
resulting from an Interim Capital Transaction exceeds the Net
Proceeds of such Interim Capital Transaction, an amount of such
Extraordinary Income in excess of Net Proceeds equal to the
aggregate negative balances in the Capital Accounts of the Partners
and Assignees, if any, shall be allocated to the Partners and
Assignees having such negative balances, such income being
allocated to such Partners and Assignees, pro rata, in proportion
to the respective negative balances in their Capital Accounts;
(B) SECOND: an amount of Extraordinary Income resulting
from such Interim Capital Transaction equal to the Net Proceeds of
such Interim Capital Transaction shall be allocated to the Partners
and Assignees, pro rata, in the same proportion that the Net
Proceeds of such Interim Capital Transaction are distributable to
the Partners and Assignees in accordance with Section 6.6; and
(C) THIRD: any remaining Extraordinary Income from such
Interim Capital Transaction shall be allocated among the Partners
and Assignees, pro rata, in accordance with the manner in which the
same amount of Net Proceeds from such Interim Capital Transaction
would have been distributed to the Partners and Assignees, in
accordance with Section 6.6, taking into consideration (for
purposes of determining the level of distributions under Section
6.6 at which any such Net Proceeds from Interim Capital
Transactions would have been distributed) allocations of
Extraordinary Income under this Section 6.2(b)(i)(C) for previous
taxable periods, as subsequently reduced by distributions
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of Net Proceeds from Interim Capital Transactions for any taxable
period in excess of Extraordinary Income for such taxable period.
(ii) Extraordinary Loss of the Partnership resulting from an
Interim Capital Transaction shall be allocated as follows and in the
following order of priority:
(A) Until the Unrecovered Capital and the Unrecovered Primary
Preference are equal to zero, Extraordinary Losses from an Interim
Capital Transaction shall be allocated, first, to the Partners and
Assignees, if any, having positive Capital Account balances, so as
to cause their respective Capital Accounts (after giving effect to
such allocation) to be in the same proportion to each other as are
their respective Percentage Interests, then to Partners and
Assignees, pro rata, in accordance with their respective Percentage
Interests until all such positive balances have been eliminated,
and thereafter, to all Partners and Assignees, pro rata in
accordance with their respective Percentage Interests; or
(B) If the Unrecovered Capital and the Unrecovered Primary
Preference both are equal to zero but the Unrecovered. Secondary
Preference is not equal to zero, Extraordinary Losses from an
Interim Capital Transaction shall be allocated, first, to the
Partners and Assignees, if any, having positive Capital Account
balances so as to cause their respective Capital Accounts (after
giving effect to such allocation) to be in the same proportion to
each other as are their respective First-Tier Residual Interests,
then to Partners and Assignees, pro rata, in accordance with their
respective First-Tier Residual Interests until all such positive
balances have been eliminated, and thereafter, to all Partners and
Assignees, pro rata, in accordance with their respective First-Tier
Residual Interests; or
(C) If the Unrecovered Capital, the Unrecovered Primary
Preference, and the Unrecovered Secondary Preference are each equal
to zero, Extraordinary Losses from an Interim Capital Transaction
shall be allocated, first, to the Partners and Assignees, if any,
having positive Capital Account balances so as to cause their
respective Capital Accounts (after giving effect to such
allocation) to be in the same proportion to each other as are their
respective Second-Tier Residual Interests, then to Partners and
Assignees, pro rata, in accordance with their respective
Second-Tier Residual Interests until all such positive balances
have been eliminated, and thereafter, to all Partners and
Assignees, pro rata, in accordance with their respective
Second-Tier Residual Interests.
(iii) In the event the proceeds of any Interim Capital
Transaction are to be paid in more than one installment, then
Extraordinary Income or Loss, as the case may be, recognized on the
payment of each such installment shall be treated as Extraordinary
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Income or Loss, as the case may be, from a separate Interim Capital
Transaction for purposes of this Section 6.2(b).
(c) Extraordinary Income or Loss of the Partnership resulting
from a Terminating Capital Transaction (and, if necessary, individual items
of income, gain, deduction or loss making up such Extraordinary Income or
Extraordinary Loss) shall be allocated to the Partners and Assignees (after
allocating to the Partners and Assignees the appropriate portion of all Net
Income or Joss and Extraordinary Income or Loss of the Partnership for the
then current taxable period in accordance with Sections 6.2(a) and 6.2(b) and
after reducing their respective Capital Accounts for all cash distributed (or
distributable during or with respect to such taxable period under Sections
6.5 and 6.6) in a manner that, to the maximum extent possible, will adjust
their respective Capital Account balances so that the Net Proceeds of a
Terminating Capital Transaction and any other remaining assets of the
Partnership that are available for distribution will be distributed to the
Partners and Assignees under Section 6.7 in the manner and priority indicated
in Section 6.6.
(d) SPECIAL ALLOCATIONS. Except as otherwise provided in
this Agreement, the following special allocations will be made in the
following order and priority:
(i) Notwithstanding any other provision of this
Section 6.2) if there is a net decrease in Partner Minimum Gain during
any taxable year or other period for which allocations are made, each
Partner or Assignee will be specially allocated items of Partnership
income and gain for that period (and, if necessary, subsequent periods)
in accordance with the requirements of Treasury Regulations Section
1.704-2(i)(4). This Section 6.2(d)(i) is intended to comply with the
minimum gain charge-back requirements of Treasury Regulations Section
1.704-2(i)(4).
(ii) Notwithstanding any other provision of this
Section 6.2, if there is a net decrease in Partnership Minimum Gain
during any taxable year or other period for which allocations are made,
each Partner or Assignee will be specially allocated items of
Partnership income and gain for that period (and, if necessary,
subsequent periods) in accordance with the requirements of Treasury
Regulations Section 1.704-2(f). This Section 6.2(d)(ii) is intended
to comply with the minimum gain charge-back requirements of Treasury
Regulations Section 1.704-2(f).
(iii) A Partner or Assignee who unexpectedly receives
any adjustment, allocation or distribution described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) will be
specially allocated items of Partnership income and gain in an amount
and manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the Adjusted Capital Account Deficit of the
Partner or Assignee as quickly as possible, provided that any allocation
pursuant to this Section 6.2(d)(iii) will be made if and only to the
extent that such Partner or Assignee would have an Adjusted Capital
Account Deficit after all other allocations provided for in Section 6.2
have been tentatively made as if this Section 6.2(d)(iii) were not in
this Agreement.
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(iv) Each Partner or Assignee who has a deficit Capital
Account at the end of any Partnership taxable year that is in excess of
the amount such Partner or Assignee is deemed to be obligated to restore
under the penultimate sentences of Treasury Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5) will be specially allocated items of
Partnership income and gain in the amount of the excess as quickly as
possible, provided that any allocation pursuant to this Section
6.2(d)(iv) will be made if and only to the extent that such Partner or
Assignee would have a deficit Capital Account in excess of such sum
after all other allocations provided for in Section 6.2 have been
tentatively made as if Section 6.2(d)(iii) and this Section 6.2(d)(iv)
were not in this Agreement.
(v) Nonrecourse Deductions for any taxable year or
other period for which allocations are made will be allocated among the
Partners or Assignees in proportion to their respective Percentage
Interests.
(vi) Any Partner Nonrecourse Deductions for any
taxable year or other period for which allocations are made will be
allocated to the Partner or Assignee who bears the economic risk of
loss with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with Treasury
Regulations Section 1.704-2(i)(1).
(vii) To the extent an adjustment to the adjusted tax
basis of any Partnership asset under Code Sections 734(b) or 743(b) is
required to be taken into account in determining Capital Accounts under
Treasury Regulations Section 1.704-1(b)(2)(iv)(m), the amount of the
adjustment to the Capital Accounts will be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis), and the gain or loss will be specially
allocated to the Partners or Assignees in a manner consistent with the
manner in which their Capital Accounts are required to be adjusted
under Treasury Regulations Section 1.704-1(b)(2)(iv)(m).
(viii) To the extent any item of deduction or loss
allocated to a Partner or Assignee would cause the Partner or Assignee
to have an Adjusted Capital Account Deficit at the end of any taxable
period, the item of deduction or loss will be reallocated to the
Managing General Partner.
(ix) In the event that any fees, interest, or other
amounts paid to any General Partner pursuant to this Agreement, or any
agreement between the Partnership and the General Partner providing
for the payment of such amount, and deducted by the Partnership in
reliance on Sections 707(a) and/or 707(c) of the Code, are disallowed
as deductions to the Partnership on its federal income tax return and
are treated as Partnership distributions, then there shall be allocated
to the General Partner to which such fees, interest, or other amounts
were paid, prior to the allocations pursuant to this Section 6.2(d),
an amount of gross income, for the year in which such fees, interest, or
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other amounts were paid, equal to the amount of such fees, interest, or
other amounts that are treated as Partnership distributions.
(x) In the event that, upon the exercise of any
options granted by the Partnership, a sale of Partnership assets is
deemed to result by virtue of the value of the interest in the
Partnership received upon exercise of the option exceeding the
exercise price of the option, any gain or loss resulting from such
deemed sale, and any compensation or other deductions of the Partnership
in connection with the exercise of such option, shall be allocated
among the Partners and Assignees in accordance with the provisions of
Section 6.2(a) without consideration of any change in the Percentage
Interests of the Partners and Assignees resulting from the exercise of
the option.
(xi) Notwithstanding an other provision of this
Agreement, no allocation of any item of income, gain, loss or deduction
will be made to a Partner or Assignee if the allocation would not have
"economic effect" under Treasury Regulations Section 1.704-1(b)(2)(ii)
or otherwise would not be in accordance with the Partner's interest in
the Partnership within the meaning of Treasury Regulations Section
1.704-1(b)(3). The Managing General Partner will have the authority
in its sole and absolute discretion to reallocate any item in
accordance with this Section 6.2(d)(xi).
(e) CURATIVE ALLOCATIONS. The allocations set forth in
Section 6.2(d) (the "Regulatory Allocations") are intended to comply with
certain requirements of Treasury Regulations Section 1.704-2. The Regulatory
Allocations may not be consistent with the manner in which the Partners and
Assignees intend to divide Partnership distributions. Accordingly, the
Managing General Partner is authorized to divide other allocations of items
of income, gain, deduction and loss among the Partners and Assignees so as to
prevent the Regulatory Allocations from distorting the manner in which
Partnership distributions would be divided among the Partners but for
application of the Regulatory Allocations. In general, the reallocation will
be accomplished by specially allocating other items of income, gain,
deduction and loss, to the extent they exist, among the Partners and
Assignees, so that the net amount of the Regulatory Allocations and the
special allocations to each Partner and Assignee is zero. However, the
Managing General Partner will have discretion to accomplish this result in
any reasonable manner that is consistent with Code Section 704 and the
related Treasury Regulations.
(f) MINIMUM ALLOCATIONS TO MANAGING GENERAL PARTNER.
Notwithstanding anything in this Agreement (other than allocations contained
in Section 6.2(d) required by Sections 704(b) and 704(c) of the Code) to the
contrary, the interest of the Managing General Partner in each material item
of Partnership income, gain, deduction and loss shall equal at least 1% of
each such item at all times during the existence of the Partnership
(determined by excluding any Units owned by the Managing General Partner in
its capacity as a Limited Partner).
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6.3 ALLOCATIONS FOR TAX PURPOSES.
(a) Except as otherwise provided in this Section 6.3, for
federal income tax purposes, each item of income, gain, loss and deduction
shall be allocated among the Partners and Assignees in the same manner as its
correlative item of "book" income, gain, loss or deduction has been allocated
pursuant to Section 6.2.
(b) In an attempt to eliminate any disparities between the
Carrying Value and the Adjusted Basis of Contributed Property or Adjusted
Property, items of income, gain, loss, depreciation and cost recovery
deductions shall be allocated for federal income tax purposes among the
Partners and Assignees, as follows:
(i) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners and Assignees
in the manner provided under Section 704(c)(1) of the Code that takes
into account the variation between the Carrying Value of such property
and its Adjusted Basis at the time of contribution.
(ii) In the case of an Adjusted Property, such items
attributable thereto shall (A) first, be allocated among the Partners
and Assignees in a manner consistent with the principles of Section
704(c)(1) of the Code to take into account the Unrealized Gain or
Unrealized Loss attributable to such property and the allocations
thereof pursuant to Section 5.8(d), and (B) second, in the event such
property was originally a Contributed Property, be allocated among
the Partners and Assignees in a manner consistent with Section
6.3(b)(i).
(iii) Except as otherwise provided in Section
6.3(b)(iv), in the case of all other properties, items of income, gain,
loss and deduction attributable to such property shall be allocated
among the Partners and Assignees in accordance with Section 6.3(a).
(iv) Any items of income, gain, loss or deduction
otherwise allocable under Sections 6.3(a) or 6.3(b)(iii) shall be
subject to allocation by the Managing General Partner in any reasonable
manner designed to eliminate, to the maximum extent possible, any
disparities between the Carrying Value and the Adjusted Basis in a
Contributed Property or an Adjusted Property otherwise resulting from
the application of the ceiling limitation (under Section 704(c)(1) of
the Code or Section 704(c)(1) principles) to the allocations provided
under Sections 6.3(b)(i) or 6.3(b)(ii).
(c) To the extent of any Recapture Income resulting from
the sale or other taxable disposition of Partnership Assets, the amount of
any gain from such disposition allocated to (or recognized by) a Partner or
Assignee for federal income tax purposes pursuant to the above provisions
shall be deemed to be Recapture Income to the extent such Partner or Assignee
(or its predecessors in interest) has been allocated or has claimed any
deduction directly or indirectly giving rise to the treatment of such gain as
Recapture Income.
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(d) All items of income, gain, loss and deduction
recognized by the Partnership for federal income tax purposes and allocated
to the Partners and Assignees in accordance with the provisions hereof and
all basis allocations shall be determined without regard to any election
under Section 754 of the Code which may be made by the Partnership.
(e) It is intended that the allocations prescribed in
Sections 6.3(b)(i) and (b)(H) constitute allocations for federal income tax
purposes that are consistent with Section 704 of the Code and comply with any
limitations or restrictions therein. To preserve the uniformity of Units, in
addition to the allocation provided in Section 6.3(b)(iv), the Managing
General Partner shall have sole discretion to adopt such conventions as it
deems appropriate in determining the amount of depreciation and cost recovery
deductions and amend the provisions of this Agreement as appropriate (i) to
reflect the proposal or promulgation of Treasury Regulations under Section
704(c)(1) of the Code, or (ii) otherwise to preserve the uniformity of the
intrinsic tax characteristics of the Units issued or sold from time to time.
The Managing General Partner may adopt such conventions, make such
allocations and make such amendments to this Agreement as provided in this
Section 6.3(e) only if they would not have a material adverse effect on the
Limited Partners and Assignees. The Managing General Partner may use any
reasonable depreciation convention to preserve the uniformity of the
intrinsic tax characteristics of Units that would not have a material adverse
effect on the Limited Partners and Assignees. If the Managing General
Partner determines, based upon advice of counsel, that no reasonable
reporting position exists that the Units have, as a substantive matter, like
intrinsic tax characteristics, in all material respects, in the hands of a
purchaser, then the Units may be separately identified, to the extent
practicable, to reflect intrinsic differences in tax consequences, regardless
of the cause of any such nonuniformity.
(f) Solely for purposes of the interpretation and
application of this Article VI, the Partnership shall be treated as owning
its proportionate share of all properties owned by the Operating Partnership.
6.4 ALLOCATION OF INCOME AND LESS WITH RESPECT TO INTERESTS TRANSFERRED.
(a) If any Partnership Interest is transferred during any
Fiscal Year, the Net Income or Net Loss attributable to such interest for
such Fiscal Year shall be divided and allocated proportionately between the
transferor and the transferee based upon the number of days during such
Fiscal Year for which each party was the Record Holder of the Partnership
Interest transferred. For the purpose of accounting simplicity, the
Partnership will treat Partners and Assignees who are Record Holders as of
the close of business on the last day of a calendar month (commencing with
the month in which the Partnership is formed) as having been Partners or
Assignees, as the case may be, for the entire month. Similarly, a Partner or
Assignee who is not a Record Holder as of the close of business on the last
day of a calendar month will not be treated for purposes of this Section 6.4
as a Partner or Assignee, as the case may be, for such calendar month. The
Managing General Partner is authorized to alter this accounting convention to
conform with any regulations issued by the Treasury Department or rulings or
advice of the Internal Revenue Service, as the Managing General Partner shall
deem necessary or appropriate.
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(b) Extraordinary Income or Loss of the Partnership
realized in connection with an Interim Capital Transaction shall be allocated
only to those Partners and Assignees who are Record Holders as of the close
of business on the last day of the calendar month in which such Interim
Capital Transaction occurs. Extraordinary Income or Loss of the Partnership
realized in connection with a Terminating Capital Transaction shall be
allocated only to Persons who are the Record Holders of Partnership Interests
as of the date such Terminating Capital Transaction occurs.
(c) Distributions of Partnership assets (including cash)
in respect of a Unit or Depositary Unit shall be made only to the Person who,
according to the books and records of the Partnership, is the Record Holder
of such Unit or Depositary Unit in respect of which such distribution is made
as of the Record Date for such distribution. The Record Dates for all
distributions of Cash Flow shall be selected so that each Unitholder who
receives a distribution of Cash Flow for a fiscal quarter will be allocated
Net Income or Net Loss, as the case may be, for at least one month.
(d) The Managing General Partner shall incur no liability
for making allocations and distributions in accordance with the provisions of
this Section 6.4, whether or not the Managing General Partner has knowledge
or notice of any transfer or purported transfer of ownership of any Unit,
Depositary Unit, or Partnership Interest.
6.5 DISTRIBUTIONS OF CASH FLOW.
(a) ALLOCATION AND DISTRIBUTION. Cash Flow of the
Partnership shall be determined for each calendar quarter of each Fiscal
Year. Cash Flow as so determined shall be distributed in cash to the
Partners and Assignees as follows and in the following order of priority:
(i) FIRST: to the Partners and Assignees, pro rata,
in accordance with their respective Percentage Interests, until
the Limited Partners and Assignees collectively shall have
received in the aggregate with respect to such Fiscal Year an
amount of Cash Flow equal to the product of (x) twelve percent
(12%) multiplied by (y) the outstanding balance of the
Unrecovered Capital as of the first day of such Fiscal Year;
(ii) SECOND: to the Partners and Assignees, pro rata,
in accordance with their respective First-Tier Residual
Interests, until the Limited Partners and Assignees collectively
shall have received, in the aggregate pursuant to Section
6.5(a)(i) and this Section 6.5(a)(ii) with respect to such
Fiscal Year, an amount of Cash Flow equal to the product of
(x) seventeen and one-half percent (17 1/2%) multiplied by
(y) the outstanding balance of the Unrecovered Capital as of
the first day of such Fiscal Year; and
(iii) THIRD: to the Partners and Assignees, pro rata,
in accordance with their respective Second-Tier Residual
Interests.
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Distributions of Cash Flow within the first ninety (90) days of a subsequent
Fiscal Year designated by the Managing General Partner as made with respect to
the last quarter of the immediately prior Fiscal Year shall be considered made
with respect to such prior Fiscal Year for purposes of this Section 6.5(a).
(b) TIMING OF DISTRIBUTIONS. Cash Flow shall be distributed
quarterly, within seventy-five (75) days after the end of each calendar quarter
of a Fiscal Year, commencing with the calendar quarter ended March 31, 1986,
with such distribution to be made to Record Holders of Units and Depositary
Units as of the close of business on the Record Date for such distribution. The
Partners and Assignees agree that, within thirty (30) days after determination
by the Partnership that an overpayment was made to any Partner or Assignee for
any Fiscal Year pursuant to this Section 6.5, such Partner or Assignee shall
repay, allow as a credit against future distributions, or make such other
adjustments as may be appropriate to remedy such overpayment. Likewise,
appropriate adjustments shall be made to remedy any underpayment.
6.6 DISTRIBUTION OF PROCEEDS FROM INTERIM CAPITAL TRANSACTIONS.
The Net Proceeds of an Interim Capital Transaction shall be
distributed to the Partners and Assignees as follows and in the following
order of priority:
(a) FIRST: to the Partners and Assignees, pro rata, in
accordance with their respective Percentage Interests, until the Limited
Partners and Assignees collectively shall have received in the aggregate
pursuant to this Section 6.6(a) an amount equal to the Unrecovered Capital;
(b) SECOND: to the Partners and Assignees, pro rata, in
accordance with their respective Percentage Interests, until the Limited
Partners and Assignees collectively shall have received in the aggregate
pursuant to this Section 6.6(b) an amount equal to their then outstanding
Unrecovered Primary Preference;
(c) THIRD: to the Partners and Assignees, pro rata, in
accordance with their respective First-Tier Residual Interests, until the
Limited Partners and Assignees collectively shall have received in the
aggregate pursuant to Section 6.6(b) and this Section 6.6(c) an amount equal
to their then outstanding Unrecovered Secondary Preference; and
(d) FOURTH: to the Partners and Assignees, pro rata, in
accordance with their respective Second-Tier Residual Interests.
Distributions pursuant to this Section 6.6 shall be made within seventy-five
(75) days of the receipt of proceeds with respect to an Interim Capital
Transaction, with such distribution to be made to the Record Holders of Units
and Depositary Units as of the close of business on the Record Date for such
distribution.
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6.7 DISTRIBUTION OF PROCEEDS FROM TERMINATING CAPITAL TRANSACTIONS;
LIQUIDATION DISTRIBUTIONS.
(a) The Net Proceeds of a Terminating Capital Transaction
and any other remaining assets of the Partnership to be distributed to the
Partners and Assignees in connection with dissolution and liquidation of the
Partnership pursuant to Article XV, after the payment of all debts,
liabilities, and obligations of the Partnership in the manner provided in
Section 15.5 hereof (including, without limitation, all amounts owing to the
General Partners under this Agreement (other than this Article VI) or under
any agreement between the Partnership and the General Partners entered into
by the General Partners other than in their capacity as Partners in the
Partnership), including, without limitation, the payment of expenses of
liquidation of the Partnership, and the establishment of a reasonable reserve
(including an amount estimated by the Managing General Partner to be
sufficient to pay an amount reasonably anticipated to be required to be paid
pursuant to Section 7.10 hereof), shall be distributed to the Partners and
Assignees, pro rata, in proportion to the positive balances, if any, in their
respective Capital Accounts. A distribution pursuant to this Section 6.7
shall be made to the Record Holders of Units and Depositary Units as of the
close of business on the Record Date for such distribution.
(b) Notwithstanding any provision in this Section 6.7 to the
contrary, in the event that the Net Proceeds of the Terminating Capital
Transaction are to be paid to the Partnership in more than one installment, each
such installment (including any interest thereon) shall be allocated among the
Partners and Assignees in accordance with their respective "Installment
Percentages." The "Installment Percentage" of each Partner and Assignee shall be
equal to (i) the aggregate amount of cash that would have been distributed to
that Partner or Assignee under Sections 6.7(a) and (b) had the Net Proceeds of
the Terminating Capital Transaction been paid in one lump sum, divided by (ii)
the total Net Proceeds that would have been distributed to all of the Partners
and Assignees under those Sections.
ARTICLE VII
MANAGEMENT
7.1 MANAGEMENT AND CONTROL OF PARTNERSHIP.
Except as otherwise expressly provided or limited by the provisions
of this Agreement (including, without limitation, the provisions of Article
VIII), the Managing General Partner shall have full, exclusive, and complete
discretion to manage and control the business and affairs of the Partnership
and the Operating Partnership, to make all decisions affecting the business
and affairs of the Partnership and the Operating Partnership, and to take all
such actions as it deems necessary or appropriate to accomplish the purposes
of the Partnership and the Operating Partnership as set forth herein and in
the Operating Partnership Agreement. The Managing General Partner shall use
reasonable efforts to carry out the purposes of the Partnership and shall
devote to the management of the business and affairs of the Partnership and
the Operating Partnership such time as the Managing General Partner, in its
reasonable discretion, shall deem
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to be reasonably required for the operation thereof. No Limited Partner or
Assignee shall have any authority, right, or power to bind the Partnership or
the Operating Partnership, or to manage or control, or to participate in the
management or control of, the business and affairs of the Partnership or the
Operating Partnership in any manner whatsoever.
7.2 POWERS OF MANAGING GENERAL PARTNER.
Subject to the limitation of Section 7.3, which vests certain voting
rights in the Limited Partners, and to the limitations and restrictions set
forth in Article VIII, the Managing General Partner (acting on behalf of the
Partnership and the Operating Partnership) shall have the right, power, and
authority, in the management of the business and affairs of the Partnership
and Operating Partnership, to do or cause to be done any and all acts, at the
expense of the Partnership or Operating Partnership, as the case may be,
deemed by the Managing General Partner to be necessary or appropriate to
effectuate the business, purposes, and objectives of the Partnership and the
Operating Partnership. The power and authority of the Managing General
Partner pursuant to this Agreement and the Operating Partnership Agreement
shall be liberally construed to encompass all acts and activities in which a
partnership may engage under the Delaware RULPA. The power and authority of
the Managing General Partner shall include, without limitation, the power and
authority on behalf of the Partnership and the Operating Partnership:
(a) To serve as managing general partner of the Operating
Partnership and, as Managing General Partner of the Partnership, to exercise
all rights of the Partnership as limited partner in the Operating Partnership
pursuant to the Operating Partnership Agreement;
(b) Upon consummation of the Closing, to cause the
Partnership to contribute the Aggregate Offering Proceeds and the Capital
Contributions of the General Partners to the Operating Partnership as
provided for in the Operating Partnership Agreement, to cause the Operating
Partnership to acquire certain Restaurant Properties from BKC pursuant to the
Real Estate Purchase Agreement, to cause the Operating Partnership to pay to
BKC the purchase price for such Restaurant Properties specified in the Real
Estate Purchase Agreement, and to take all other actions and make all other
decisions in connection with the acquisition of any Partnership Properties by
the Operating Partnership from BKC as the Managing General Partner, in its
sole and absolute discretion, shall deem necessary or appropriate;
(c) To acquire, own, lease, sublease, manage, hold, deal in,
control or dispose of any interests or rights in personal property or real
property, including interests in any Partnership Property, whether realty or
personalty, including, without limitation, the powers to sell, exchange,
lease, sublease, mortgage, pledge, convey in trust, enter into joint ventures
or partnerships respecting or otherwise hypothecate or dispose of all or any
portion of any Partnership Property or any other Partnership Asset or any
interest therein, and to contribute all or any Partnership Assets to the
Operating Partnership; provided, however, that the use of any Restricted
Restaurant Property and any sale or other disposition of any Restricted
Restaurant Property shall be subject to the restrictions and limitations set
forth in Sections 8.3 and 8.4;
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(d) Subject to the restrictions and limitations set forth in
Section 8.3 but without limiting the generality of Section 7.2(c), to
negotiate, enter into, renegotiate, extend, renew, terminate, modify, amend,
waive, execute, acknowledge, or take any other action on behalf of the
Partnership or the Operating Partnership with respect to any Primary Lease
(including, without limitation, to exercise any right of the Partnership
under any Primary Lease to acquire title to a Partnership Property pursuant
to a right of first refusal) or any lease or sublease of a Partnership
Property whether to a BKC Franchisee or otherwise, or any provision thereof;
(e) Subject to the restrictions and limitations set forth in
Sections 8.3 and 8.4 hereof, to create, by grant or otherwise, easements,
servitudes, rights-of-way, and other rights in and to any Partnership
Property;
(f) To alter, improve, expand, repair, raze, replace, or
reconstruct a Partnership Property; provided, however, that any improvement,
expansion, replacement, or reconstruction of a Partnership Property pursuant
to the "Successor Policy" of BKC as then in effect (as further described in
Section 8.6) shall be subject to the terms and conditions of Section 8.6;
(g) Subject to the restrictions and limitations set forth in
Sections 8.3 and 8.4, to let or lease, or sublet or sublease, any Partnership
Property for any period, and for any purpose;
(h) To apply proceeds of any sale, exchange, mortgage,
pledge, or other disposition of any Partnership Property or any other
Partnership Asset to payment of liabilities of the Partnership or the
Operating Partnership and to pay, collect, compromise, arbitrate, or
otherwise adjust any and all other claims or demands of or against the
Partnership or the Operating Partnership or to hold such proceeds against the
payment of contingent liabilities, known or unknown;
(i) To maintain or cause to be maintained records of all
rights and interests acquired or disposed of by the Partnership or the
Operating Partnership, all correspondence relating to the business of the
Partnership or the Operating Partnership, and the original records (or copies
on such media as the Managing General Partner may deem appropriate) of all
statements, bills, and other instruments furnished the Partnership or the
Operating Partnership in connection with their respective businesses;
(j) To maintain records and accounts of all operations and
expenditures, make all filings and reports required under applicable rules
and regulations of any governmental department, bureau, or agency, any
securities exchange, and any automated quotation system of a registered
securities association, and furnish the Partners and Assignees with all
necessary United States federal, state, or local income tax reporting
information or such information with respect to any other jurisdiction;
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(k) To purchase and maintain (either directly or through
participation under insurance contracts purchased and maintained by any
Affiliate), in its sole and absolute discretion and at the expense of the
Partnership or the Operating Partnership, liability, indemnity, and any other
insurance (including, without limitation, errors and omissions insurance and
insurance to cover the obligations of the Partnership under Section 7.10),
sufficient to protect the Partnership, the Operating Partnership, the General
Partners, their officers, directors, employees, agents, and Affiliates, or any
other Person, from those liabilities and hazards which may be insured against in
the conduct of the business and in the management of the business and affairs of
the Partnership or the Operating Partnership;
(l) To make, execute, assign, acknowledge, and file on
behalf of the Partnership or the Operating Partnership any and all documents
or instruments of any kind which the Managing General Partner may deem
necessary or appropriate in carrying out the purposes and business of the
Partnership or the Operating Partnership, including, without limitation,
powers of attorney, agreements of indemnification, sales contracts, deeds,
options, loan obligations, mortgages, deeds of trust, notes, documents, or
instruments of any kind or character, and amendments thereto. Any person,
firm, or corporation dealing with the Managing General Partner shall not be
required to determine or inquire into the authority or power of the Managing
General Partner to bind the Partnership or the Operating Partnership or to
execute, acknowledge, or deliver any and all documents in connection
therewith;
(m) To borrow money or to obtain credit in such amounts, on
such terms and conditions, and at such rates of interest and upon such other
terms and conditions as the Managing General Partner deems appropriate, from
banks, other lending institutions, or any other Person, including the
Partners and Assignees, for any purpose of the Partnership or the Operating
Partnership, including, without limitation, any loan incurred for the purpose
of making one or more distributions to any or all Partners and Assignees,
including any distributions which are, in whole or in part, a return of
Capital Contributions; and subject to the restrictions and limitations set
forth in Section 8.4, in connection with such loans to mortgage, pledge,
assign, or otherwise encumber or alienate any or all of the Partnership
Properties or other Partnership Assets, including any income therefrom, to
secure or provide for the repayment thereof As between any lender and the
Partnership or the Operating Partnership, it shall be conclusively presumed
that the proceeds of such loans are to be and win be used for the purposes
authorized herein and that the Managing General Partner has the full power
and authority to borrow such money and to obtain such credit;
(n) To originate loans or otherwise provide financing,
whether through guarantees, letters of credit or otherwise, secured by liens
on real estate to borrowers who meet the Partnership's underwriting criteria,
which shall be established by the Managing General Partner;
(o) To assume obligations, enter into contracts, including
contracts of guaranty or suretyship, incur liabilities, lend money, and
otherwise use the credit of the Partnership or the Operating Partnership,
and, subject to the restrictions and limitations set forth in Sections 8.3
and
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8.4, to secure any of the obligations, contracts, or liabilities of the
Partnership or the Operating Partnership, by mortgage, pledge or other
encumbrance of all or any part of the property, franchises, and income of the
Partnership or the Operating Partnership;
(p) To invest funds of the Partnership or the Operating
Partnership in interest-bearing accounts and short-term investments
including, without limitation, obligations of the federal, state, and local
governments and their agencies, mutual funds (including money market funds),
time deposits, commercial paper, and certificates of deposit of commercial
banks, savings banks, or savings and loan associations; provided that the
Managing General Partner shall not invest Partnership funds in such a manner
that the Partnership will be considered to be holding itself out as being
engaged primarily in the business of investing, reinvesting, or trading in
securities or will otherwise be deemed to be an investment company under the
Investment Company Act of 1940, as amended;
(q) To make any election on behalf of the Partnership or the
Operating Partnership as is or may be permitted under the Code or under the
taxing statute or rule of any state, local, foreign, or other jurisdiction,
and to supervise the preparation and filing of all tax and information
returns which the Partnership or the Operating Partnership may be required to
file;
(r) To maintain the buildings, appurtenances, and grounds of
the Partnership Properties in accordance with acceptable standards, including
within such maintenance, without limitation thereof, interior and exterior
cleaning, painting and decorating, plumbing, carpentry, and such other normal
maintenance and repair work as may be appropriate;
(s) To collect all rents and other charges from lessees of
the Partnership Properties due the Operating Partnership. The Managing
General Partner shall have full power and authority to request, demand,
collect, receive, and receipt for all such rents and other charges, to
institute legal proceedings in the name of the Operating Partnership for the
collection thereof and for the dispossession of any Person from a Partnership
Property, to settle or compromise all such legal proceedings and any other
disputes with respect to such rents and other charges, and to incur such
expenses in connection therewith as the Managing General Partner shall
determine to be necessary or appropriate, which expenses may include the
costs of counsel for any such matter;
(t) To cause to be disbursed (i) the aggregate amount
required to be paid pursuant to any indebtedness of the Partnership or the
Operating Partnership, including therein amounts due under any mortgages or
deeds of trust for interest, amortization of principal, and for allocation to
reserve or escrow funds; (ii) the amount of rent payable by the terms of any
Primary Lease; (iii) the amount of all real estate taxes and other
impositions levied by appropriate authorities (including, without limitation,
amounts required to be paid by any BKC Franchisee pursuant to any lease with
respect to a Restricted Restaurant Property); and (iv) amounts otherwise due
and payable as expenses of the Partnership or the Operating Partnership
incurred in furtherance of the purposes of this Agreement or the Operating
Partnership Agreement (including, without limitation, amounts payable to the
General Partners);
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(u) To employ and engage suitable agents, employees, advisers,
consultants, and counsel (including any custodian, investment adviser,
accountant, attorney, corporate fiduciary, bank, or other reputable financial
institution, or any other agents, employees, or Persons who may serve in such
capacity for the Managing General Partner or any Affiliate of the Managing
General Partner) to carry out any activities which the Managing General
Partner is authorized or required to carry out or conduct under this
Agreement or the Operating Partnership Agreement, including, without
limitation, a Person who may be engaged to undertake some or all of the
general management, property management, financial accounting and record
keeping, or other duties of the Managing General Partner, to indemnity such
Persons against liabilities incurred by them in acting in such capacities on
behalf of the Partnership or the Operating Partnership, and to rely on the
advice given by such Persons, it being agreed and understood that the
Managing General Partner shall not be responsible for any acts or omissions
of any such Persons and shall assume no obligations in connection therewith
other than the obligation to use due care in the selection thereof;
(v) To enter into an agreement or agreements with real estate brokers
or agents, investment banking firms, appraisers, or others providing for the
engagement of such Persons on an exclusive or non-exclusive basis to advise
or represent the Partnership or the Operating Partnership in the valuation,
sale, transfer, assignment, lease, sublease, mortgaging, or other encumbering
of, or other dealings in, the Partnership Properties, it being understood
that the Managing General Partner shall not be responsible for any acts or
omissions of any such Person and shall assume no obligations in connection
therewith other than the obligation to use due care in the selection thereof;
provided, however, that no commission in connection with any sale or other
disposition of a Partnership Property shall exceed six percent (6%) of the
gross proceeds from such sale or disposition, and that no commission in
connection with any such sale or other disposition shall be payable to a
General Partner or any of its Affiliates-;
(w) To consult with the Independent Consultant pursuant to the
provisions of Section 8.10 with respect to any matter related to the business
and affairs of the Partnership or the Operating Partnership;
(x) To take such actions and make such decisions as may be necessary or
appropriate, in the reasonable judgment of the Managing General Partner, to
resolve or avoid any actual or potential conflict of interest between the
Partnership or the Operating Partnership and any General Partners or any
Affiliates thereof, including, without limitation, subject to Section 8.8, to
cause the Operating Partnership to accept from BKC or a third party, in
exchange or substitution for one or more Restricted Restaurant Properties,
one or more other properties on which a BK Restaurant leased to a BKC
Franchisee is located; provided, however, that, so long as Section 1031 of
the Code or any similar provision shall remain in effect, any such
substitution or exchange must qualify as an exchange of property of a
like-kind in- which no gain or loss is recognized to the Partnership except
to the extent of any cash received in connection therewith;
(y) To hold Partnership Properties or other Partnership Assets in the
name of one or more nominees, with or without disclosure of the fiduciary
relationship;
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(z) To pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend, or compromise, upon such terms as it may determine and
upon such evidence as it may deem sufficient, any obligation, suit,
liability, cause of action, or claim, including taxes, either in favor of or
against the Partnership or the Operating Partnership;
(aa) To register, qualify, list, or report, or cause to be registered,
qualified, listed, or reported, this Agreement or Depositary Units issued
hereunder pursuant to the Securities Act, the Exchange Act, any other
securities laws of the United States, the securities laws of any state of the
United States, the laws of any other jurisdiction, with any securities
exchange, or pursuant to an automated quotation system of a registered
securities association, as the Managing General Partner deems appropriate;
(bb) To qualify the Partnership or the Operating Partnership to do
business in any state, territory, dependency, or foreign country;
(cc) To purchase any Partnership Property subject to a Primary Lease,
whether pursuant to a first right of refusal under such Primary Lease or
otherwise;
(dd) To enter into a property management agreement with BKC pursuant to
which BKC agrees on behalf of the Managing General Partner, at no additional
expense to the Partnership, to exercise certain day-to-day management
responsibilities with respect to the Partnership Properties and to perform
related administrative services upon the terms and conditions set forth
therein, to extend, renew, terminate, modify, amend, or waive such agreement
or any provision thereof, and to take such action pursuant to or in
connection with such agreement as the Managing General Partner shall
determine appropriate; provided, however, that the Managing General Partner
shall have no obligation to enter into any such agreement;
(ee) To distribute money or Partnership Assets to Partners and Assignees
in accordance with Article VI, regardless of the source of such money or
Partnership Assets, including, without limitation, money borrowed by the
Partnership or by the Managing General Partner on behalf of the Partnership;
(ff) To acquire fee simple title or a leasehold interest in any
Partnership Property and Ancillary Property related thereto and to provide
for the purchase price for such property from funds otherwise constituting
Cash Flow or the Net Proceeds of a Capital Transaction, whether at the time
of acquisition or thereafter to pay principal, interest or other amounts
payable in respect of any financing related to such acquisition;
(gg) To lease, sell or otherwise transfer Ancillary Property to any
tenant of Partnership Property, to provide financing, whether through loans,
guarantees or otherwise, for any tenant of Partnership Property and to
provide the funds for such transactions from funds otherwise constituting
Cash Flow or the Net Proceeds of a Capital Transaction, whether at the time
of such transaction or thereafter to pay principal, interest or other amounts
payable in respect of any financing undertaken for such purpose;
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(hh) To mortgage, lien or otherwise encumber or restrict any Restricted
Restaurant Property and use the proceeds thereof in respect of Other
Restaurant Properties, Retail Properties or for any other Partnership
purpose; and to mortgage, lien or otherwise encumber or restrict any Other
Restaurant Property or Retail Property and use the proceeds thereof in
respect of Restricted Restaurant Properties or for any other Partnership
purpose;
(ii) To operate or franchise any Partnership Property, whether directly
or through any Affiliates or other Persons;
(jj) To reinvest or otherwise use funds otherwise constituting Cash Flow
or the Net Proceeds of a Capital Transaction in or for Partnership
Properties, Ancillary Property or other Partnership Assets or for any other
Partnership purpose, including the purchase of Units or Depositary Units by
purchasing the respective Depositary Receipts for subsequent re-issuance
under a DRIP or for any other purpose;
(kk) To effect any underwriting, placement or other issuance of Units
for such consideration (which may be property) and on such terms and
conditions as it may deem necessary or appropriate, pay the discounts, costs
and expenses associated therewith, apply any proceeds thereof for or in
furtherance of any Partnership purpose and take all other actions and make
all other decisions in connection therewith as it in its sole and absolute
discretion, shall deem necessary or appropriate;
(ll) To possess and exercise any additional rights and powers of a
general partner under the partnership laws of Delaware (including, without
limitation, the Delaware RULPA) and any other applicable laws, to the extent
not inconsistent with this Agreement; and
(mm) In general, to exercise in full all of the powers of the
Partnership as set forth in Section 3.2 and to do any and all acts and
conduct all proceedings and execute all rights and privileges, contracts, and
agreements of any kind whatsoever, although not specifically mentioned in
this Agreement, that the Managing General Partner in its sole and absolute
discretion may deem necessary or appropriate to the conduct of the business
and affairs of the Partnership or the Operating Partnership or to carry out
the purposes of the Partnership or the Operating Partnership. The expression
of any power or authority of the Managing General Partner in this Agreement
shall not in any way limit or exclude any other power or authority which is
not specifically or expressly set forth in this Agreement.
7.3 RESTRICTIONS ON AUTHORITY OF MANAGING GENERAL PARTNER.
(a) Anything in this Agreement to the contrary notwithstanding, the
Managing General Partner shall have no authority to:
(i) pay for any services performed by a General Partner or an
Affiliate of a General Partner, except as otherwise expressly
permitted in this Agreement;
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(ii) take any action on any matter with respect to which a
Majority Vote of the Limited Partners or a Super-Majority Vote of the
Limited Partners, as the case may be, is specifically required under
this Agreement without such Vote approving such action having
occurred; or
(iii) cause the Partnership to terminate the Deposit Agreement
unless such termination (A) is in connection with the Partnership
entering into a similar agreement with another depositary selected by
the Managing General Partner, in its sole and absolute discretion, (B)
results from the receipt of an Opinion of Independent Counsel to the
effect that such termination is necessary in order for the Partnership
to avoid being treated as an association taxable as a corporation for
federal income tax purposes or to avoid being in violation of any
applicable federal or state securities laws, or (C) is in connection
with the dissolution of the Partnership pursuant to Article XV.
(b) Notwithstanding any other provision of this Agreement, the Managing
General Partner shall not, without the prior Majority Vote of the Limited
Partners (or in the event of an amendment or action described in Section
7.3(b)(iii)(D) below, a Super-Majority Vote of the Limited Partners if such
amendment of, or action pursuant to, a corresponding provision of this
Agreement would have required a prior Super-Majority Vote of the Limited
Partners under such corresponding provision):
(i) except upon dissolution and liquidation pursuant to Article XIV,
cause the Partnership to sell, exchange, assign, lease, sublease, or
otherwise dispose of all or substantially all of the Partnership Assets
other than in ordinary course of business of the Partnership; provided,
however, that this provision shall not be interpreted to preclude or limit
the contribution of the Aggregate Offering Proceeds to the Operating
Partnership in accordance with Section 8.2 and the terms of the Operating
Partnership Agreement, or to preclude or limit the mortgage, pledge,
hypothecation, or grant of a security interest in all or substantially all
of the Partnership Assets, and shall not apply to any forced sale of any
or all of the Partnership Assets pursuant to the foreclosure of, or other
realization upon, any such encumbrance;
(ii) cause the Partnership to merge or consolidate with any other
partnership (other than the Operating Partnership) or other entity; or
(iii) acting on behalf of the Partnership,
(A) except upon dissolution and liquidation pursuant to the
applicable provisions of the Operating Partnership Agreement, consent
to the sale, exchange, assignment, lease, sublease, or other
disposition by the Operating Partnership of all or substantially all
of the assets of the Operating Partnership other than in the ordinary
course of business of the Operating Partnership; provided, however,
that this provision shall not be
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interpreted to preclude or limit the payment to BKC of the purchase
price for the Restaurant Properties specified in the Real Estate
Purchase Agreement, or to preclude or limit the mortgage, pledge,
hypothecation, or grant of a security interest in all or substantially
all of the assets of the Operating Partnership, and shall not apply to
any forced sale of any or all of the assets of the Operating
Partnership pursuant to the foreclosure of, or other realization upon,
any such encumbrance;
(B) consent to a merger or consolidation of the Operating
Partnership with any other partnership (other than the Partnership) or
other entity; or
(C) consent to the dissolution of the Operating Partnership
pursuant to Section 14.2(e) of the Operating Partnership Agreement; or
(D) consent to any amendment of the Operating Partnership
Agreement or any action of the Managing General Partner pursuant to or
in connection with the Operating Partnership Agreement if such
amendment of the corresponding provision of this Agreement or action
pursuant to a corresponding provision of this Agreement would have
required the prior approval of either a Majority Vote of the Limited
Partners or a Super-Majority Vote of the Limited Partners.
7.4 TITLE TO PARTNERSHIP ASSETS.
Title to Partnership Assets, whether real, personal, or mixed or tangible
or intangible, shall be deemed to be owned by the Partnership as an entity, and
no Partner or Assignee, individually or collectively, shall have any ownership
interest in such Partnership Assets or any portion thereof. Title to any or all
of the Partnership Assets may be held in the name of the Partnership, of the
Managing General Partner, or of one or more nominees, as the Managing General
Partner may determine. The Managing General Partner hereby declares and
warrants that any Partnership Assets for which legal title is held in the name
of the Managing General Partner shall BE held in trust by the Managing General
Partner for the use and benefit of the Partnership in accordance with the terms
or provisions of this Agreement. All Partnership Assets shall be recorded as
the property of the Partnership on its books and records, irrespective of the
name in which legal title to such Partnership Assets is held.
7.5 WORKING CAPITAL RESERVE.
The Managing General Partner shall have the right to cause the Partnership
and the Operating Partnership to set up a Working Capital Reserve and to set
aside therein such funds as the Managing General Partner, in its sole and
absolute discretion, shall determine to be reasonable in connection with the
operation of the business of the Partnership and the Operating Partnership. Any
funds set aside for such Working Capital Reserve may be invested by the
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Managing General Partner with a view to the appropriate degree of safety of
and return on such invested funds, and such funds shall not be available for
current distribution under Section 6.5; provided, however, that some or all
of such funds may subsequently be made available for distribution pursuant to
Section 6.5 should the Managing General Partner, in its sole and absolute
discretion, so elect. The Working Capital Reserve established and maintained
pursuant to this Section 7.5 shall be in addition to any reserves established
and maintained by the Managing General Partner to implement Burger King's
"Successor Policy" pursuant to Section 8.6.
7.6 OTHER BUSINESS ACTIVITIES OF PARTNERS.
Any Partner or Affiliate (including, without limitation, the Managing
General Partner and any Affiliate thereof) may have other business interests
or may engage in other business ventures of any nature or description
whatsoever, whether presently existing or hereafter created, including,
without limitation, the ownership, leasing, management, operation,
franchising, syndication, and/or development of commercial real estate and/or
restaurants, and may compete, directly or indirectly, with the business of
the Partnership or the Operating Partnership. No Partner or Affiliate
thereof shall incur any liability to the Partnership as the result of such
Partner's or Affiliate's pursuit of such other business interests and
ventures and competitive activity, and neither the Partnership nor any of the
other Partners or any Assignees shall have any right to participate in such
other business interests or ventures or to receive or share in any income or
profits derived therefrom.
7.7 TRANSACTIONS WITH MANAGING GENERAL PARTNER OR AFFILIATES.
In addition to transactions specifically contemplated by the terms and
provisions of this Agreement, including, without limitation, Articles VIII
and IX, the Partnership and the Operating Partnership are expressly permitted
to enter into other transactions (including, without limitation, the
acquisition of goods or services) with the Managing General Partner, or any
Affiliates thereof, provided that the price and other terms of such other
transactions are fair to the Partnership and that the price and other terms
of such transactions are not less favorable to the Partnership or the
Operating Partnership, as the case may be, than those generally prevailing
with respect to comparable transactions between unrelated parties.
7.8 NET WORTH REPRESENTATION; INDEPENDENT JUDGMENT.
In addition to their other duties and obligations, the General Partners
further agree as follows:
(a) The General Partners shall use their best efforts to maintain
a combined net worth equal to the total amount, if any, that could reasonably
be expected to be required in order for the Partnership and the Operating
Partnership to be treated as partnerships for federal income tax purposes; and
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(b) in acting on behalf of the Partnership, the Managing General
Partner will not act under the direction of or as an agent of or "dummy" for the
Limited Partners.
7.9 LIABILITY OF GENERAL PARTNERS TO PARTNERSHIP AND LIMITED PARTNERS.
The General Partners, their Affiliates and all officers, directors,
employees, and agents of the General Partners and their Affiliates shall not be
liable to the Partnership or to the Limited Partners or Assignees for any losses
sustained or liabilities incurred as a result of any act or omission of the
General Partners or their Affiliates if (i) the General Partner or Affiliate
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 (ii) the conduct of the
General Partner or Affiliate did not constitute actual fraud, gross negligence,
or willful or wanton misconduct.
7.10 INDEMNIFICATION OF GENERAL PARTNERS AND AFFILIATES.
(a) The Partnership shall indemnify and hold harmless the General
Partners, their Affiliates, and all officers, directors, employees, and agents
of the General Partners and their Affiliates (individually, an "Indemnitee")
from and against any and all losses, claims, demands, costs, damages,
liabilities, joint and several, expenses of any nature (including attorneys'
fees and disbursements), judgments, fines, settlements, and other amounts
arising from any and all claims, demands, actions, suits, or proceedings, civil,
criminal, administrative or investigative, in which the Indemnitee may be
involved, or threatened to be involved, as a party or otherwise, arising out of
or incidental to the Initial Public Offering or the business of the Partnership
or Operating Partnership, including, without limitation, liabilities under the
federal and state securities laws, regardless of whether the Indemnitee
continues to be a General Partner, an Affiliate, or an officer, director,
employee, or agent of a General Partner or of an Affiliate at the time any such
liability or expense is paid or incurred, if (i) the Indemnitee acted 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 proceeding, had no reasonable
cause to believe its conduct was unlawful, and (H) the Indemnitee's conduct did
not constitute actual fraud, gross negligence, or willful or wanton misconduct.
The termination of any action, suit, or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contenders, or its equivalent,
shall not, in and of itself, create a presumption or otherwise constitute
evidence that the Indemnitee acted in a manner contrary to that specified in (i)
or (ii) above.
(b) Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit, or proceeding subject to this Section 7.10 shall, from
time to time, be advanced by the Partnership prior to the final disposition of
such claim, demand, action, suit, or proceeding upon receipt by the Partnership
of an undertaking by or on behalf of the Indemnitee to repay such amount unless
it shall be determined that such Person is entitled to be indemnified as
authorized in this Section 7.10.
(c) The indemnification provided by this Section 7.10 shall be in
addition to any other rights to which those indemnified may be entitled under
any agreement, vote of the
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Partners, as a matter of law or equity, or otherwise, both as to an action in
the Indemnitee's capacity as a General Partner, an Affiliate, or as an officer,
director, employee or agent of a General Partner or an Affiliate, and as to an
action in another capacity, and shall continue as to an Indemnitee who has
ceased to serve in such capacity and shall inure to the benefit of the heirs,
successors, assigns, and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain insurance (either
directly or through participation under insurance contracts purchased and
maintained by any Affiliate) on behalf of the General Partners and such other
Persons as the Managing General Partner shall determine against any liability
that may be asserted against or expense that may be incurred by such Person in
connection with the Initial Public Offering and the activities of the
Partnership or the Operating Partnership, regardless of whether the Partnership
or the Operating Partnership would have the power to indemnify such Person
against such liability under the provisions of this Agreement.
(e) Except as set forth in the next sentence below, any
indemnification hereunder shall be satisfied solely out of the assets of the
Partnership and the Operating Partnership. The Limited Partners or Assignees
shall not be subject to personal liability by reason of these indemnification
provisions; provided, however, that to the extent that any Limited Partner or
Assignee or former Limited Partner or Assignee shall recover from any
Indemnitee any amount that is subject to indemnification hereunder, such
Limited Partner or Assignee or former Limited Partner or Assignee shall have
personal liability to the Partnership and the Indemnitee under this Section
7.10 for and to the extent of such amount.
(f) An Indemnitee shall not be denied indemnification in whole or
in part under this Section 7.10 by reason of the fact that the Indemnitee had
an interest in the transaction with respect to which the indemnification
applies if the action was otherwise permitted by the terms of this Agreement.
(g) The provisions of this Section 7.10 are for the benefit of the
Indemnitees and shall not be deemed to create any rights for the benefit of
any other Persons.
7.11 NO MANAGEMENT BY LIMITED PARTNERS AND ASSIGNEES.
No Limited Partner or Assignee (other than the Managing General Partner
or any agent or employee of the Managing General Partner, in its capacity as
such, if such Person shall also be a Limited Partner or Assignee) shall take
part in the day-to-day management, operation or control of the business and
affairs of the Partnership or the Operating Partnership. The Limited
Partners and Assignees shall not have any right, power, or authority to
transact any business in the name of the Partnership or the Operating
Partnership or to act for or on behalf of or to bind the Partnership or the
Operating Partnership. The Limited Partners and Assignees, shall have no
rights other than those specifically provided herein or granted by law where
consistent with a valid provision hereof. In the event any laws, rules, or
regulations applicable to the Partnership, or to the sale or issuance of the
Units in connection with the Initial Public Offering, require a
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Limited Partner, or any group or class thereof, to have certain rights, options,
privileges, or consents not granted by the terms of this Agreement, then such
Limited Partners shall have and enjoy such rights, options, privileges, and
consents so long as (but only so long as) the existence thereof does not result
in a loss of the limitation on liability enjoyed by the Limited Partners under
the Delaware RULPA or the applicable laws of any other jurisdiction.
7.12 OTHER MATTERS CONCERNING GENERAL PARTNERS.
(a) The General Partners may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by them to be genuine and to have been signed or
presented by the proper party or parties.
(b) The General Partners may consult with legal counsel, accountants,
consultants, investment bankers, and other consultants and advisers selected by
them and any opinion of such Person as to matters that the General Partners
reasonably believe to be within its professional or expert competence
(including, without limitation, any opinion of legal counsel to the effect that
the Partnership or Operating Partnership would "more likely than not" prevail
with respect to any matter) shall be full and complete authorization and
protection in respect to any action taken or suffered or omitted by a General
Partner hereunder in good faith and in accordance with such opinion.
(c) The General Partners shall have the right, in respect of any of
their powers or obligations hereunder, to act through a duly appointed attorney
or attorneys-in-fact. Each such attorney or attorney-in-fact shall, to the
extent provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder. Each such appointment
shall be evidenced by a duly executed power of attorney giving and granting to
each such attorney or attorney-in-fact full power and authority to do and
perform all and every act and thing requisite and necessary to be done by the
General Partner in connection with the Partnership.
7.13 REVOLVING LINE OF CREDIT; OTHER LOANS TO OR FROM A GENERAL PARTNER.
(a) Pursuant to this Section 7.13 and Section 7.13 of the Operating
Partnership Agreement, the Managing General Partner shall make available to the
Partnership and the Operating Partnership, jointly, on an "as needed" basis an
unsecured, interest-free, revolving line of credit in the aggregate principal
amount of Five Hundred Thousand Dollars ($500,000). The proceeds of the
revolving line of credit may be used by the Partnership and/or the Operating
Partnership solely for purposes of providing to the Partnership and/or the
Operating Partnership funds determined by the Managing General Partner to be
necessary for purposes of (i) maintaining sufficient working capital, (ii)
maintaining level quarterly distributions of Net Cash Flow, and/or (iii) for the
Fiscal Year ending December 31, 1986, making anticipated distributions of Cash
Flow for such Fiscal Year described in the Registration Statement. The
Partnership and the Operating Partnership may borrow, repay, and reborrow under
the revolving line of credit
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from time to time (subject to the maximum aggregate principal amount
limitation). Nothing herein shall be construed to require the Managing
General Partner to cause the Partnership or the Operating Partnership to
retain cash (or to cause the Partnership or the Operating Partnership to
borrow under the revolving line of credit in order to retain cash) in excess
of the immediate working capital needs of the Partnership or the Operating
Partnership, as the case may be. In addition, nothing shall be construed to
require the Partnership to use or exhaust the financing available under the
revolving line of credit before obtaining other financing permitted by this
Agreement, whether for acquisitions, reinvestment, working capital or
otherwise. This revolving line of credit shall terminate upon removal or
withdrawal of the Managing General Partner.
(b) In addition to the revolving line of credit described in
Section 7.13(a), any of the General Partners or any of their Affiliates may
lend to the Partnership or the Operating Partnership funds needed by the
Partnership or the Operating Partnership, as the case may be, for such
periods of time as the Managing General Partner may determine; provided,
however, that (i) interest payable on such indebtedness shall be calculated
at a rate not to exceed the rate announced by Morgan Guaranty Trust Company
from time to time as its "prime rate" plus one percent (1%) (as in effect on
the first day of each calendar quarter, as adjusted as of the first day of
each succeeding calendar quarter to reflect such rate in effect on such date)
or the highest lawful rate, whichever is less, and (ii) in no event shall
such indebtedness be on terms and conditions less favorable to the
Partnership or the Operating Partnership, as the case may be, than the
Partnership or the Operating Partnership, as the case may be, could obtain
from unaffiliated third parties or banks for the same purpose (without
reference to the General Partners' financial abilities or guarantees). In
the event that Morgan Guaranty Trust Company should during the term of this
Agreement abandon or abolish the practice of announcing an established "prime
rate," the "prime rate" used during the remainder of said term for purposes
of this Agreement shall be the rate from time to time charged by Morgan
Guaranty Trust Company to its preferred commercial customers for unsecured
short-term loans. A certificate signed by an officer of Morgan Guaranty
Trust Company shall be binding and conclusive evidence of the "prime rate" in
effect from time to time.
(c) No loans shall be made by the Partnership or the Operating
Partnership to a General Partner or any of its Affiliates.
7.14 PURCHASE OR SALE OF UNITS; REGISTRATION RIGHTS OF GENERAL PARTNERS.
(a) The Managing General Partner may, on behalf of and for the
account of the Partnership or the Operating Partnership, purchase or
otherwise acquire Units or Depositary Units by purchasing or acquiring the
respective Depositary Receipts and, following any such purchase or
acquisition, may sell or otherwise dispose of such Units and Depositary Units
in connection with a DRIP or otherwise. So long as such Units or Depositary
Units shall be held by or on behalf of the Partnership or the Operating
Partnership, such Units or Depositary Units shall not be considered
outstanding for any purpose. In addition to the foregoing, the General
Partners and their Affiliates from time to time also may purchase or
otherwise acquire Units or
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Depositary Units for their own account and may, subject to the provisions of
Sections 12.3 and 12.4, sell or otherwise dispose of such Units or Depositary
Units.
(b) In the event that (i) a General Partner or an Affiliate holds
Units of the Partnership which it desires to sell, including but not limited
to Units of the Partnership acquired pursuant to the exercise of options
issued by the Partnership to such General Partner or Affiliate, and (ii) Rule
144 of the Securities Act (or any successor rule or regulation to Rule 144)
is not available to enable such General Partner or Affiliate to dispose of
the number of Units it desires to sell at the time and in the manner that it
desires to do so, then upon the request of such General Partner or Affiliate,
the Partnership shall file with the Commission as promptly as practicable
after receiving such request, and shall use its best efforts to cause to
become effective, a registration statement under the Securities Act on the
appropriate form registering the offering and sale of the number of Units
specified by the requesting General Partner or Affiliate. In connection with
any such registration pursuant to the preceding sentence, the Partnership
promptly shall prepare and file such documents as may be necessary to
register or qualify the Units subject to such registration and under the
securities laws of such states as the requesting General Partner or Affiliate
shall reasonably request, and shall do any and all other acts and things that
may reasonably be necessary or advisable to enable such General Partner or
Affiliate to consummate a public sale of such Units in such states.
Notwithstanding the foregoing, in no event shall the Partnership be required
to effect a registration relating to the Units pursuant to this Section
7.14(b) for less than 180,000 Units or more frequently than once in any
calendar year. Any registration statement filed pursuant hereto shall be
continued in effect for a period of not less than ninety (90) days following
its effective date.
(c) Except as expressly prohibited under the Blue Sky or securities
laws of any jurisdiction under which a registration or qualification is being
effected the Partnership shall pay all fees and expenses in connection with any
registration or qualification effected pursuant to this Section 7.14 other than
any underwriting discounts, fees, commissions, or similar charges relating to
the securities of a General Partner or Affiliate being qualified or registered
and the fees and expenses of legal counsel for the General Partner or Affiliate
requesting registration hereunder.
(d) In the event of any registration under the Securities Act of any
Units pursuant to this Section 7.14, then, in addition to and not in limitation
of the Partnership's obligation under Section 7.10, the Partnership shall
indemnify and hold harmless the General Partners and their Affiliates and any
underwriter engaged in connection with any registration referred to in this
Section 7.14, and each other person, if any, who controls any such underwriter
within the meaning of the Securities Act, against any losses, claims, demands,
actions, causes of action, assessments, damages, liabilities joint or several),
cost, and expenses (including, without limitation, interest, penalties, and
reasonable attorneys' fees and disbursements), resulting to, imposed upon, or
incurred by any indemnified person, directly or indirectly, under the Securities
Act or otherwise (hereinafter referred to in this Section 7.14(d) as a "claim"
and in the plural as "claims"), based upon, arising out of, or resulting from
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which any Units were registered under the
Securities Act or any state securities or Blue Sky laws, in any preliminary
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prospectus (if used prior to the effective date of such registration statement),
or in any summary or final prospectus or in any amendment or supplement thereto
(if used during the period the Partnership is required to keep the registration
statement current), or arising out of, based upon, or resulting from the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements made therein not misleading;
provided, however, that the Partnership shall not be liable to the extent that
any such claim arises out of, is based upon, or results from an untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement, such preliminary, summary, or final prospectus, or such
amendment or supplement in reliance upon and in conformity with written
information with respect to the indemnified Person furnished to the Partnership
by or on behalf of such indemnified Person specifically for use in the
preparation thereof.
7.15 PERIODIC CONSIDERATION OF SALE OR REFINANCING.
Commencing with the year 2000 and continuing once every five (5) years
thereafter, the Managing General Partner may consider whether or not, in the
reasonable judgment of the Managing General Partner, it would be in the interest
of the Partnership and the Operating Partnership to effectuate a sale or
refinancing of all or a portion of the Restricted Restaurant Properties held as
of the Effective Date, with the proceeds of any such sale or financing to be
distributed to the Partners and Assignees in accordance with Article VI. If the
Managing General Partner, in its reasonable judgment, determines that such a
sale or financing would be in the interest of the Partnership and the Operating
Partnership, then the Managing General Partner intends to use reasonable efforts
to cause the Operating Partnership to effectuate such a sale or financing;
provided, however, that any such sale or other disposition of part or all of
such Restricted Restaurant Properties shall be subject to Sections 7.3 and 8.4.
This Section 7.15 does not constitute an obligation of the Managing General
Partner, but merely represents an expression of intent by the Managing General
Partner as of the time of the Amended Agreement as to the manner in which it
expected to manage the Partnership and the Operating Partnership. In no event
shall any sale or financing transaction in connection with this Section 7.15
involve or require any direct or indirect financial obligation or other
financial support on the part of the Managing General Partner, BKC, TPC, or any
Affiliate of the foregoing.
7.16 OTHER LIMITATIONS.
The following additional limitations shall apply to the operation and
management of the Partnership and the Operating Partnership:
(a) No General Partner shall receive for its account any kickbacks or
rebates with respect to expenditures made by or on behalf of the Partnership,
nor shall any General Partner enter into any reciprocal arrangement that has the
effect of circumventing this Section 7.16(a) or Section 9.1;
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(b) Neither the Operating Partnership nor the Partnership shall grant
any General Partner an exclusive right, as agent, to sell any Restaurant
Property or other Partnership Asset;
(c) No commission or other fee shall be payable to a General Partner,
directly or indirectly, in connection with the distribution or reinvestment of
any Net Proceeds of a Capital Transaction, except as provided in Section 9.3;
and
(d) No General Partner shall, directly or indirectly, pay or award
any commissions or other compensation to any Person for encouraging or inducing
any other Person to purchase Units; provided, however, that nothing herein shall
prohibit the payment of normal sales commissions and fees to (i) any underwriter
in connection with any public offering of Units or any underwriter who
undertakes to sell on behalf of a General Partner or on Affiliate Units held by
such General Partner or Affiliate for its own account, whether or not such sale
is pursuant to the registration rights provided for in Sections 7.14 and
14.5(c), or (ii) any finder, broker or consultant (other than the General
Partners or their Affiliates) in connection with the acquisition of Restaurant
Property and Ancillary Property related thereto.
ARTICLE VIII
ACQUISITION, OPERATION, AND DISPOSITION OF
RESTRICTED RESTAURANT PROPERTIES
8.1 GENERAL.
(a) The Partners and any Assignees hereby expressly agree that, in
addition to any other provisions of this Agreement or the Operating Partnership
Agreement, the acquisition, ownership, operation, and disposition of the
Partnership Properties by the Operating Partnership shall be in accordance with,
and shall be subject to, the provisions, restrictions, and limitations set forth
in this Article VIII; provided that, except for Section 8.13, this Article VIII
shall not apply to any of the Other Restaurant Properties or the Retail
Properties. The Partners and any Assignees further expressly agree that any
action taken by a General Partner or Affiliate thereof in accordance with, or
pursuant to, the provisions of this Article VIII conclusively shall be deemed to
be fair to and in the best interests of the Partnership, the Operating
Partnership, the Partners, and any Assignees, and the fact that an action of a
General Partner or an Affiliate is undertaken in accordance with, or pursuant
to, this Article VIII shall be a complete and absolute defense to any claim or
action asserting the invalidity of such action or any claim or action for
damages or other relief based upon an assertion that such action resulted in a
breach by a General Partner or an Affiliate of this Agreement or any duty,
fiduciary or otherwise, owed by the General Partners and their Affiliates to the
Partnership, the Operating Partnership, the Limited Partners, or any Assignees.
(b) The Partners and any Assignees expressly acknowledge and agree
that the provisions, restrictions, and limitations set forth in this Article
VIII are reasonable in all respects,
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are pursuant to and consistent with the purposes of the Partnership and the
Operating Partnership, are necessary to induce BKC to enter into the Real
Estate Purchase Agreement and to otherwise deal with Restricted Restaurant
Properties, and are necessary to protect the business and interests of BKC,
the Partnership, and the Operating Partnership. In the event that the
Partnership or the Operating Partnership shall breach or violate or fail to
perform any of its obligations set forth in this Article VIII, then, at the
option of BKC, BKC shall be entitled to proceed to enforce the obligations of
the Partnership and the Operating Partnership hereunder by any action at law,
suit in equity, or other appropriate proceeding, whether for damages, for
specific performance of an obligation contained herein, or for an injunction
or other equitable remedy against any violation of the provisions hereof.
The Partnership hereby agrees to indemnify and hold harmless BKC from and
against any assessment, payment, damage, expense, loss, cost, liability, or
deficiency (including, without limitation, interest, penalties, and
reasonable attorneys' fees and disbursements) incurred by BKC in enforcing or
sustaining the provisions hereof or resulting from or in connection with any
such breach, violation, or failure.
8.2 CONTRIBUTION TO OPERATING PARTNERSHIP; ACQUISITION OF RESTAURANT
PROPERTIES.
On the Closing Date or as soon as practicable thereafter, the Managing
General Partner caused the Partnership to contribute the Aggregate Offering
Proceeds and the Capital Contributions of the General Partners to the
Operating Partnership, as provided for in the Operating Partnership
Agreement. On the Closing Date or as soon as practicable thereafter, the
Managing General Partner caused the Operating Partnership to acquire the
Restaurant Properties from BKC in accordance with and subject to the terms
and conditions set forth in the Real Estate Purchase Agreement, including the
exhibits thereto, and caused the Operating Partnership to pay to BKC the
purchase price for the Restaurant Properties specified in the Real Estate
Purchase Agreement.
8.3 USE AND OTHER RESTRICTIONS.
(a) Except as otherwise expressly provided in this Section 8.3, the
Operating Partnership shall not, without the prior written consent of BKC, in
its sole and absolute discretion, use any Restricted Restaurant Property or
permit any Restricted Restaurant Property to be used for any purpose other than
the operation thereon of a BK Restaurant and other uses related thereto.
(b)(i) In furtherance of the provisions of Section 8.3(a), in the
event that BKC renews or extends a BKC Franchise Agreement with respect to a
Restricted Restaurant Property at any time at or prior to the expiration of such
BKC Franchise Agreement, then, regardless of the duration of such renewal or
extension, the Operating Partnership promptly shall, without additional charge,
renew or extend the lease of the Restricted Restaurant Property to such BKC
Franchisee for a period coterminous with the period of such renewal or extension
and for and upon substantially the same rental and other terms and conditions as
and upon which BKC is then renewing or extending leases with BKC Franchises for
properties owned or leased (as the case may be) by BKC, or in the event BKC at
such time is no longer renewing or extending
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leases with BKC Franchisees for properties owned or leased, as the case may
be, by BKC, then upon substantially the same rental and other terms and
conditions and upon which BKC most recently was renewing or extending such
leases with BKC Franchisees (except that, for purposes of determining the
guaranteed minimum rental thereunder, the lessor's "investment" in Restricted
Restaurant Properties held as of the Effective Date shall be deemed to be
equal to the sum of the investment of BKC with respect to such Restricted
Restaurant Property prior to the date of its acquisition plus any investment
by the Operating Partnership with respect to such Restricted Restaurant
Property after such date (and in no event shall such "investment" include the
purchase price paid by the Operating Partnership to BKC for such Restricted
Restaurant Property pursuant to the Real Estate Purchase Agreement));
provided that the rental for such lease may be greater than the rental upon
which BKC is then (or, if applicable, was) so renewing or extending such
leases. Notwithstanding anything to the contrary contained herein, any
extension or renewal of a lease of a Restricted Restaurant Property pursuant
to the "Successor Policy" shall be in accordance with the "Successor Policy"
as then in effect and Section 8.6 (including, without limitation, the
provisions of Section 8.6(b) relating to determination of the annual minimum
rental under a lease extended or renewed in accordance with the "Successor
Policy"). Without limiting the foregoing, the Managing General Partner, in
its sole and absolute discretion, at the request of BKC or a BKC Franchisee,
shall be permitted to consent to a renewal or extension of a lease of a
Restricted Restaurant Property for a rental less favorable to the Partnership
than the rental upon which BKC is then renewing or extending leases with BKC
Franchisees for properties owned or leased (as the case may be) by BKC (or,
if applicable, the rental upon which BKC most recently was renewing or
extending such leases with BKC Franchisees) if BKC agrees to treat the excess
of the rental at which BKC is then renewing or extending such leases (or, if
applicable, the rental at which BKC most recently was renewing or extending
such leases) over the rental payable to the Partnership in connection with
such renewal or extension as "rent relief" subject to the provisions of
Section 8.5.
(ii) In the event that (A) either (I) a BKC Franchise Agreement
authorizing the operation of a BK Restaurant on a Restricted
Restaurant Property is terminated automatically, is terminated by BKC,
or is terminated by the mutual agreement of the parties thereto prior
to the expiration of the stated term thereof, OR (II) a BKC Franchise
Agreement expires according to the terms thereof and is not renewed or
extended by BKC at or prior to the expiration of such BKC Franchise
Agreement, AND (B) during the six (6) month period commencing on the
date of such termination or expiration, either (1) BKC and a Person
that meets BKC's then existing franchisee financial capability
requirements enter into a BKC Franchise Agreement authorizing such
Person to operate a BK Restaurant on the Restaurant Property, and BKC
notifies the Operating Partnership thereof, OR (II) BKC notifies the
Operating Partnership that BKC desires to operate a BK Restaurant on
the Restaurant Property, then the Operating Partnership promptly shall
terminate any lease of the Restaurant Property with the terminated BKC
Franchisee (if such Lease has not terminated or expired) and enter
into a new lease of the Restaurant Property with the new BKC
Franchisee or with BKC, as the case may be. The rental, duration, and
other terms and conditions of any such
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new lease shall be substantially the same as the rental, duration,
and other terms and conditions as and upon which BKC is then entering
into new leases with BKC Franchisees for properties owned or leased
(as the case may be) by BKC, or in the event BKC at such time is no
longer entering into new leases with BKC Franchisees for properties
owned or leased, as the case may be, by BKC, then substantially the
same rental, duration, and other terms and conditions as and upon
which BKC most recently was entering such leases with BKC Franchisees
(except that, for purposes of determining the guaranteed annual
minimum rental thereunder, the lessor's "investment" in Restricted
Restaurant Properties held as of the Effective Date shall be deemed
to be equal to the sum of the investment of BKC with respect to such
Restaurant Property prior to the date of its acquisition plus any
investment of the Operating Partnership with respect to such
Restricted Restaurant Property after such date (and in no event shall
such "investment" include the purchase price paid by the Operating
Partnership to BKC for such Restricted Restaurant Property pursuant
to the Real Estate Purchase Agreement)). Without limiting the
foregoing, the Managing General Partner, in its sole and absolute
discretion, at the request of BKC or a BKC Franchisee, shall be
permitted to enter into a new lease of a Restricted Restaurant
Property for a rental less favorable to the Partnership than the
rental upon which BKC is then entering into leases with BKC
Franchisees for properties owned or leased (as the case may be) by
BKC (or, if applicable, the rental upon which BKC most recently was
entering into such leases with BKC Franchisees) if BKC agrees to treat
the excess of the rental at which BKC is then entering into such
leases (or, if applicable, the rental at which BKC most recently was
entering into such leases) over the rental payable to the Partnership
in connection with such new lease as "rent relief" subject to the
provisions of Section 8.5. During the period (the "Determination
Period") that BKC is considering whether to enter into a new BKC
Franchise Agreement with respect to the Restricted Restaurant Property
or operate itself a BK Restaurant on the Restricted Restaurant
Property (but in no event after the expiration of the six (6) month
period described in clause (B) above), BKC shall pay to the Operating
Partnership an amount equal to the excess of the guaranteed minimum
rental payable to the Operating Partnership under the terminated BKC
Franchisee's lease for the Determination Period (computed without
regard to any termination or expiration of such lease) over the amount
of rent, if any, actually collected by the Operating Partnership
thereunder for the Determination Period. The Operating Partnership
shall, at the expense of BKC, take all such actions as BKC reasonably
may request to enforce the provisions of the terminated BKC
Franchisee's lease applicable during the Determination Period. If BKC
does not, prior to the end of the Determination Period, enter into a
new BKC Franchise Agreement with respect to the Restricted Property or
elect to operate itself a BK Restaurant on the Restricted Restaurant
Property, then subject to Section 8.9 hereof, the Operating
Partnership shall be free to take such actions with respect to the
terminated BKC Franchisee's lease as the Operating Partnership may
deem appropriate. Notwithstanding anything to the contrary contained
herein, BKC shall have the
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right at any time upon written notice to the Operating Partnership, to
terminate the Determination Period with respect to any Restricted
Restaurant Property, in which event all rights and obligations of BKC
in connection with such terminated Determination Period shall
terminate, effective as of the date on which the Operating Partnership
receives such notice and as of the payment by BKC of all amounts
payable hereunder with respect to the Determination Period.
(iii) In the event that BKC approves the assignment by a BKC
Franchisee of a BKC Franchise Agreement with respect to a Restricted
Restaurant Property to another person or entity that meets BKC's then
existing franchisee financial capability requirements or to BKC, then,
subject to the assumption by such new BKC Franchisee or BKC, as the
case may be, of all of the former BKC Franchisee's obligations and
liabilities thereafter accruing under the former BKC Franchisee's
lease of the Restricted Restaurant Property, the Operating Partnership
promptly shall, without additional charge, approve and permit the
assignment of such lease with respect to such Restricted Restaurant
Property to the new BKC Franchisee or to BKC, as the case may be.
Upon such assignment and assumption, the former BKC Franchisee, at the
request of BKC, shall be released from all obligations and liabilities
thereafter accruing under such lease; provided, however, that a
release in connection with an assignment or assumption shall be
required pursuant hereto only if BKC, as a matter of policy, then is
granting such releases in connection with the assignment or assumption
of leases with BKC Franchises for properties owned or leased, as the
case may be by BKC. In addition to the foregoing, in the event that
BKC consents to the assignment by a BKC Franchisee of a Franchise
Agreement with respect to a Restricted Restaurant Property to a
corporation in which such BKC Franchisee has a financial interest,
then, upon the request of such BKC Franchisee, the Operating
Partnership shall approve the assignment of the BKC Franchisee's lease
of such Restricted Restaurant Property to such corporation upon the
condition that such BKC Franchisee shall remain fully responsible for
all liabilities and obligations accruing under such lease subsequent
to such assignment.
(iv) The Operating Partnership shall give BKC prompt written
notice of the occurrence of any default by a BKC Franchisee under any
lease of a Restricted Restaurant Property. BKC shall have the right
(but not the obligation), within the longer of thirty (30) days after
the receipt by BKC of such written notice of such default or any
applicable grace period provided to the lessee under such lease, to
cure any default by the lessee under such lease, and the Operating
Partnership shall not terminate such lease unless such default is not
cured within such applicable period. The Operating Partnership also
shall give BKC prompt written notice of the occurrence of any event
which results automatically in the termination of any such lease. BKC
shall have the right (but not the obligation), within thirty (30) days
after receipt of such notice, to assume all obligations and
liabilities of the lessee under such lease accruing from the date of
such automatic
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termination. If BKC exercises such right, then, as between BKC and
the Operating Partnership, such termination shall be of no force or
effect and shall be deemed not to have occurred.
(v) In furtherance of the provisions of Section 8.3(a), in the
event the Partnership or the Operating Partnership acquires any
Restricted Restaurant Property after the Effective Date, the rental,
duration, and other terms and conditions in the lease for the BKC
Franchisee for such property shall be substantially the same as the
rental, duration, and other terms and conditions as and upon which BKC
is then entering into new leases with BKC Franchisees for properties
owned or leased, as the case may be, by BKC, or in the event BKC at
such time is no longer entering into new leases with BKC Franchisees
for properties owned or leased, as the case may be, by BKC, then upon
substantially the same rental, duration, and other terms and
conditions as upon which BKC most recently was entering into such
leases with BKC Franchisees. Notwithstanding the foregoing, the
rental for such leases may be greater than that which BKC is then
setting (or, if appropriate, was setting) for BKC Franchisees.
(c) Notwithstanding anything to the contrary contained in any
lease of a Restricted Restaurant Property to which a BKC Franchisee is a
party, (i) BKC shall have the right at any time, without obtaining the
consent of the Operating Partnership, to assume the obligations and
liabilities of the lessee thereafter accruing under such lease, and
thereupon, at the request of BKC, such lessee shall be released from all
obligations and liabilities thereafter accruing thereunder; provided,
however, that a release in connection with such an assumption shall be
required pursuant hereto only if BKC, as a matter of policy, then is granting
such releases in connection with the assumption by BKC of leases with BKC
Franchisees for properties owned or leased, as the case may be, by BKC; and
(ii) at any time after any such assumption by BKC, BKC shall have the right,
without obtaining the consent of the Operating Partnership, to assign such
lease to a Person that meets BKC's then existing franchisee financial
capability requirements and upon such assignment and the assumption by such
Person of all obligations and liabilities of BKC thereafter accruing under
such lease, BKC shall be released from all obligations and liabilities
thereafter accruing thereunder.
(d)(i) In the event that BKC notifies the Operating Partnership
that BKC has extended or renewed a BKC Franchise Agreement with respect to a
Restricted Restaurant Property that is subject to a Primary Lease for a term
continuous with one or more permitted renewal terms available under such
Primary Lease, OR (ii) in the event that BKC notifies the Operating
Partnership that EITHER (A) BKC has entered into a new BKC Franchise
Agreement with a Person that meets BKC's then existing financial capabilities
requirements authorizing such Person to operate a BK Restaurant on a
Restricted Restaurant Property that is subject to Primary Lease for a term
coterminous with one or more permitted renewal terms available under such
Primary Lease, OR (B) BKC has decided to operate a BK Restaurant on a
Restricted Restaurant Property that is subject to a Primary Lease for a term
coterminous with one or more permitted renewal terms available under such
Primary Lease, then in any such event, in addition to any
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other requirements of this Section 8.3, the Operating Partnership promptly
shall renew the applicable Primary Lease for a term no shorter than the term
of the extended, renewed, or new BKC Franchise Agreement, as the case may be,
or in the case of BKC's election to operate a BK Restaurant at such
Restricted Restaurant Property, for a term no shorter than the term of BKC's
lease with the Operating Partnership with respect to such Restricted
Restaurant Property.
(e) Unless otherwise expressly waived by BKC in writing, the
restrictions and other provisions of this Section 8.3 shall remain in effect
and shall be enforceable with respect to each Restricted Restaurant Property
by BKC during the period commencing on the date of the Amended Agreement and
ending on the earliest of (i) a transfer by the Operating Partnership of all
of its right, title, and interest in and to all of such Restricted Restaurant
Property pursuant to Section 8.4(f) following the failure of BKC to elect to
acquire all of the Restricted Restaurant Property pursuant to an offer
thereof to BKC under Section 8.4(d) or the failure of BKC to close the
acquisition thereof on the date required by Section 8.4(e); (ii) a BKC
Franchise Agreement is terminated by BKC or by the mutual agreement of the
parties thereto prior to the expiration of the stated term thereof and BKC
does not, prior to the end of the Determination Period, enter into a new BKC
Franchise Agreement with respect to the Restricted Restaurant Property or
elect to operate itself a BK Restaurant on the Restricted Restaurant
Property; or (iii) a BKC Franchise Agreement with respect to a Restricted
Restaurant Property expires according to the terms thereof and BKC does not
either (A) renew or extend the same at or prior to the expiration thereof or
(B) prior to the end of the Determination Period, enter into a new BKC
Franchise Agreement with respect to the Restricted Restaurant Property or
elect to operate itself a BK Restaurant on the Restricted Restaurant
Property; provided, however, if the duration of such period would render the
restrictions or other provisions of this Section 8.3 invalid or unenforceable
under any law of the jurisdiction in which a Restricted Restaurant Property
is located limiting the period during which such restrictions or other
provisions may endure, then such period shall continue with respect to such
Restricted Restaurant Property only for such term as may be prescribed by the
laws of such jurisdiction. It is the express intent of BKC, the Partnership,
and the Operating Partnership that such restrictions and other provisions
shall be valid and enforceable to the fullest extent permitted by the laws of
such jurisdiction.
(f) Notwithstanding anything to the contrary in this Section 8.3
or elsewhere in this Agreement, nothing contained herein or elsewhere shall
affect the right of BKC, in its sole and absolute discretion, to terminate a
BKC Franchise Agreement, to renew or extend or fail to renew or extend a BKC
Franchise Agreement, to approve or disapprove any assignment of a BKC
Franchise Agreement, to elect to enter into a new BKC Franchise Agreement
with respect to a Restricted Restaurant Property, or to operate itself a BK
Restaurant on the Restricted Restaurant Property, to amend or modify a BKC
Franchise Agreement, or to take or fail to take any other action in
connection with a BKC Franchise Agreement.
(g) Notwithstanding any other provision of this Agreement, the
Partners and any Assignees hereby expressly agree that the Managing General
Partner shall have no duty, under any circumstances whatsoever, to seek to
sell, or to consider any offer to purchase, any Restricted Restaurant
Property so long as such Restricted Restaurant Property is subject to the
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restrictions and other provisions of this Section 8.3, and the fact that a
Restricted Restaurant Property is subject to the restrictions and provisions
of this Section 8.3 shall be a complete and absolute defense to any claim or
action for damages or other relief based upon a failure of the Managing
General Partner to solicit or consider offers to purchase such Restricted
Restaurant Property, irrespective of the terms of any such offer that may be
received by the Managing General Partner.
8.4 RESTRICTIONS ON TRANSFER OF RESTRICTED RESTAURANT PROPERTIES.
(a) For purposes of this Section 8.4, the term "transfer," with
respect to a Restricted Restaurant Property, shall include a sale, lease,
sublease, gift, mortgage, deed of trust, exchange, assignment, or other
disposition, including a disposition under judicial order, process,
execution, attachment, or enforcement or foreclosure of an encumbrance, but
shall not include the following: (i) a mortgage, deed of trust, grant of
security interest, or other encumbrance effected in a bona fide transaction
with an unrelated and unaffiliated secured party or with BKC, the Managing
General Partner, or any Affiliate thereof to secure indebtedness of the
Operating Partnership for money borrowed from such party, which mortgage,
deed of trust, grant of security interest, or other encumbrance is made
pursuant to a written security agreement, mortgage, deed of trust, or other
agreement that assures that, before any foreclosure may be had thereon or
other transfer may occur thereunder or in connection therewith, the secured
party shall first notify BKC in writing of its intent to foreclose or effect
another transfer and shall first offer the Restricted Restaurant 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 secured party) in
connection with such foreclosure or other transfer; (ii) a lease or sublease
to BKC or a BKC Franchisee in order to permit the operation of a BK
Restaurant on a Restricted Restaurant Property; (iii) a grant of an easement,
right of way, or other right with respect to a Restricted Restaurant Property
to any public utility or other governmental authority in connection with the
provision of utility or other public services (but such grant shall comply
with the provisions of Section 8.4(b)); or (iv) a transfer to a governmental
authority pursuant to or in connection with a condemnation or other exercise
of the power of eminent domain.
(b) The Operating Partnership shall not, without the prior written
consent of BKC, in BKC's sole and absolute discretion: (i) at any time that a
Restricted Restaurant Property is being leased to BKC or a BKC Franchisee in
order to permit BKC or such BKC Franchisee to operate a BK Restaurant on the
Restricted Restaurant Property or during any applicable Determination Period,
lease or sublease all or any part of a Restricted Restaurant Property to any
other Person, whether or not such other lease would be subject or subordinate
to the lease to BKC or the BKC Franchisee; or (ii) grant or convey any
easement, right-of-way, or other right with respect to such Restricted
Restaurant Property if the grant or use thereof would have a material adverse
effect upon the operation of a BK Restaurant on the Restricted Restaurant
Property.
(c) Except as provided in Section 8.4(b), the Operating Partnership
shall not transfer (as defined in Section 8.4(a)) any right, title, or interest
in or to any Restricted Restaurant
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Property, or any part thereof, to any person or entity without first offering
it to BKC in accordance with the provisions of this Section 8.4(c). Subject
to the provisions of Section 8.4(b), if the Operating Partnership receives a
bona fide written offer from an independent third party to acquire in a
transfer all or any part of any Restricted Restaurant Property that the
Operating Partnership intends to accept, subject to this Section 8.4(c),
then, the Operating Partnership shall offer such Restricted Restaurant
Property to BKC at the price and on the terms and conditions (including
timing and manner of payment) contained in such bona fide written offer. The
offer of such Restricted Restaurant Property to BKC (the "Offer") shall be
made in writing and shall be accompanied by a true and correct copy of the
bona fide written offer. The Operating Partnership promptly shall provide or
cause to be provided to BKC such information relating to the Offer or the
third party offer or as BKC reasonably may request.
(d) In order to accept the Offer, BKC shall, within thirty (30) days
after receipt of the Offer (or, if later, within five (5) business days after
receipt of all additional information reasonably requested by BKC pursuant to
Section 8.4(c) (such 30-day period and any extension under this Section 8.4(c)
to be referred to as the "Election Period")), notify the Operating Partnership
in writing of its election to acquire such Restricted Restaurant Property;
provided, however, that BKC shall not be required to acquire such Restricted
Restaurant Property upon the terms and conditions of any third-party offer the
consideration for which is not practicably obtainable by BKC (such as, by way of
example and not of limitation, specific land, stock in a closely held
corporation, or stock in a publicly held corporation that cannot be acquired by
BKC without an increase in the trading price thereof or without registration or
filing under any federal or state securities law), but BKC shall have the right
to acquire such Restricted Restaurant Property upon terms and conditions
(including consideration) reasonably equivalent to those contained in such
offer; and provided further, that the failure of BKC to acquire such Restricted
Restaurant Property upon any such reasonably equivalent terms or conditions
shall not permit the Operating Partnership to transfer such Restricted
Restaurant Property pursuant to Section 8.4(f). Failure of BKC to provide such
written notice within the Election Period shall constitute a refusal by BKC to
purchase such Restricted Restaurant Property pursuant to the Offer.
(e) The closing date of any acquisition of such Restricted
Restaurant Property by BKC hereunder shall be on the date fixed in the
third-party offer unless such closing date would occur prior to the
expiration of twenty (20) business days after the last day of the Election
Period, in which event the closing date shall occur on such twentieth (20th)
business day or on such other date to which BKC and the Operating Partnership
may agree.
(f) If BKC shall fail to elect to acquire such Restricted
Restaurant Property pursuant to Section 8.4(d), or shall fail to close the
acquisition on the date required by Section 8.4(e), then the Operating
Partnership shall be free for a period of sixty (60) days after either such
failure, to transfer such Restricted Restaurant Property to the bona fide
third-party offeror for a price and on other terms and conditions contained
in such third-party offer. If such Restricted Restaurant Property is not so
transferred by the Operating Partnership with-in such sixty (60) day period,
all rights of the Operating Partnership to transfer such Restricted
Restaurant
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Property free of the foregoing restrictions shall terminate and such
Restricted Restaurant Property again shall be subject to the provisions of
this Section 8.4.
(g) Unless otherwise expressly waived by BKC in writing, the
provisions of this Section 8.4 shall remain in effect and the rights granted
hereunder shall be exercisable and enforceable by BKC with respect to each
Restricted Restaurant Property during the period commencing on the date of
the Amended Agreement and ending on the earlier of (i) the date that the
Operating Partnership first ceases to hold any right, title, or interest
(including a interest as a creditor) in or to such Restricted Restaurant
Property or (ii) the date that the use restrictions set forth in Section 8.3
terminate or would have terminated but for a early termination pursuant to
the proviso contained in Section 8.3(e); provided, however, that if the
duration of such period would render the provisions of this Section 8.4 or
the rights of BKC hereunder invalid or unenforceable under the rule against
perpetuities as applied in the jurisdiction in which a Restricted Restaurant
Property is located, then such period shall continue with respect to such
Restricted Restaurant Property only until the expiration of the longest of
the following periods which shall be valid under the rule against
perpetuities as applied in such jurisdiction: (i) the period ending
twenty-one (21) years after the death of the survivor of the legitimate
natural or adopted children and grandchildren of U.S. Presidents Kennedy,
Johnson, Nixon, Ford, Carter, and Reagan alive on the date of the Amended
Agreement; (ii) twenty-one (21) years after the date of the Amended
Agreement; or (iii) such other term as may be statutorily prescribed in such
jurisdiction. It is the express intent of BKC, the Operating Partnership,
and the Partnership that the provisions hereof and rights of BKC hereunder
shall be exercisable and enforceable by BKC to the fullest extent permitted
by the laws of such jurisdiction.
8.5 RENT RELIEF.
(a) The Managing General Partner, in its sole and absolute
discretion, at the request of BKC or a BKC Franchisee, shall be permitted to
cause the Partnership and the Operating Partnership to grant "rent relief"
(as defined in Section 8.5(b)) to a BKC Franchisee with respect to any
Restricted Restaurant Property upon the condition that BKC agree to make a
quarterly payment to the Operating Partnership for each fiscal quarter (with
such payment to be due and payable thirty (30) days after the end of each
such fiscal quarter) during which such "rent relief" is in effect,
irrespective of whether or not the Operating Partnership subsequently sells
or otherwise disposes of such Restricted Restaurant Property while such "rent
relief" is in effect in an amount equal to the product of (a) the total
dollar amount of the rent reduction with respect to such Restricted
Restaurant Property effective for such fiscal quarter pursuant to such "rent
relief" multiplied by (b) a fraction, (i) the numerator of which is the
dollar amount of the franchise royalty fee payable to BKC with respect to
such Restricted Restaurant Property for such fiscal quarter (exclusive of any
amount required under the applicable BKC Franchise Agreement to be expended
by BKC for advertising and any other income to BKQ (the "Franchise Royalty
Fee") and (ii) the denominator of which is the sum of the Franchise Royalty
Fee and the dollar amount of rent payable with respect to such Restricted
Restaurant Property for such fiscal quarter (determined without regard to any
"rent relief" applicable with respect to such Restricted Restaurant Property)
(the "Rental Amount"). By way of illustration, if the applicable Franchise
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Royalty Fee for a Restricted Restaurant Property for a particular fiscal
quarter were $35,000 and the applicable Rental Amount for such Restricted
Restaurant Property for such fiscal quarter were $100,000, and if the
Operating Partnership, at the request of BKC or at the request of a BKC
Franchisee and with the consent of BKC, were to grant "rent relief" with
respect to such Restricted Restaurant Property for such fiscal quarter in the
amount of $20,000, then BKC would be obligated to pay to the Operating
Partnership $5,185 (the product of $35,000/$135,000 multiplied by $-20,000)
within thirty (30) days after the end of such fiscal quarter. The obligation
of BkC to make payments to the Operating Partnership in connection with "rent
relief" granted hereunder shall continue until the "rent relief" terminates
(or, if sooner, the lease with respect to which the "rent relief" is granted
terminates or expires), notwithstanding any intervening sale or other
disposition by the Operating Partnership of the Restricted Restaurant
Property with respect to which such "rent relief" is granted.
(b) As used herein, the term "rent relief" shall mean (i) any
permanent reduction in rent payable with respect to a Restricted Restaurant
Property, (ii) any temporary reduction in rent payable with respect to a
Restricted Restaurant Property (A) if such temporary reduction is for a
period in excess of either ninety (90) consecutive days or ninety (90) days,
whether or not consecutive, in any Fiscal Year, (B) if such temporary
reduction is granted while a BK Restaurant is being replaced, reconstructed,
expanded, or otherwise improved under the BKC "Successor Policy" to take into
account the fact that such BK Restaurant is not operating or is operating on
a limited basis during such period, or (C) if such temporary reduction is for
a period of ninety (90) consecutive days or less and the Managing General
Partner specifically designates such reduction as "rent relief" subject to
this Section 8.5; provided, however, that in no event shall the term "rent
relief" include any reduction in rent payable with respect to a Restricted
Restaurant Property granted in connection with the BKC "Successor Policy" if
such reduction in rent payable is subject to Section 8.6(b). Notwithstanding
anything to the contrary herein, the Managing General Partner shall not be
considered to have caused the Operating Partnership to grant "rent relief"
hereunder, and no payment from BKC to the Operating Partnership shall be due
hereunder, as the result of or in connection with any failure of a BKC
Franchisee, without the express written consent of the Managing General
Partner, to make any payment of rent due the Operating Partnership with
respect to a Restricted Restaurant Property (i) if such failure does not
continue for a period in excess of ninety (90) consecutive days, or (ii) if
either the lease with such BKC Franchisee shall have automatically terminated
or the Managing General Partner shall have caused the Operating Partnership
to seek to terminate the Operating Partnership's lease with such BKC
Franchisee with respect to such Restricted Restaurant Property and in either
event, the Managing General Partner shall have caused the Operating
Partnership to initiate and pursue such action (including litigation, if
appropriate) against such defaulting BKC Franchisee as the Managing General
Partner, in its sole and absolute discretion, shall determine to be
appropriate under the circumstances in order to obtain payment of amounts
(including lost rent) due the Operating Partnership under its lease with the
defaulting BKC Franchisee. In the event that BKC makes any payment to the
Operating Partnership pursuant to this Section 8.5 in connection with "rent
relief" deemed granted hereunder and the Operating Partnership subsequently
shall collect such "rent relief" from the BKC Franchisee, then the
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Operating Partnership shall refund to BKC the amount paid by BKC in connection
with such "rent relief."
8.6 SUCCESSOR POLICY.
BKC maintains a "Successor Policy" relating to the extension and/or
renewal of BKC Franchise Agreements with BKC Franchisees. In connection with
such extensions and/or renewals, the "Successor Policy," in order to help
ensure that the BK Restaurant system remains competitive, makes provision for
the replacement, reconstruction, expansion, and/or other improvement
(collectively "rebuilding") of existing BK Restaurants owned or leased by BKC
and leased or subleased to BKC Franchisees if such BK Restaurants meet
certain criteria established by BKC. Under the BKC "Successor Policy" as
currently in effect, BKC must determine whether or not a BK Restaurant should
be rebuilt. If BKC determines that a BK Restaurant should be rebuilt under
the "Successor Policy" and BKC elects to pay the cost of rebuilding, then the
term of the lease with respect to such BK Restaurant is extended and the BKC
Franchisee's guaranteed "minimum rental" payable under such lease is
adjusted. In the event BKC does not elect to pay the cost of rebuilding a BK
Restaurant designated by BKC to be rebuilt under the "Successor Policy,"
then, with the consent of BKC, the BKC Franchisee can elect to pay such cost,
in which event the percentage rent payable with respect to such BK Restaurant
is reduced from 8.5 percent (8.5%) to 5.5 percent (5.5%) of annual gross
sales at such BK Restaurant, the term of the lease with respect to such BK
Restaurant is extended and the guaranteed minimum rent payable under such
lease is adjusted. The Managing General Partner shall cause the Partnership
and the Operating Partnership to implement, with respect to the Restricted
Restaurant Properties, those aspects of BKC's "Successor Policy" related to
the rebuilding of BK Restaurants, as such policy is currently in effect and
as such policy may be modified, amended, supplemented, superseded, or
replaced by BKC from time to time in its sole and absolute discretion, in
order to cause those Restricted Restaurant Properties designated by BKC, its
sole and absolute discretion, to be rebuilt under such "Successor Policy" to
be rebuilt, subject to satisfaction by BKC of the following conditions:
(a) In the event that the BKC Franchisee for a Restricted Restaurant
Property that is designated by BKC to be rebuilt under the "Successor Policy"
does not pay the cost of such rebuilding, then the Managing General Partner
shall cause the Operating Partnership to rebuild such Restricted Restaurant
Property upon the condition that BKC pay to the Partnership, at the time such
rebuilding is commenced, an amount equal to the product of (i) the total dollar
amount of funds to be expended by the Operating Partnership for purposes of
rebuilding such Restricted Restaurant Property multiplied by (ii) a fraction,
(A) the numerator of which is the weighted annual average of the percentage
rates applicable for determining the franchise royalty fees payable to BKC with
respect to such Restricted Restaurant Property over the remaining term of the
lease under the BKC Franchise Agreement in effect with respect to such
Restricted Restaurant Property (exclusive of any amounts required under the
applicable BKC Franchise Agreement to be expended by BKC for advertising and
other income to BKC (the "Average Franchise Royalty Rate") and (B) the
denominator of which is the sum of the Average Franchise Royalty Rate and the
weighted annual average of the percentage rates applicable for determining
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the percentage rent payable to the Operating Partnership with respect to such
Restricted Restaurant Property on the basis of sales over the remaining term
of the lease with the BKC Franchisee in effect with respect to such Restricted
Restaurant Property (the "Average Percentage Rent Rate"). By way of
illustration, if the applicable Average Percentage Rent Rate for a particular
Restricted Restaurant Property were 8.5 percent and the applicable Average
Franchise Royalty Rate for such Restricted Restaurant Property were 3.5
percent, and if the total cost to rebuild such Restricted Restaurant Property
pursuant to the "Successor Policy" were $500,000, then BKC would be obligated
to pay to the Operating Partnership, at the time the rebuilding of such
Restricted Restaurant Property commenced, $145,833 (the product of 3.5/12
multiplied by $500,000). The Managing General Partner shall cause the
Operating Partnership to pay the Operating Partnership's share of the cost of
rebuilding a Restricted Restaurant Property to be rebuilt under the "Successor
Policy," in its sole and absolute discretion, (i) from current operating cash
flow of the Operating Partnership or otherwise to the extent available or (ii)
with funds borrowed from a lender (including, subject to Section 7.13, BKC or
any Affiliate of BKQ, on such terms and conditions as the Managing General
Partner shall, in its sole and absolute discretion, determine advisable, with
the payments of principal and interest required with respect to any such loan
to be paid from operating cash flow or otherwise to the extent available; and
(b) In the event that the BKC Franchisee for a Restricted Restaurant
Property that is designated by BKC to be rebuilt under the "Successor Policy"
pays the cost of such rebuilding and thus would be entitled to a reduction in
rent payable with respect to such Restricted Restaurant Property, then BKC would
make a quarterly payment to the Operating Partnership for each fiscal quarter
during the period during which such rent reduction is in effect, irrespective of
whether or not the Operating Partnership subsequently sells or otherwise
disposes of such Restricted Restaurant Property while such rent reduction is in
effect (with such payment to be due and payable thirty (30) days after the end
of each such fiscal quarter) in an amount equal to the product of (i) the total
dollar amount of the rent reduction effective with respect to such fiscal
quarter pursuit to the "Successor Policy" multiplied by (ii) a fraction, (A) the
numerator of which is the percentage rate for determining the franchise royalty
fee payable to BKC with respect to such Restricted Restaurant Property for such
fiscal quarter (exclusive of any amount required under the applicable BKC
Franchise Agreement to be expended by BKC for advertising and other income to
BKQ (the "Franchise Royalty Rate"), and (B) the denominator of which is the sum
of the Franchise Royalty Rate and the percentage rate for determining the rent
payable to the Operating Partnership with respect to such Restricted Restaurant
Property on the basis of sales for such fiscal quarter (the "Percentage Rent
Rate"). By way of illustration, if the applicable Percentage Rent Rate for a
Restricted Restaurant Property for a particular fiscal quarter were 8.5 percent
and the applicable Franchise Royalty Rate for such Restricted Restaurant
Property for such fiscal quarter were 3.5 percent, and if the BKC Franchisee for
such Restricted Restaurant Property were to be entitled under the "Successor
Policy" to a reduction in the applicable Percentage Rent Rate to 5.5 percent if
such BKC Franchisee were to rebuild such Restricted Restaurant Property pursuit
to the "Successor Policy," then, assuming that such BKC Franchisee's rent
payable following such rent reduction exceeds the minimum base rent payable to
the Operating Partnership with respect to such fiscal quarter, BKC would be
obligated to pay to the Operating Partnership an amount equal to the product of
(i) 3.5/12 multiplied by (ii) the
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product of (A) 3 percent multiplied by (B) the gross sales at such Restricted
Restaurant Property for such fiscal quarter. The obligation of BKC to make
payments to the Operating Partnership under this Section 8.6(b) in connection
with a rent reduction granted hereunder shall continue until the lease under
which such rent reduction is granted, terminates or expires, notwithstanding
any intervening sale or other disposition by the Operating Partnership of the
Restricted Restaurant Property with respect to which such rent reduction is
granted.
In the event the guaranteed minimum rent payable pursuant to any lease
with respect to a Restricted Restaurant Property is adjusted in connection
with the rebuilding of a BK Restaurant pursuant to the "Successor Policy,"
then notwithstanding any other provision of the Agreement or of the "Successor
Policy," the "fair market of the original property for purposes of determining
the amount of such adjustment shall be equal to the replacement cost of such
property, as determined by the Appraiser. Notwithstanding anything to the
contrary herein, BKC, in its sole and absolute discretion, may elect not to
designate a particular Restricted Restaurant Property to be rebuilt under the
"Successor Policy," in which event the BKC Franchisee for such Restricted
Restaurant Property shall be solely responsible for the cost of any rebuilding
and shall not be entitled to any reduction in rent payable with respect to
such Restricted Restaurant Property. BKC in no event shall be entitled to any
fee or other payment from the Partnership in connection with the rebuilding of
a Restricted Restaurant Property under the "Successor Policy."
In addition to the foregoing, BKC, separate and apart from implementation
of the "Successor Policy," from time to time may request that the Operating
Partnership acquire property adjacent to a Restricted Restaurant Property for
purposes of permitting expansion of the BK Restaurant or related facilities
(such as parking) located on such Restricted Restaurant Property. The Managing
General Partner shall cause the Operating Partnership to acquire any such
adjacent property upon the request of BKC, upon the condition that BKC pay to
the Operating Partnership, at the time such acquisition occurs, an amount
determined in accordance with the formula set forth in paragraph 8.6(a) above.
8.7 COMPETITIVE FACILITIES.
Without in any way limiting the generality of Section 7.6, the Limited
Partners and any Assignees recognize that BKC, TPC, and Affiliates thereof are
in the business of establishing, leasing, operating, managing, and franchising
restaurants, including, without limitation, BK Restaurants, and that in
connection with such businesses, BKC, TPC, and/or Affiliates thereof may from to
time establish, own, lease, operate, manage, and/or franchise new restaurants,
including, without limitation, BK Restaurants. Both such existing restaurants
and any such new restaurants may be competitive with one or more of the
Partnership Properties and may adversely affect the revenues of the Partnership
with respect to one or more of the Partnership Properties. The Limited Partners
and Assignees expressly consent to all actions of BKC, TPC, and any Affiliate of
either in connection both with existing restaurants and with any new restaurants
and agree that neither BKC, TPC, the Managing General Partner, nor any Affiliate
of them shall incur any liability to the Operating Partnership, the Partnership,
or any Limited Partner or Assignee as the result of or in connection with any
such action.
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8.8 ACQUISITION OF RESTRICTED RESTAURANT PROPERTIES BY THE GENERAL PARTNERS OR
AFFILIATES.
Notwithstanding any provision of this Agreement, including, without
limitation, Sections 7.2(x) and 8.4(d), (e), and (f), no Person that is a
General Partner or an Affiliate of a General Partner shall acquire any
Restricted Restaurant Property from the Operating Partnership, whether by
purchase, exchange, or substitution, unless the consideration received by the
Operating Partnership for such Restricted Restaurant Property is at least equal
to the "fair market value" (as hereinafter defined) of such Restricted
Restaurant Property, as determined by the Appraiser; provided, however, that
this Section 8.8 shall have no application to any acquisition of a Restricted
Restaurant Property by BKC pursuant to Section 8.4 if, at the time of such
acquisition, neither BKC nor any Affiliate of BKC is a General Partner. Any
acquisition of a Restricted Restaurant Property, whether by purchase, exchange,
or substitution, by a Person who is a General Partner or an Affiliate of a
General Partner for consideration that is at least equal to the "fair value" (as
hereinafter defined) of such Restricted Restaurant Property, as determined by
the Appraiser, conclusively shall be deemed to be fair and in the best interests
of the Partnership. As used herein, the term "fair market value" shall mean the
value that would be obtained in an arm's-length transaction between an informed
and willing purchaser under no compulsion to buy and an informed and willing
seller under no compulsion to sell, as determined by the Appraiser, using such
method or methods of valuation as the Appraiser determines most accurately
reflect the value of the particular Restricted Restaurant Property in question
under the circumstances, provided that for a period of five (5) years from the
Closing Date, the Appraiser shall use the "capitalization of income" method
(applying such capitalization rate and other assumptions and adjustments as the
Appraiser determines appropriate under the circumstances) unless the Appraiser
determines that such method would result in an understatement of the value of
the Restricted Restaurant Property with respect to which such appraisal is being
performed. For purposes of this Section 8.8, in the event that any
consideration to be received by the Operating Partnership in exchange or
substitution for any Restricted Restaurant Property is in any form other than
money, then the "fair market value" of such consideration, as determined by the
Appraiser (or if such other consideration is in the form of property other than
real estate, by an appraiser experienced in valuing such other property
designated by the Appraiser), shall be required to be at least equal to the
"fair market value" of the Restricted Restaurant Property or Properties to be
transferred.
8.9 TERMINATION OF LEASE FOR RESTRICTED RESTAURANT PROPERTY FOLLOWING
TERMINATION OF BKC FRANCHISE AGREEMENT.
(a) In the event that (i) either (A) a BKC Franchise Agreement
authorizing the operation of a BK Restaurant is terminated by BKC or by the
mutual agreement of the parties thereto prior to the expiration of the stated
term thereof, or (B) a BKC Franchise Agreement expires according to the terms
thereof and is not renewed by BKC at or prior to the expiration of such BKC
Franchise Agreement, and (ii) BKC does not, prior to the end of the
Determination Period (as defined in Section 8.3) enter into a new BKC Franchise
Agreement with respect to the Restricted Restaurant Property or elect to operate
a BK Restaurant on the Restricted Restaurant Property, as provided for in
Section 8.3(b)(ii), then the Managing General Partner, in its sole and
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absolute discretion, shall be permitted to cause the Operating Partnership to
terminate any lease with a BKC Franchisee with respect to such Restricted
Restaurant Property if a default has occurred under such lease and either (i)
the Managing General Partner shall have caused the Operating Partnership to
initiate and pursue such action (including, if appropriate, litigation)
against such defaulting lessee as the Managing General Partner, in its sole
and absolute discretion, shall determine to be reasonable under the
circumstances in order to obtain payment of amounts (including lost rent) due
the Operating Partnership under such lease, or (ii) the Managing General
Partner or the defaulting lessee shall have located a new lessee for the
Restricted Restaurant Property for a term at least as long as the remaining
unexpired term under the lease to be terminated and for a rent not lower than
the minimum base rent payable under such lease (or if the rent is lower than
the minimum base rent payable under the lease to be terminated, the defaulting
lessee shall have agreed to be contractually obligated to continue to pay to
the Operating Partnership an amount equal to the difference between the rent
payable under the new lease and the minimum base rent payable under the lease
to be terminated and shall have provided adequate security, as determined by
the Managing General Partner to be reasonable under the circumstances, for
such obligation).
(b) In addition to any termination in accordance with Section 8.9(a)
and any termination in accordance with Section 8.3(b)(ii), the Managing General
Partner, in its sole and absolute discretion, shall be permitted, without
limitation, to cause the Operating Partnership to terminate a lease with a BKC
Franchisee with respect to a Restricted Restaurant Property if the BKC Franchise
Agreement with respect to such Restricted Restaurant Property is terminated in
connection with or as a result of a condemnation involving all or substantially
all of a Restricted Restaurant Property or a casualty materially adversely
affecting the use of such Restricted Restaurant Property for the purpose of
operating a BK Restaurant for a period in excess of six (6) months.
(c) The provisions of this Section 8.9 shall not limit or affect in
any way the termination of a lease with respect to a Restricted Restaurant
Property with a Person that is not and was not a BKC Franchisee. The provisions
of this Section 8.9 are for the benefit of the Partnership, the Operating
Partnership, the Partners, and any Assignees, and shall not be deemed to create
any rights for the benefit of any other Persons, including, without limitation,
any lessees under leases with the Operating Partnership.
8.10 INDEPENDENT CONSULTANT.
(a) The Managing General Partner, in its sole and absolute
discretion, shall be entitled, but not required, to consult with the Independent
Consultant with respect to any action or proposed action affecting or relating
to the Partnership or the Operating Partnership or their business. In the event
that the Managing General Partner shall elect to consult with the Independent
Consultant with respect to any such action or proposed action, then the
Independent Consultant shall advise the Managing General Partner whether such
action or proposed action is contrary to the interests of the Partnership or the
Operating Partnership, as the case may be, taking into account, with respect to
the Restricted Restaurant Properties, that the original purposes
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of the Partnership and the Operating Partnership was to acquire and hold real
estate that was leased to BKC Franchisees for the purpose of operating BK
Restaurants to derive revenues therefrom. The Limited Partners and Assignees
expressly agree that any actions taken by the Managing General Partner in
accordance with the advice of the Independent Consultant conclusively shall be
deemed to be fair to and in the best interests of the Partnership, the
Operating Partnership, the Limited Partners and any Assignees, and the fact
that an action of the Managing General Partner is undertaken in accordance
with the advice of the Independent Consultant shall be a complete and absolute
defense to any claim or action asserting the invalidity of such action or any
claim or action for damages or other relief based on an assertion that such
action resulted in a breach by the Managing General Partner or any of its
Affiliates of this Agreement or any duty, fiduciary or otherwise, owed by the
Managing General Partner or any Affiliate to the Operating Partnership, the
Partnership, the Limited Partners, or any Assignees. The Limited Partners and
Assignees further acknowledge that the purpose of this Section 8.10 is to
provide an arrangement to facilitate outside consultation by the Managing
General Partner with respect to potential problems arising in connection with
the management of the Partnership and the Operating Partnership and express
agree that, in order to induce the Managing General Partner to consent to this
Section 11.10 and to undertake such consultation from time to time as it
determines appropriate, neither the failure of the Managing General Partner to
consult with the Independent Consultant on any particular action or proposed
action, nor the failure of the Managing General Partner to act in accordance
with the advice of the Independent Consultant on any action or proposed action
with respect to which the Managing General Partner shall elect to consult with
the Independent Consultant, shall create any inference or presumption or
otherwise constitute evidence with respect to the failure of such action or
proposed action to the Partnership, the Operating Partnership, the Limited
Partners, or Assignees as the case may be.
(b) In the event that the Independent Consultant designated in this
Agreement at any time is unable or unwilling to advise the Managing General
Partner on a particular matter or should inform the Managing General Partner
that it no longer is willing to serve as Independent Consultant, then the
Managing General Partner shall designate a substitute Independent Consultant, as
provided for below. The Managing General Partner shall have the right at any
time, in its sole and absolute discretion, to terminate the Independent
Consultant and to designate a substitute Independent Consultant, as provided for
below; provided, however, that the Managing General Partner shall have no
obligation to the Partnership, the Operating Partnership, the Limited Partners,
or Assignees, as the case may be, to terminate the Independent Consultant under
any circumstances, and provided further that any termination of the Independent
Consultant pursuant to this Section 8.10(b) conclusively shall be deemed to be
fair to and in the best interests of the Partnership, the Operating Partnership,
the Limited Partners, and any Assignees. Any substitute Independent Consultant
designated by the Managing General Partner pursuant to this Section 8.10(b)
shall have experience in advising or consulting about the "fast-food" business
and shall be "financially independent" (as hereinafter defined) of the Managing
General Partner. A Person conclusively shall be deemed "financially
independent" of the Managing General Partner for purposes of this Section
8.10(b) if (i) such Person is not, and during the preceding four (4) years has
not been, a BKC Franchisee or an affiliate of the
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Managing General Partner, of BKC, of TPC, or of a BKC Franchisee; and (ii)
such Person has not derived more than fifteen percent (15%) of such Person's
average annual gross revenues over the preceding four (4) years from the
Managing General Partner, BKC, TPC, any BKC Franchisee, and any Affiliate of
any of the foregoing.
(c) The Managing General Partner, in its sole and absolute
discretion, either (i) may cause the Partnership to indemnify and hold harmless
the Independent Consultant upon such terms and conditions as the Managing
General Partner shall determine appropriate or (ii) may indemnify and hold
harmless the Independent Consultant upon such terms and conditions as the
Managing General Partner shall determine appropriate, in which event the
Partnership shall indemnify the Managing General Partner for any amounts
required to be paid under such indemnification; provided, however, that in
either case, the terms and conditions of such indemnification shall be no more
favorable to the Independent Consultant than the terms and conditions pursuant
to which the General Partners, their Affiliates, and officers, directors,
employees, and agents of the General Partners and their Affiliates are
indemnified and held harmless pursuant to Section 7.10.
8.11 CONSENT TO USE OF NAME AND TRADEMARKS.
BKC's consent to the Partnership's use of the words "Burger King" in the
name of the Partnership and to the Partnership's use of the registered
trademarks and service marks Burger King-Registered Trademark-, Whopper-
Registered Trademark-, Whopper Junior-Registered Trademark-, and the Burger King
bun halves logo in the Registration Statement, all sales materials and other
documents prepared for use in connection with the Initial Public Offering, any
reports to or written communications with Limited Partners and Assignees, and
any reports filed by the Partnership with any federal, state, or local
regulatory agency terminated upon the withdrawal of BKC as the Special General
Partner.
8.12 ACQUISITION OF FEE TITLE TO PROPERTIES SUBJECT TO PRIMARY LEASES.
The Managing General Partner shall have the right, in its sole and
absolute discretion, to cause the Operating Partnership to acquire fee title
to any Restricted Restaurant Property that is subject to a Primary Lease,
either pursuant to a right of first refusal on behalf of the Operating
Partnership set forth in such Primary Lease or otherwise. BKC shall have no
obligation to the Operating Partnership or the Partnership in connection with
any such acquisition.
8.13 LOCATION OF OTHER RESTAURANT PROPERTIES.
Neither the Partnership nor the Operating Partnership may acquire any
Other Restaurant Properties within a two-mile radius of any Restricted
Restaurant Property held as of March 17, 1995.
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ARTICLE IX
COMPENSATION OF GENERAL PARTNERS: PAYMENT OF
PARTNERSHIP EXPENSES
9.1 COMPENSATION TO GENERAL PARTNERS.
Except as permitted under Section 5.5 or expressly provided in Section 9.3
or 9.4, no General Partner shall receive any compensation from the Partnership
or the Operating Partnership for services rendered in its capacity as a general
partner of the Partnership or the Operating Partnership. Notwithstanding
anything herein to the contrary, at such time as QSV ceases to be the Managing
General Partner or the managing general partner of the Operating Partnership,
whether as a result of the transfer of QSV's Partnership Interest pursuant to
Section 12.2 (or Section 11.2 of the Operating Partnership Agreement) or the
withdrawal or removal of QSV pursuant to Section 14.1 or 14.2 (or Section 13.1
of the Operating Partnership Agreement) (other than removal for "cause"), then
QSV shall have the option, in its sole discretion, to convert its Partnership
Interest and its partnership interest in the Operating Partnership and to either
assign to the Partnership or convert its rights (the "Rights") under the
provisions of Section 9.3 (and Section 9.3 of the Operating Partnership
Agreement) (collectively, the "Conversion") for the Acquisition Price (as
defined below), effective as of the date of such transfer, withdrawal or
removal, and upon such Conversion, the successor Managing General Partner shall
cause the Partnership to issue to QSV Units, and the Partnership shall cause the
Operating Partnership to issue interests therein, in the aggregate amounts
provided for below.
In exchange for the Conversion of the Rights, as provided for above, and
the conversion of QSV's partnership interest in the Operating Partnership, in
the event QSV elects to effect the Conversion, QSV will receive the "Acquisition
Price," consisting of (a) the Initial Unit Consideration and (b) the Contingent
Unit Consideration. The Initial Unit Consideration consists of 850,000 Units
and/or interests in the Operating Partnership (which number or classification
shall be adjusted to give effect to any reclassification or change of the Units,
including, without limitation, a split, or any merger or consolidation of the
Partnership, except the merger of the Partnership with the REIT or a subsidiary
thereof, or sale of assets to another entity, occurring after March 31, 1997),
which number of Units or interests in the Operating Partnership shall be reduced
(on a one-for-one basis) by the number of Units received by QSV in connection
with the conversion of its Partnership Interest pursuant to the provisions of
this Section 9.1. In connection with the Conversion, QSV's Partnership Interest
shall be converted into such number of Units as at such time represents 1% of
the then outstanding Units, after giving effect to the conversion of QSV's
Partnership Interest. The Initial Unit Consideration, including the number of
Units issuable upon the conversion of QSV's Partnership Interest, shall be
issued by the Partnership, and the Partnership shall cause the Operating
Partnership to issue its interests, as soon as practicable following the date of
the Conversion, but in no event no later than 30 days thereafter.
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The Contingent Share Consideration consists of up to a maximum number of
550,000 Units and/or interests in the Operating Partnership (which number or
classification shall be adjusted to give effect to any reclassification or
change in the Common Stock or the Units, including, without limitation, a split,
or any merger or consolidation of the REIT or the Partnership, except the merger
of the Partnership with the REIT or any subsidiary thereof, or sale of assets to
another entity, occurring after March 31, 1997). The type and number of
securities issuable as the Contingent Share Consideration (subject to the next
sentence) shall be at the sole discretion of QSV. The exact number of Units
and/or interests in the Operating Partnership to be issued will be determined by
the dividing (i) the amount by which the MGP Net Income (as defined below) for
the 2000 Fiscal Year exceeds $3,612,500 by (ii) $4.25 and rounding the resulting
number up to the nearest whole number. "MGP Net Income" means the dollar amount
which would have been payable to QSV, as Managing General Partner and as
managing general partner of the Operating Partnership, by the Partnership and
Operating Partnership for the 2000 Fiscal Year, pursuant to the Rights, had QSV
operated the Partnership and the Operating Partnership on a continuous basis
from the date of the Conversion to December 31, 2000 plus the amounts that have
been payable to QSV pursuant to its aggregate 1.98% general partnership interest
in the Partnership and the Operating Partnership, less $775,000.
For example, if the MGP Net Income for the 2000 Fiscal Year would have
been $5,100,000 ($5,875,000 of revenues less $775,000) then the Contingent
Unit Consideration would be an additional 350,000 Units and/or interests in
the Operating Partnership.
The Contingent Unit Consideration, if any, shall be issued by the
Partnership, and the Partnership shall cause the Operating Partnership to so
issue any such consideration, as soon as practicable following the end of the
2000 Fiscal Year, but in no event later than March 31, 2001.
9.2 EXPENSES IN CONNECTION WITH ORGANIZATION OF PARTNERSHIP AND INITIAL PUBLIC
OFFERING.
As set forth in the Real Estate Purchase Agreement, BKC as the special
general partner of the Partnership at such time reimbursed the Partnership for
all fees, costs, and expenses actually incurred by the General Partners and
their Affiliates, in connection with the organization of the Partnership, the
Operating Partnership, and the Managing Partner; the qualification of the
Partnership, the Operating Partnership and the Managing General Partner to do
business in any state in which the Managing General Partner determined that such
qualification was advisable; the registration of the Depositary Units under
applicable federal and state securities laws in connection with the Initial
Public Offering; the offering, sale, and distribution of the Depositary Units
pursuant to the Initial Public Offering; the listing of the Depositary Receipts
evidencing Depositary Units on a National Securities Exchange; the purchase of
the Partnership Properties by the Operating Partnership; and planning and
preparing for the operation and management of the Partnership and the Operating
Partnership following the Initial Public Offering, including, without
limitation, (i) printing, mailing, filing, and recording expenses; (ii) charges
of agents, depositories, appraisers, and the Underwriters; (iii) expenses of
registration and qualification of the Units under applicable federal and state
securities laws; (iv) legal (including tax advice) and
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accounting fees and disbursements; (v) remuneration paid to officers or
employees of any General Partner or any Affiliate that is allocable to time
spent on such activities; and (vi) other expenses of a similar nature incurred
by any General Partner or any Affiliate in connection with such activities.
9.3 OPERATIONAL EXPENSES.
In addition to any reimbursement pursuant to the indemnification set forth
in Section 7.10, the Partnership shall cause the Operating Partnership, pursuant
to Section 9.3 of the Operating Partnership Agreement, to pay the following:
(a) With respect to (i) the Partnership Properties held as of March
17, 1995 and (ii) the Partnership Properties and Ancillary Property related
thereto acquired thereafter with respect to the Partnership Properties referred
to in clause (i) above whether pursuant to Section 8.12 or otherwise, the
Partnership shall cause to be paid to the Managing General Partner with respect
to each Fiscal Year an aggregate amount equal to Four Hundred Thousand Dollars
($400,000) adjusted annually as set forth in Section 9.3(c), which amount shall
be in lieu of any reimbursement for expenses related to the management of the
business affairs of the Partnership and the Operating Partnership (other than
expenses described in clause (c) hereof) that are incurred by the Managing
General Partner or its Affiliates with respect to such Partnership Properties,
which amount shall be payable in equal quarterly installments within sixty (60)
days after the end of each fiscal quarter.
(b) With respect to any Partnership Property and Ancillary Property
related thereto acquired after March 17, 1995 (other than those referred to in
clause (a) above) and mortgage loans, if any, originated by the Partnership or
the Operating Partnership, (i) the Partnership shall cause to be paid to the
Managing General Partner (A) fee equal to 1% of the purchase price paid by the
Partnership or the Operating Partnership for such Partnership Property and
Ancillary Property related thereto, payable on the date of acquisition or
origination, as applicable, and (B) with respect to each Fiscal Year, an amount,
adjusted annually as set forth in the next paragraph below, accruing while such
property is held at the rate of 1% per annum (applied using the simple interest
method on the basis of a 365/366-day year and the actual number of days elapsed)
on the purchase price paid by the Partnership or the Operating Partnership for
such Partnership Property and Ancillary Property related thereto, and (ii) if
the Rate of Return attributable to all Partnership Properties and Ancillary
Property related thereto acquired after March 17, 1995 (other than those
referred to in clause (a) above) in respect of any Fiscal Year shall exceed 12%
per annum, the Partnership shall cause to be paid to the Managing General
Partner an amount equal to 25% of the amount of cash received by the Operating
Partnership representing such excess, which amounts shall be in lieu of any
reimbursement of expenses related to the management of the business affairs of
the Partnership and the Operating Partnership (other than expenses described in
clause (c) hereof) that are incurred by the Managing General Partner or its
Affiliates with respect to such Partnership Properties and (except as provided
in clause (i)(A) of this clause (b)) shall be payable in quarterly installments
within sixty (60) days after the end of each fiscal quarter (which may be
estimated in the case of the first
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three fiscal quarters); provided that there shall be credited against the
amounts, if any, payable pursuant to clause (ii) of this clause (b) in respect
of any Fiscal Year amounts payable to the Managing General Partner in respect
of its First Tier Residual Interest or Second-Tier Residual Interest pursuant
to Sections 6.5 and 6.6 in respect of such Fiscal Year. For purposes of the
calculations provided for in this Section 9.3, in the event of a mortgage loan
origination, the term "Partnership Properties" shall be deemed to include any
originated mortgage loans and the "purchase price" of such mortgage loans will
be the principal balances thereof at the beginning of any Fiscal Year.
(c) The Partnership shall either cause to be paid to the Managing
General Partner on a monthly basis, or cause the Managing General Partner to be
reimbursed for the payment of, all amounts payable to any Person for providing
goods or performing services (including, without limitation, legal, accounting,
auditing, record keeping, reporting, depositary, transfer agent, printing,
appraisal, servicing and consulting services) for or on behalf of the
Partnership or the Operating Partnership; provided, however, that the Operating
Partnership shall not cause to be paid to the Managing General Partner, or cause
the Managing General Partner to be reimbursed, for the payment of any amount to
an Affiliate or an officer, director, or employee of an Affiliate for legal,
accounting, managerial, or consulting services; and provided further, that the
Operating Partnership shall cause to be paid to, or shall cause the Managing
General Partner to be reimbursed for a payment to, an Affiliate or an officer,
director, or employee of an Affiliate for goods or other services only if the
price and the terms upon which such goods or services are provided to the
Partnership or the Operating Partnership are fair to the Partnership or the
Operating Partnership, as the case may be, and are not less favorable to the
Partnership or the Operating Partnership, as the case may be, than would be
incurred if the Partnership or the Operating Partnership were to obtain such
goods or services from an unrelated third party or were to engage employees to
provide such goods or services directly.
For 1987 and for each Fiscal Year thereafter, the amount payable pursuant
to Section 9.3(a) shall be increased by an amount equal to the product of Four
Hundred Thousand Dollars ($400,000) multiplied by the percentage increase in the
Price Index from January 1, 1986, through the last day of the immediately
preceding Fiscal Year. For each year after the year in which a Partnership
Property is acquired, the amount otherwise payable pursuant to Section
9.3(b)(i)(B) (the "Clause (b)(i)(B) Amount") shall be increased by an amount
equal to the product of the Clause (b)(i)(B) Amount multiplied by the percentage
increase in the Price Index from the first day of the immediately preceding
Fiscal Year or, in the case of the first year after the year in which the
Partnership Property is acquired, the first day of the month in which the
acquisition occurred through the last day of the Fiscal Year immediately
preceding such year or, if earlier, the last day of the month in which such
Partnership Property was disposed of. The percentage increase in the Price
Index through the last day of a particular period shall be determined by
calculating the increase, if any, in the Price Index for the last time period
during such period (the "Price Index Determination Period") with respect to
which the Price Index is published (currently a monthly period) over the Price
Index for the time period immediately preceding the first day of the Price Index
Determination Period, and expressing the amount of such increase as a
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percentage of the Price Index for said time period immediately preceding the
first day of the Price Index Determination Period.
"RATE OF RETURN" in respect of any period shall mean and refer to the
quotient obtained by dividing (1) the aggregate revenues (calculated in
accordance with generally accepted accounting principles and before amortization
of unearned income on direct financing leases) received by the Partnership or
the Operating Partnership from the Partnership Properties and Ancillary Property
referred to in Section 9.3(b) above for such period, whether through operations,
sale or other disposition, less (without duplication) (i) the aggregate fees
payable pursuant to Section 9.3(b)(i)(B) for such period in respect of such
properties, (ii) the aggregate expenses of the Partnership (other than interest
expense, depreciation, amortization and other non-cash expenses and charges, and
expenses described in Sections 9.3(b) and (c) directly attributable to such
property and interest expense on any debt allocated thereto for such period,
(iii) the general and administrative expenses of the Partnership (other than
non-cash expenses and charges and expenses described in clauses (a) and (b)
above) for such period allocated to such properties (based on the ratio of
Average Partnership Equity in such property to the aggregate Average Partnership
Equity in all Partnership Properties) and (iv) the principal amount of debt
allocated to such properties repaid during such period and, if applicable, the
cash costs and expenses of any Kind or nature incurred in respect of the sale or
other disposition thereof, by (2) the Average Partnership Equity in such
property during such period. "AVERAGE PARTNERSHIP EQUITY" shall mean and refer
to (A) the average of the sums of the aggregate purchase prices therefor, the
aggregate fees paid pursuant to Section 9.3(b)(i)(A) above in respect thereof
and all other cash costs and expenses of any kind or nature incurred in
connection with the acquisitions thereof ("Property Costs") as of the last day
of each calendar month occurring during the period of determination, less (B)
the average outstanding principal amount of debt of the Partnership outstanding
as of the last day of each calendar month during such period and allocated to
such properties. The Rate of Return for any outstanding mortgage loans will be
evaluated separately with the mortgage loans constituting a separate pool of
"properties" for such calculation. The general and administrative expenses
allocable to such mortgage loans shall be equal to the total amount of such
expenses for any Fiscal Year multiplied by a fraction, the numerator of which
shall be the aggregate principal amount of all mortgage loans outstanding at the
beginning of such Fiscal Year and the denominator of which shall be the total of
all Property Costs and such aggregate principal amount.
For the purposes of the foregoing, debt of the Partnership shall be
allocated among the Partnership Properties as follows: (1) non-recourse debt
shall be allocated to the property secured thereby and, if such debt is secured
by more than one property, such debt shall be allocated among the properties
secured thereby based on the relative Property Costs thereof-, and (2) recourse
debt shall be allocated to all of the Partnership Properties based on the
relative Property Costs thereof (reduced for this purpose by the amounts of
non-recourse debt allocated thereto in accordance with clause (1) above).
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9.4 REIMBURSEMENT OF THE GENERAL PARTNERS.
In the event that the provisions of Section 9.3 are terminated in
accordance with the terms of Section 9.1, the following compensation provisions
shall apply, to be effective upon the date of such termination.
(a) The General Partners shall not be compensated for their services as
general partner of the Partnership except as provided in elsewhere in this
Agreement (including the provisions of Article VI regarding distributions,
payments and allocations to which it may be entitled in its capacity as the
General Partner).
(b) Subject to Section 9.4(c), the Partnership shall be liable for, and
shall reimburse the General Partners on a monthly basis, or such other basis as
the General Partners may determine in their sole and absolute discretion, for
all sums expended in connection with the Partnership's business or for the
benefit of the Partnership, including, without limitation, (i) expenses relating
to the ownership of interests in, and management and operation of, or for the
benefit of, the Partnership, (ii) compensation of officers and employees,
including, without limitation, payments under future employee benefit plans of
any General Partner, (iii) director fees and expenses, and (iv) all costs and
expenses of any General Partner being a public company, including costs of
filings with the Commission, reports and other distributions to its
stockholders.
(c) To the extent practicable, Partnership expenses shall be billed
directly to and paid by the Partnership reimbursements to the General Partner of
any of their Affiliates by the Partnership pursuant to this Section 9.4 shall be
treated as "guaranteed payments" within the meaning of Section 707(c) of the
Code.
ARTICLE X
BANK ACCOUNTS; BOOKS AND RECORDS; FISCAL YEAR;
STATEMENTS; TAX MATTERS
10.1 BANK ACCOUNTS.
All funds of the Partnership shall be deposited in its name in such
checking and savings accounts, time deposits, certificates of deposit, or other
accounts at such banks or other financial institutions as shall be designated by
the Managing General Partner from time to time, and the Managing General Partner
shall arrange for the appropriate conduct of any such account or accounts. The
Managing General Partner shall have fiduciary responsibility for the safekeeping
and use of the funds of the Partnership, whether or not in the possession and
control of the Managing General Partner, and the Managing General Partner shall
not employ or permit any other Person to employ such funds except in accordance
with the terms of this Agreement. The Managing General Partner shall not permit
funds of the Partnership to be commingled with funds of the Managing General
Partner, any Affiliate, or any other Person; provided, however, that nothing
herein shall prohibit the Partnership's investment in the Operating Partnership;
and
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provided further that nothing herein shall preclude any investment of
Partnership funds in a mutual fund or similar entity for which a separate
account is maintained on behalf of each participant.
10.2 BOOKS AND RECORDS.
(a) The Managing General Partner shall keep, or cause to be kept,
accurate, full, and complete books and accounts with respect to the Partnership,
showing assets, liabilities, income, operations, transactions, and the financial
condition of the Partnership. Such books and accounts shall be prepared and
maintained on the accrual basis of accounting in accordance with generally
accepted accounting principles. The Managing General Partner shall maintain and
preserve all Partnership books and records for such period as the Managing
General Partner, in its reasonable discretion, shall determine necessary or
appropriate, subject to any requirements of state or federal law; provided,
however, that all appraisal reports obtained by the Partnership, whether in
connection with the acquisition of the Partnership Properties or otherwise,
shall be retained by the Partnership for at least five (5) years from the date
thereof.
(b) Each Limited Partner, and each such Limited Partner's duly
authorized representatives, shall have the right, at reasonable times and at
such Limited Partner's own expense, but only upon twenty (20) days prior written
notice to the Managing General Partner in accordance with Section 18.2, and only
for a valid business purpose related to the conduct of the Partnership's
business, (i) to have true and full information regarding the status of the
business and financial condition of the Partnership; (ii) to inspect and copy
the books of the Partnership and other reasonably available records and
information concerning the operation of the Partnership, including copies of any
appraisal reports described in Section 10.2(a) and copies of the federal, state,
and local income tax returns of the Partnership; (iii) to have a current list of
the name and last known business, residence, or mailing address of each Partner;
(iv) to have true and full information regarding the amount of cash and a
description and statement of the Carrying Value of any property or services
contributed by any Partner to the Partnership and the date upon which each
Partner became a Partner; and (v) to have a copy of this Agreement, the
Certificate of Limited Partnership, and all amendments or certificates of
amendment, as the case may be, thereto, together with copies of any powers of
attorney pursuant to which any such amendment or certificate of amendment has
been executed.
(c) Anything in this Section 10.2 to the contrary notwithstanding,
the Managing General Partner, in its sole and absolute discretion, may refuse
any Limited Partner or its representative access to any information, records,
documents, or data it determines to be confidential, including, without
limitation, any records relating to the sales or revenues or projected sales or
revenues of one or more specific BK Restaurants, information related to the
financial condition or circumstances of any BKC Franchisee or BKC's relationship
with any BKC Franchisee, and any other information provided to the Partnership
or the Operating Partnership by BKC and specifically designated by BKC, in its
reasonable discretion, to be confidential and/or proprietary.
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10.3 FISCAL YEAR.
The Fiscal Year of the Partnership for financial and federal, state, and
local income tax purposes initially shall be the calendar year. The Managing
General Partner shall have authority to change the beginning and ending dates of
the Fiscal Year if the Managing General Partner, in its sole and absolute
discretion, subject to approval by the Internal Revenue Service, shall determine
such change to be necessary or appropriate to the business of the Partnership,
and shall give written notice of any such change to the Limited Partners within
thirty (30) days after the occurrence thereof.
10.4 FINANCIAL STATEMENTS AND INFORMATION.
(a) All financial statements shall be accurate and complete in all
material respects, shall present fairly the financial position and operating
results of the Partnership, and shall be prepared on the accrual basis as
provided in Section 10.2 for each Fiscal Year of the Partnership during the term
of this Agreement.
(b) No later than forty-five (45) days after the end of each fiscal
quarter of each Fiscal Year (except the last fiscal quarter of each Fiscal
Year), commencing with the fiscal quarter ending June 30, 1986, the Managing
General Partner shall prepare and mail, or cause to be prepared and mailed, to
each Record Holder of a Depositary Unit or Unit as of a date specified by the
Managing General Partner (which date shall not be earlier than the last day of
such fiscal quarter), an unaudited statement of income for the Partnership for
such fiscal quarter, an unaudited statement of changes in cash flows for the
period between the end of the most recent Fiscal Year and the end of such fiscal
quarter, and an unaudited balance sheet of the Partnership dated as of the end
of such fiscal quarter, in each case prepared in accordance with generally
accepted accounting principles, together with a statement setting forth any
transactions between the Partnership and any of the General Partners or any
Affiliate thereof, the amount of any fees, commissions, compensation and other
remuneration paid or accrued to any of the General Partners or any Affiliate
thereof for services rendered to the Partnership, and a description of such
services, any other information required by Form 10-Q under the Exchange Act,
and such other information (financial or otherwise) as the Managing General
Partner, in its discretion, shall deem necessary or appropriate.
(c) No later than ninety (90) days after the end of each Fiscal Year
during the term of this Agreement, the Managing General Partner shall prepare
and mail, or cause to be prepared and mailed, to each Record Holder of a
Depositary Unit or Unit as of a date specified by the Managing General Partner
(which date shall not be earlier than the last day of such Fiscal Year): (i) a
balance sheet, together with statements of income, Partners' equity, and changes
in cash flows for the Partnership during such Fiscal Year, which financial
statements shall be audited by the Auditing Finn (such financial statements to
contain a report of the Auditing Firm which shall include: (A) a statement that
an audit of such financial statements has been made in accordance with generally
accepted auditing standards and that such financial statements are in conformity
with generally accepted accounting principles; (B) a statement of the opinion of
the
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Auditing Firm with respect to the financial statements and the accounting
principles and practices reflected therein and in regard to the consistency of
the application of such accounting principles; and (C) an identification of any
matters reflected in such financial statements to which the Auditing Firm takes
exception); (ii) a report summarizing any transactions between the Partnership
and any of the General Partners or any Affiliate thereof, the amount of any
fees, commissions, compensation and other remuneration (including, without
limitation, reimbursements of expenses pursuant to Section 9.3) paid or accrued
by the Partnership for such Fiscal Year to any of the General Partners and any
Affiliates thereof, and the services rendered to the Partnership in connection
therewith; (iii) a report of the activities of the Partnership during the Fiscal
Year; and (iv) a statement (which statement need not be audited) showing any
Cash Flow and any Net Proceeds of a Capital Transaction distributed or to be
distributed to the Partners and any Assignees in respect of such Fiscal Year.
(d) The Managing General Partner shall provide to each Record Holder
of a Depositary Unit as of a date specified by the Managing Partner, no later
than seventy-five (75) days after the close of the period covered thereby, an
earnings statement (in form complying with the provisions of Rule 158 under the
Securities Act) covering a period of twelve (12) months beginning not later than
the first day of the Partnership's fiscal quarter next following the effective
date of the Registration Statement.
(e) The Managing General Partner shall provide to each Record Holder
of a Depositary Unit or Units such other reports and information concerning the
business and affairs of the Partnership (i) as the Managing General Partner, in
its sole and absolute discretion, may deem necessary or appropriate, or (ii) to
the extent not provided for in Sections 10.4(b) or (c), as may be specifically
required by the Delaware RULPA or by any other law or any regulation of any
regulatory body applicable to the Partnership.
(f) The Managing General Partner shall provide any of the reports or
other information referred to in this Section 10.4 to such federal, state, or
local governments, governmental agencies, or other regulatory entities as the
Managing General Partner, in its sole and absolute discretion, may deem
necessary or appropriate.
10.5 ACCOUNTING DECISIONS.
All decisions as to accounting matters, except as specifically provided to
the contrary herein, shall be made by the Managing General Partner.
10.6 WHERE MAINTAINED.
The books, accounts, and records of the Partnership at all times shall be
maintained at the Partnership's principal office or, at the option of the
Managing General Partner, at the principal place of business of the Managing
General Partner.
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10.7 PREPARATION OF TAX RETURNS.
The Managing General Partner, at the expense of the Partnership, shall
arrange for the preparation and timely filing of all returns of the Partnership
and the Operating Partnership showing all income, gains, deductions, and losses
necessary for federal and state income tax purposes, and shall furnish to the
Limited Partners and any Assignees within seventy-five (75) days of the close of
the Fiscal Year the tax information reasonably required for federal and state
income tax reporting purposes. The classification, realization, and recognition
of income, gains, losses, and deductions, and other items of the Partnership and
the Operating Partnership shall be on the accrual method of accounting for
federal income tax purposes.
10.8 TAX ELECTIONS.
Except as otherwise specifically provided herein, the Managing General
Partner shall, in its sole and absolute discretion, determine whether to make
any available election (including, without limitation, the elections provided
for in Sections 48(q)(4), 168 and 754 of the Code on behalf of the Partnership
and the Operating Partnership). The Managing General Partner shall have the
right to seek to revoke any such election upon the Managing General Partner's
determination that such revocation is- in the interests of the Limited Partners;
provided that the Managing General Partner shall not seek to revoke any such
election unless the Managing General Partner has received an Opinion of
Independent Counsel to the effect that such revocation would not cause (a) the
loss of limited liability of the Partnership under the Operating Partnership
Agreement or of the Limited Partners under this Agreement, or (b) the
Partnership or the Operating Partnership to be treated as an association taxable
as a corporation for federal income tax purposes.
10.9 TAX CONTROVERSIES.
Subject to the provisions hereof the Managing General Partner is
designated as the "tax matters partner" (as defined in the Code) of the
Partnership and the Operating Partnership and is authorized and required to
represent the Partnership and the Operating Partnership (at the expense of the
Partnership or the Operating Partnership, as the case may be) in connection
with all examinations of the affairs of the Partnership or the Operating
Partnership, as the case may be, by any federal, state, or local tax
authorities, including any resulting administrative and judicial proceedings,
and to expend funds of the Partnership or the Operating Partnership, as the
case may be, for professional services and costs associated therewith. Each
Partner and any Assignee agrees to cooperate with the Managing General Partner
and to do or refrain from doing any or all things reasonably required by the
Managing General Partner in connection with the conduct of all such
proceedings.
10.10 ORGANIZATIONAL EXPENSE.
The Partnership shall elect to deduct expenses considered incurred in
organizing the Partnership ratably over a sixty-month period as provided in
Section 709 of the Code.
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10.11 TAXATION AS A PARTNERSHIP.
No election shall be made by the Partnership, the Operating Partnership,
the General Partners, or any Limited Partner or Assignee to be excluded from the
application of any of the provisions of Subchapter K, Chapter I of Subtitle A of
the Code or from any similar provisions of any state tax laws.
10.12 DETERMINATION OF ADJUSTED BASIS IN CONNECTION WITH SECTION 754
ELECTION.
In determining adjustments to any Partner's or Assignee's proportional
share of the Adjusted Basis of Partnership Assets or assets of the Operating
Partnership in connection with the Section 754 Election, if such election shall
be made, the Managing General Partner, for purposes of accounting simplicity,
shall treat each Partner or Assignee who acquires one or more Units or
Depositary Units at any time during a calendar month as having acquired all such
Units or Depositary Units on the first day of such calendar month at a price
equal to the lowest Unit Price of the Units or Depositary Units during such
month, irrespective of the date on or price at which such Units or Depositary
Units actually were acquired by such Partner or Assignee during such month. The
Managing General Partner shall be authorized to alter these accounting
conventions to conform with any regulations issued by the Treasury Department or
rulings or advice of the Internal Revenue Service, as the Managing General
Partner shall determine necessary or appropriate. To the extent the Managing
General Partner is required to determine the Adjusted Basis of any Partnership
Assets or assets of the Operating Partnership with respect to which the Code
requires that records of such Adjusted Basis be kept and maintained by the
Limited Partners or Assignees, the General Partner may request information
regarding such Adjusted Basis from such Limited Partners or Assignees, in
writing, and such Limited Partners shall furnish such information to the
Managing General Partner within thirty (30) calendar days after such request is
mailed by the Managing General Partner.
10.13 WITHHOLDING IN RESPECT OF FOREIGN PARTNERS.
(a) The Partnership shall comply with any and all withholding
obligations and requirements imposed under applicable federal, state and local
law, including Sections 1441, 1442, 1445 and 1446 of the Code and Regulations
promulgated thereunder and Rev. Proc. 89-31, 1989-1 C.B. 895, as well as all
other requirements of the Code applicable to foreign persons (within the meaning
of Sections 1445 or 1446 of the Code and Regulations promulgated thereunder),
and the Managing General Partner shall not be liable for the Partnership's
compliance with such obligations and requirements. Each Partner or Assignee who
is not a Foreign Partner shall, within thirty (30) days of such Partner's or
Assignee's receipt of a written request of the Managing General Partner, deliver
to the Managing General Partner a Non-Foreign Certificate. If applicable each
Partner or Assignee who is a Foreign Partner shall, within thirty (30) days of
such Foreign Partner's receipt of a written request of the Managing General
Partner, deliver to the Managing General Partner a Treaty Certificate. If the
Managing General Partner does not receive any response to the written request
within the indicated period of time, the Managing General Partner shall have the
right to presume that any such non-responding Partner or Assignee
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is a Foreign Partner ineligible for any benefits described in a Treaty
Certificate. Each Non-Foreign Certificate and Treaty Certificate received by
the Managing General Partner shall be maintained by the Managing General
Partner as part of the Partnership books and records in accordance with the
Treasury Regulations promulgated under Sections 1441, 1445 and 1446 of the
Code. Any Partner or Assignee who has previously delivered a Non-Foreign
Certificate or Treaty Certificate to the Managing General Partner shall
immediately notify the Managing General Partner in the event such Partner
becomes a Foreign Partner or ineligible for the benefits described in the
Treaty Certificate. Prior to any distribution or allocation made pursuant to
Article VI hereof or any disposition of part or all of the Partnership
properties, the Partnership shall have the right to require any Partner or
Assignee to deliver or redeliver a Non-Foreign Certificate or Treaty
Certificate as a condition to such Partner or Assignee taking part in such
allocation or distribution or as a condition to the Partnership's disposition
of part or all of the Partnership properties. The Partnership shall also have
the authority and power, to the extent qualified, to request and obtain from
the IRS a Withholding Certificate. The Managing General Partner shall not be
required to request a Withholding Certificate and shall not be liable for
either the Managing General Partner's or the Partnership's failure to request
a Withholding Certificate. Each Partner or Assignee shall, within thirty (30)
days of such Partner's or Assignee's receipt of a written request of the
Managing General Partner, deliver to the Managing General Partner information
necessary to obtain a Withholding Certificate.
(b) For purposes of this Agreement, any withholding tax that is paid
by the Partnership with respect to a Partner or Assignee shall be treated as a
recourse loan by the Partnership to such Partner or Assignee. All loans made
hereunder with respect to a Partner or Assignee shall be payable by the Partner
or Assignee on fifteen (15) days' notice from the Partnership, bear interest at
the highest lawful rate, not to exceed a rate per annum equal to the base rate
announced by Citibank, N.A. from time to time plus two percent (2%) and be
secured by such Partner's or Assignee's interest in the Partnership. So long as
any principal or interest is owing to the Partnership by a Partner or Assignee
in respect of any such loan, any amounts of money which would otherwise be
distributable to such Partner or Assignee pursuant to Article VI shall instead
be retained by the Partnership and applied against the amounts owing by the
Partner or Assignee in respect of all such loans until all amounts of principal
and interest owing in respect of all such loans have been paid or satisfied. A
Partner or Assignee shall have the right to prepay the amounts owing by such
Partner or Assignee in respect of any loan made on such Partner's or Assignee's
behalf at any time without premium or penalty. No funds transferred to the
Partnership pursuant to this Section 10.13(b) shall be treated as a Capital
Contribution to the Partnership. All amounts paid or applied in respect of such
loan shall be applied first against the accrued but unpaid interest thereon and
then to the principal balance thereof.
(c) In the event that a loan is deemed to be made by the Partnership
to a Partner or Assignee pursuant to Section 10.13(b), such Partner or Assignee
shall have full personal liability to pay all amounts of principal and interest
owing to the Partnership in respect of such loan. A Partner or Assignee shall
have fifteen (15) days to cure any default committed by such Partner or Assignee
in respect of any loan deemed to have been made to such Partner or Assignee,
said cure period to commence upon the sending of written notice by the
Partnership
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to such Partner or Assignee specifying the default that has occurred. If a
Partner or Assignee is indebted to the Partnership with respect to any loans
upon the liquidation of such Partner's or Assignee's Partnership Interest,
such loan shall be absolutely due and payable by such Partner or Assignee to
the Partnership on the tenth (10th) day following the liquidation of such
Partner's or Assignee's interest in the Partnership. Each Partner or Assignee
hereby acknowledges that the withholding obligations referred to in this
Section 10.13 may require the Managing General Partner, on behalf of the
Partnership, to remit to the applicable taxing authority cash that is in
excess of the amounts that would be distributable to such Partner or Assignee
under Article VI if no withholding tax were due with respect to such Partner
or Assignee.
(d) If the Partnership makes a distribution of money to a Partner or
Assignee pursuant to Article VI and the Partnership determines that it is
required to pay withholding tax (the amount of such tax being referred to herein
as the "Withholding Amount") to a taxing authority in connection therewith, the
Managing General Partner shall have the right to withhold from the amount
otherwise distributable to such Partner or Assignee the Withholding Amount and
to remit the Withholding Amount to the applicable taxing authority. It is
hereby acknowledged and agreed that if the Managing General Partner withholds
and remits to the applicable taxing authority a Withholding Amount with respect
to any Partner or Assignee, the amount so withheld shall be deemed to have been
actually distributed by the Partnership to such Partner or Assignee (and then
paid by such Partner or Assignee to the applicable taxing authority), for all
purposes of this Agreement. The provisions of this Section 10.13(d) are
intended to ensure that regardless of whether Withholding Amounts are remitted
to a taxing authority, all amounts distributable to a Partner or Assignee
pursuant to Article VI shall be treated as actually having been distributed to
the Partners or Assignee according to the distribution priorities of said
sections and that the withholding requirements imposed on the Partnership shall
not result in Cash Flow or Net Proceeds of Capital Transactions being
distributed to the Partners or Assignee in a manner that is inconsistent with
the provisions of Article VI.
10.14 QUALIFICATION AS A REIT.
In the event that the Managing General Partner at any time shall determine
that either the Partnership or the Operating Partnership does not qualify, or no
longer will qualify, as a partnership for federal income tax purposes, then the
Managing General Partner shall have the right, but not the obligation, to take
any such action as it, in its sole and absolute discretion, determines to be in
the interests of the Limited Partners and Assignees in connection therewith or
as a result thereof, including, without limitation to cause the Partnership and
the Operating Partnership to be reorganized so as to qualify as a "real estate
investment trust" within the meaning of Section 856 of the Code.
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ARTICLE XI
ISSUANCE AND DEPOSIT OF CERTIFICATE OF PARTNERSHIP INTEREST
11.1 ISSUANCE OF CERTIFICATES OF PARTNERSHIP INTEREST.
Upon the issuance of the Units in connection with the Initial Public
Offering, the Managing General Partner shall cause the Partnership to issue one
or more Certificates in the names of the Initial Limited Partners owning such
Units. Upon any subsequent issuance of Units, the Managing General Partner
shall cause the Partnership to issue additional Certificates therefor. Each
such Certificate shall be denominated in terms of the number of Units evidenced
by such Certificate. Upon the transfer of a Unit that is not a Depositary Unit
in accordance with Article XII, the Managing General Partner shall cause the
Partnership to issue replacement Certificates, in accordance with such
procedures as the Managing General Partner, in its sole and absolute discretion,
may establish. No Certificate shall be issued representing a fraction of a
Unit.
11.2 DEPOSIT OF CERTIFICATES OF PARTNERSHIP INTEREST; ISSUANCE OF DEPOSITARY
RECEIPTS.
The Initial Limited Partners shall cause all Certificates issued to them
in connection with the Initial Public Offering to be deposited with the
Depositary to be held under and pursuant to the terms of the Deposit
Agreement. In exchange for the Certificates transferred to the Depositary,
and pursuant to the Deposit Agreement, the Initial Limited Partners shall
receive Depositary Receipts evidencing their ownership of the Units held by
the Depositary. The Managing General Partner shall cause any subsequently
issued Units to be subject to the Deposit Agreement and Depositary Receipts to
be issued in exchange therefor pursuant to the Deposit Agreement, with such
changes in such arrangements with the Depositary as the Managing General
Partner deems necessary or appropriate.
11.3 LOST, STOLEN, OR DESTROYED CERTIFICATES.
The Partnership shall issue a new Certificate in place of any Certificate
previously issued if the Record Holder of such Certificate:
(a) makes proof by affidavit, in form and substance satisfactory to
the Managing General Partner, that such previously issued Certificate has been
lost, destroyed, or stolen;
(b) requests the issuance of a new Certificate before the Partnership
has noticed that such previously issued Certificate has been acquired by a
purchaser for value in good faith and without notice of an adverse claim;
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(c) if requested by the Managing General Partner, delivers to the
Partnership a bond, in form and substance satisfactory to the Managing General
Partner, with such surety or sureties and with fixed or open penalty, as the
Managing General Partner may direct, to indemnify the Partnership and the
Depositary against any claim that may be made on account of the alleged loss,
destruction, or theft of such previously issued Certificate; and
(d) satisfies any other reasonable requirements imposed by the
Managing General Partner. When a previously issued Certificate has been lost,
destroyed, or stolen, and the Partner fails to notify the Partnership within a
reasonable time after he has notice of such event, and a transfer of Units
represented by the Certificate is registered before such Partnership receives
such notification, the Partner shall be precluded from making any claim against
the Partnership, the Depositary, or any Transfer Agent with respect to such
transfer or for a new Certificate.
11.4 RECORD HOLDER.
The Partnership shall be entitled to treat each Record Holder as the
Limited Partner or Assignee in fact of any Units or Depositary Units, as the
case may be, and, accordingly, shall not be required to recognize any equitable
or other claim or interest in or with respect to such Units or Depositary Units
on the part of any other Person, regardless of whether it shall have actual or
other notice thereof, except as otherwise required by law or any applicable
rule, regulation, guideline, or requirement of any stock exchange on which the
Units or Depositary Units are listed for trading.
ARTICLE XII
TRANSFER OF INTERESTS AND UNITS
12.1 TRANSFER.
(a) The term "transfer," when used in this Article XIII with respect
to a Partnership Interest, Units, or Depositary Units, shall include any sale,
assignment, gift, pledge, hypothecation, mortgage, exchange, or other
disposition.
(b) No Partnership Interest, Unit, or Depositary Unit shall be
transferred, in whole or in part, except in accordance with the terms and
conditions set forth in this Article XII. Any transfer or purported transfer of
any Partnership Interest, Unit, or Depositary Unit not made in accordance with
this Article XII shall be null and void.
12.2 TRANSFER OF INTERESTS OF GENERAL PARTNERS.
(a) If a General Partner desires to sell or transfer all or any
portion of such General Partner's Partnership Interest as a General Partner to a
Person who is not a General Partner, such transfer shall be permitted if (and
only if):
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(i) such transfer and the admission of the transferee as a
general partner of the Partnership is approved by a Majority Vote
of the Limited Partners, unless the transferee is (A) an Affiliate
of the transferring General Partner or (B) a Limited Partner or an
Affiliate of a Limited Partner, in which case no such approval of
the Limited Partners shall be required; and
(ii) the Partnership receives an Opinion of Independent
Counsel that such transfer and admission (A) would not cause the
loss of limited liability of the Partnership under the Operating
Partnership Agreement or the Limited Partners under this Agreement,
and (B) would not cause the Partnership or the Operating
Partnership to be treated as an association taxable as a
corporation for federal income tax purposes.
(b) Neither Section 12.2(a) nor any other provision of this
Agreement shall be construed to prevent (and each Partner, by requesting and
being granted admission to the Partnership, is deemed to consent to):
(i) the transfer by any corporate General Partner of such
corporate General Partner's Partnership Interest as a General
Partner upon its merger or consolidation with another Person or the
transfer by it of all or substantially all of its assets to another
Person, and the assumption of the rights and duties of such a
corporate General Partner by such Person, provided such Person
furnishes to the Partnership an Opinion of Independent Counsel to
the effect that such merger, consolidation, transfer, or assumption
(1) would not cause the loss of limited liability of the
Partnership under the Operating Partnership Agreement or the
Limited Partners under this Agreement, and (2) would not cause the
Partnership or the Operating Partnership to be treated as an
association taxable as a corporation for federal income tax
purposes;
(ii) the transfer by a General Partner of all or any part of
its interest in items of Partnership income, gains, losses,
deduction, credits, distributions, or surplus; or
(iii) a General Partner's mortgaging, pledging, hypothecating,
or granting a security interest in all or any part of its
Partnership Interest as a General Partner as collateral for a loan
or loans.
12.3 TRANSFER OF UNITS.
Units that have never been deposited in the Deposit Account or that have
been withdrawn from the Deposit Account and not redeposited in the Deposit
Account are not transferable except upon death or by operation of law or by
transfer to the Managing General Partner for the account of the Partnership or
the Operating Partnership.
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12.4 TRANSFER OF DEPOSITARY RECEIPTS.
(a) Except as specifically provided in Section 12.3, the
Partnership shall not recognize any transfer of Units or interests therein
except by a transfer of Depositary Receipts representing Depositary Units.
Depositary Receipts may be transferred only in the manner provided in and
subject to the conditions set forth in the Deposit Agreement.
(b) A transferee who has completed and delivered a Transfer
Application shall be deemed (i) to have applied to be admitted to the
Partnership as a Substituted Limited Partner pursuant to Article XIII with
respect to the Units transferred; (ii) to have agreed to comply with and be
bound by this Agreement, whether or not such transferee is admitted as a
Substituted Limited Partner with respect to the Units transferred, and to
execute any document that the Managing General Partner may reasonably require to
be executed in connection with such transfer or with the admission of such
transferee as a Substituted Limited Partner pursuant to Article XIII with
respect to the Units transferred; and (iii) to have appointed the Managing
General Partner and authorized officers and attorneys-in-fact of the Managing
General Partner as attorney-in-fact for such transferee to execute, swear to,
acknowledge, and file any document, including any amendment of the Certificate
of Limited Partnership, necessary or appropriate in any jurisdiction for, and
relating to, the transferee's admission as a Substituted Limited Partner with
respect to the Units transferred and the transferee becoming a party to this
Agreement, as more fully set forth in Article XVII. Unless and until admitted
as a Substituted Limited Partner pursuant to Article XIII with respect to
Depositary Units transferred pursuant to this Section 12.4, the Record Holder of
a Depositary Unit transferred pursuant to this Section 12.4 shall be an Assignee
in respect of such Depositary Unit, whether or not such Record Holder is a
Limited Partner with respect to other Depositary Units.
(c) Each distribution in respect of a Depositary Unit (or a
Unit withdrawn from the Deposit Account) shall be paid by the Partnership,
directly or through the Depositary or through any other person or agent, only
to the Record Holder of such Depositary Unit (or such Unit withdrawn from the
Deposit Account) as of the Record Date set for such distribution. Such
payment shall constitute full payment and satisfaction of the Partnership's
liability in respect of such payment, regardless of any claim of any Person
who may have an interest in or with respect to such payment by reason of any
assignment or otherwise.
(d) Notwithstanding anything to the contrary herein, the
Partnership shall not recognize for any purpose any purported transfer by a
Limited Partner or Assignee of all or any part of a Depositary Unit held by
such Limited Partner or Assignee until the Partnership shall have received
(A) the written advice by the Depositary, pursuant to Section 4.5 of the
Deposit Agreement, of the transfer of the Depositary Receipts evidencing such
Depositary Units or (B) in the case of Depositary Units held by the same
nominee for the transferor and the transferee, the receipt of written
notification in accordance with Section 18.2 hereof from the nominee holder
of the date of the transfer of such Depositary Units.
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(e) Any holder of a Unit or a Depositary Receipt (including a
transferee thereof) conclusively shall be deemed to have agreed to comply with
and be bound by all terms and conditions of this Agreement, with the same effect
as if such holder had executed a Transfer Application, whether or not such
holder in fact has executed such a Transfer Application. A request by any
broker, dealer, bank, trust company, clearing corporation, or nominee holder, to
register transfer of a Depositary Receipt, however signed (including by any
stamp, mark, or symbol executed or adopted with intent to authenticate the
Depositary Receipt), shall be deemed to be execution of a Transfer Application
by and on behalf of the beneficial owner of such Depositary Receipt.
(f) Notwithstanding anything to the contrary herein, no
purchaser of a Depositary Receipt from an Initial Limited Partner in
connection with or pursuant to the Initial Public Offering shall be required
to execute a Transfer Application in order to effect the transfer of such
Depositary Receipt or to become a Substituted Limited Partner with respect to
the Units evidenced thereby. Each such purchaser, by acquiring such
Depositary Receipt in connection with or pursuant to the Initial Public
Offering, shall be deemed to have agreed to comply with and to be bound by
all terms and conditions of this Agreement, the Deposit Agreement, and the
Depositary Receipt and to have taken the other actions specified in the
Transfer Application and Section 12.4(b) above as if such purchaser had
executed the Transfer Application. The Managing General Partner shall admit
to the Partnership as Substituted Limited Partners all purchasers of
Depositary Receipts from the Initial Limited Partners in connection with or
pursuant to the Initial Public Offering.
12.5 RESTRICTIONS ON TRANSFER.
Notwithstanding the other provisions of this Article XII, no transfer of
any Unit, Depositary Unit, or the Partnership Interest of any Limited Partner in
the Partnership shall be made if such transfer (a) would violate the then
applicable federal and state securities laws or rules and regulations of the
Commission, state securities commissions, and any other governmental authorities
with jurisdiction over such transfer; (b) would result in the Partnership being
treated as an association taxable as a corporation for federal income tax
purposes; or (c) would affect the Partnership's existence or qualification as a
limited partnership under the Delaware RULPA.
ARTICLE XIII
ADMISSION OF PARTNERS
13.1 ADMISSION OF INITIAL LIMITED PARTNERS.
(a) On the Closing Date and, if applicable, the Date of
Delivery, the Managing General Partner admitted to the Partnership as Limited
Partners the Initial Limited Partners.
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(b) At the consummation of any issuance of additional Units
pursuant to Section 5.5(a), the Persons acquiring such Units may, in the sole
and absolute discretion of the Managing General Partner, be admitted to the
Partnership as Additional Limited Partners upon furnishing to the Managing
General Partner an acceptance of, and an agreement to be bound by, all of the
terms and provisions of this Agreement, in form and substance satisfactory to
the Managing General Partner, and such other documents or instruments as may
be required in order to effect such admission, and such admission shall be
effective when the Managing General Partner determines in its sole and
absolute discretion and such admission is shown on the books and records of
the Partnership.
13.2 ADMISSION OF SUBSTITUTED LIMITED PARTNERS.
(a) Upon a transfer of a Depositary Unit of a Limited
Partner or Assignee in accordance with Article XII, the transferor shall,
subject to the provisions of Section 12.4(d), have the power to give, and by
transfer of a Depositary Receipt, shall be deemed to have given, the
transferee of such Person's Depositary Unit the right to apply to become a
Substituted Limited Partner with respect to the Depositary Unit acquired,
subject to the conditions of and in the manner permitted under this
Agreement. Subject to the foregoing, each transferee of a Depositary Unit
(including any Person, such as a broker, dealer, bank, trust company,
clearing corporation, other nominee holder, or an agent of any of the
foregoing, acquiring such Depositary Unit for the account of another Person)
shall be deemed to have applied to become a Substituted Limited Partner with
respect to the Depositary Unit transferred to such Person by executing and
delivering a Transfer Application at the time of such transfer as provided in
Section 12.4(b). A transferee of a Depositary Unit shall be an Assignee with
respect to the Depositary Unit acquired in a transfer (whether or not such
transferee is a Limited Partner or Substituted Limited Partner with respect
to other previously acquired Units or Depositary Units) unless and until the
Managing General Partner, in its sole and absolute discretion, consents to
the admission of such Assignee as a Substituted Limited Partner with respect
to the Depositary Unit acquired in the transfer and amends (or causes to be
amended) this Agreement to reflect such admission, after which time such
transferee shall be a Substituted Limited Partner with respect to such
Depositary Unit.
(b) Under the terms of the Deposit Agreement, the Depositary is
obligated to prepare as of the close of business on the last Business Day of
each month, a list or other appropriate evidence of all transfers of Depositary
Units registered by all Transfer Agents since the last Business Day of the
preceding month (hereinafter called the "transfer record") and, as promptly as
practicable after the last Business Day of each month, to submit the transfer
record to the Managing General Partner. Within thirty (30) days after receipt
of the transfer record by the Managing General Partner, the Managing General
Partner shall determine whether or not to admit as a Substituted Limited Partner
any one or more of the Assignees listed in such transfer record, and shall amend
(or cause to be amended) this Agreement in accordance with Section 16.1 and
shall prepare and record (or cause to be prepared and recorded) in such
jurisdictions (if any) as shall be necessary, an amendment to the Certificate of
Limited Partnership pursuant to Section 2.1, or to any other filing made in such
jurisdiction, to reflect the admission as
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Substituted Limited Partners those Assignees that the Managing General
Partner, in its sole and absolute discretion, determines shall be admitted as
Substituted Limited Partners.
(c) Anything in this Section 13.2 to the contrary
notwithstanding, no Person shall be admitted as a Substituted Limited Partner
with respect to a Depositary Unit acquired by transfer without the written
consent of the Managing General Partner (whether or not such Record Holder is
a Limited Partner with respect to other Units or Depositary Units), which
consent may be withheld or granted in the sole and absolute discretion of the
Managing General Partner. Each Limited Partner consents to the admission of
each Substituted Limited Partner pursuant to the terms of this Agreement, and
no further consent of the Partners, other than that of the Managing General
Partner as aforesaid, shall be required to effect such admission.
(d) The admission of an Assignee as a Substituted Limited
Partner with respect to a Depositary Unit acquired by transfer shall become
effective on the date that the Managing General Partner gives its written
consent to such admission and amends this Agreement to reflect such admission.
(e) Any Limited Partner who transfers all of his Units and
Depositary Units with respect to which he had been admitted as a Limited
Partner shall cease to be a Limited Partner of the Partnership upon a
transfer of such Units and Depositary Units in accordance with Article XII
and shall have no further rights as a Partner in or with respect to the
Partnership (whether or not the Assignee of such former Limited Partner is
admitted to the Partnership as a Substituted Limited Partner).
(f) No person shall be entitled to become a Substituted Limited
Partner with respect to any Units or Depositary Units except in accordance with
this Section 13.2.
13.3 ADMISSION OF A SUCCESSOR GENERAL PARTNER.
A successor General Partner selected or designated pursuant to
Section 14.1 or 14.2 or the transferee of all or any portion of the
Partnership Interest of a General Partner pursuant to Section 12.2 shall be
admitted to the Partnership as a General Partner (in the place, in whole or
in part, of the transferor or former General Partner), effective as of the
date that an amendment of the Certificate of Limited Partnership, adding the
name of such successor General Partner and other required information, is
recorded pursuant to Section 2.1 (which date, in the event the successor
General Partner is in the place in whole of the transferor or former General
Partner, shall be contemporaneous with the withdrawal of such transferor or
former General Partner), and upon receipt by the transferor or former General
Partner of all of the following:
(a) the successor General Partner's acceptance of, and
agreement to be bound by, all of the terms and provisions of this Agreement,
in form and substance satisfactory to the transferor or former General
Partner;
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(b) evidence of the authority of such successor General
Partner to become a General Partner and to be bound by all of the terms and
conditions of this Agreement;
(c) the written agreement of the successor General Partner
to continue the business of the Partnership in accordance with the terms and
provisions of this Agreement; and
(d) such other documents or instruments as may be required
in order to effect the admission of the successor General Partner as a
General Partner under this Agreement.
ARTICLE XIV
WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS;
WITHDRAWAL OF LIMITED PARTNERS
14.1 WITHDRAWAL OF GENERAL PARTNERS.
(a) The Managing General Partner shall not withdraw from the
Partnership unless (i) the Managing General Partner shall have transferred all
of its Partnership Interest as a General Partner in accordance with Section
12.2; or (ii) such withdrawal shall have been approved by a Majority Vote of the
Limited Partners; provided, however, that if QSV withdraws or is removed as the
Managing General Partner, and in either case, elects to convert its Partnership
Interest for the Acquisition Price, as provided for in Section 9.1, the REIT or
an Affiliate of the REIT, as designated by the REIT shall automatically succeed
QSV and shall be admitted to the Partnership pursuant to Section 13.3.
(b) Upon the occurrence of any one of the foregoing
conditions, a General Partner may withdraw from the Partnership' effective on
at least thirty (30) days' advance written notice to the Limited Partners,
such withdrawal to take effect on the date specified in such notice. The
withdrawal of a General Partner pursuant to this Section 14.1 also shall
constitute the withdrawal of such General Partner as a general partner of the
Operating Partnership. The General Partners shall have no liability to the
Partnership or the Partners and Assignees on account of any withdrawal in
accordance with the terms of this Section 14.1. If a General Partner shall
give a notice of withdrawal pursuant to this Section 14.1, then a Majority
Vote of the Limited Partners, with the separate written concurrence of any
remaining General Partner, may elect a successor General Partner. If no
successor General Partner shall be elected in accordance with this Section
14.1 and there shall be no remaining General Partner, then the Partnership
shall be dissolved pursuant to Article XV.
14.2 REMOVAL OF GENERAL PARTNERS.
(a) A General Partner may be removed as general partner (i) for
"cause" (as hereinafter defined), upon an affirmative Majority Vote of the
Limited Partners, or (ii) upon an affirmative Super-Majority Vote of the Limited
Partners. Any such action by the Limited Partners also must provide for the
election of a successor General Partner and shall become
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effective only upon admission of the successor General Partner pursuant to
Article XIII. The removal of a General Partner pursuant to this Section 14.2
also shall constitute the removal of that Person as a general partner of the
Operating Partnership, and the Person elected as successor General Partner in
connection therewith also shall automatically become the successor general
partner of the Operating Partnership. As used herein, "cause" shall mean
actual fraud, gross negligence, or willful or wanton misconduct.
(b) Written notice of the removal of a General Partner
pursuant to this Section 14.2 shall be served upon such General Partner in
the manner set forth in Section 18.2. Such notice shall set forth the day
upon which such removal is to become effective, which date shall not be less
than thirty (30) days after the service of the written notice upon the
General Partner.
(c) A General Partner removed as a General Partner pursuant
to this Section 14.2 shall not have any right to participate in the
management or affairs of the Partnership upon the effective date of such
removal.
14.3 LIMITATIONS ON WITHDRAWAL OR REMOVAL OF A GENERAL PARTNER AND ELECTION
OF A SUCCESSOR GENERAL PARTNER.
Notwithstanding the provisions of Sections 14.1 and 14.2, the rights
of the Limited Partners under Section 14.1 or 14.2 shall not be exercised
until such time as the Partnership shall have received an Opinion of
Independent Counsel that the action in question (i) may be taken without the
concurrence of all Partners, (ii) would not cause the loss of limited
liability of the Partnership under the Operating Partnership Agreement or of
the Limited Partners under this Agreement, and (iii) would NOT cause the
Partnership or the Operating Partnership to be treated as an association
taxable as a corporation for federal income tax purposes.
14.4 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP.
This Agreement and the Certificate of the Limited Partnership shall be
amended to reflect the withdrawal, removal, or succession of a General Partner.
14.5 INTEREST OF DEPARTING PARTNER AND SUCCESSOR.
(a) Except as provided in Section 9.1 with respect to QSV,
upon the withdrawal or removal of a Departing Partner, such Departing Partner
shall become a Limited Partner and its Partnership Interest as a General
Partner shall be converted into the number of Units determined by dividing
(i) the "fair market value" of such General Partner's Partnership Interest as
a General Partner herein, determined as set forth in Section 14.5(b) as of
the effective date of its departure, by (ii) the Unit Price determined as of
the effective date of its departure.
(b) For purposes of this Section 14.5, the "fair market
value" of the Departing Partner's Partnership Interest as a General Partner
shall be the amount that would be distributed to the Departing Partner
pursuant to Section 6.8 if the Partnership Assets and the assets of the
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Operating Partnership were sold for cash in an orderly liquidation of the
Partnership Assets and the assets of the Operating Partnership commencing on
the effective date of the Departing Partner's departure, with such
liquidation being effected through arm's-length sales between informed and
willing purchasers under no compulsion to buy and informed and willing
sellers under no compulsion to sell, with the proceeds from such hypothetical
sales to be discounted (at a rate equal to the interest rate on U.S. Treasury
obligations with a term of one (1) year issued on the date nearest the
effective date of the Departing Partner's departure) to the effective date of
the Departing Partner's departure to reflect the time period reasonably
anticipated to be necessary to consummate such sales, as such "fair market
value" is agreed upon by the Departing Partner and the Partnership within
thirty (30) days after the effective date of the Departing Partner's
departure or, in the absence of such an agreement, as determined by the
Appraiser. The Appraiser shall use such method or methods of valuation as
the Appraiser determines most accurately reflect the value of the Partnership
Properties under the circumstances, provided that for a period of five (5)
years from the Closing Date, the Appraiser shall use the "capitalization of
income" method (applying such capitalization rate and other assumptions and
adjustments as the Appraiser determines appropriate under the circumstances)
unless the Appraiser determines that use of such method would result in an
understatement of the value of the Partnership Properties. Any appraisal
pursuant to this Section 14.5(b) shall be completed as soon as practicable
after the Appraiser is notified of the requirement for such appraisal, and in
any event within forty-five (45) days after such notice, and the report of
the Appraiser setting forth the appraised fair market value of Partnership
Assets and assets of the Operating Partnership as of such date shall be final
and binding upon the Departing Partner and the Partnership. The amount that
would be distributed to the Departing Partner pursuant to Section 6.8 if the
Partnership Assets and the assets of the Operating Partnership were so sold
shall be determined by the Accounting Firm within fifteen (15) days after the
report of the Appraiser is received by the Partnership. The closing of the
conversion of the Departing Partner's Partnership Interest into Units
pursuant to Section 14.5(a) shall occur within ten (10) days after the date
on which the Accounting Firm shall have determined the amount distributable
to the Departing Partner pursuant to Section 6.7 for purposes of this Section
14.5(b).
(c) At any time after the departure of a Departing Partner,
upon the request of such Departing Partner, the Partnership shall, as long as
the Units are still listed on the New York Stock Exchange, Inc., file with
the Commission as promptly as practicable after receiving such request, and
shall use its best efforts to cause to become effective, a registration
statement under the Securities Act registering the offering and sale of the
Units owned by the Departing Partner or any Affiliate at the time of such
Departing Partner's departure, including any Units that were received by the
Departing Partner pursuant to Section 14.5(a) and are included in such
request, provided that the Partnership shall be required to file no more than
two (2) such registration statements at the request of any one Departing
Partner. In connection with any registration pursuit to the preceding
sentence, the Partnership promptly shall prepare and file such documents as
may be necessary to register or qualify the Units subject to such
registration under the securities laws of such states as the Departing
Partner shall reasonably request and do any and all other acts and things
that may reasonably be necessary or advisable to enable such Departing
Partner to consummate a public sale of such Units in such states. The first
registration
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effected under this paragraph shall be effected at the expense of the
Partnership, except for underwriting discounts, fees, and commissions, and
fees and expenses of legal counsel for the Departing Partner or its
Affiliates, and any subsequent registrations shall be at the expense of the
Departing Partner. Any registration statement filed pursuant hereto shall be
continued in effect for a period of not less than ninety (90) days following
its effective date. In the event of any registration of any Units pursuant
to this Section 14.5(c), the Partnership shall indemnify the Departing
Partner and its Affiliates and any underwriter engaged in connection with
such registration and each other person, if any, who controls any such
underwriter within the meaning of the Securities Act, in the manner and to
the extent set forth in Section 7.14(d).
(d) Any successor General Partner other than by reason of the
transfer of a Partnership Interest, shall, at the effective date of its
admission to the Partnership as a General Partner, contribute to the capital of
the Partnership cash in an amount equal to (i) the product of the aggregate
number of Units and shares of Common Stock outstanding immediately prior to the
effective date of such successor General Partner's admission (but after giving
effect to the conversion described in Section 14.5(a)), multiplied by the Share
Price or the Unit Price, as applicable, determined as of the effective date of
such successor General Partner's admission, multiplied by (ii) a fraction, the
numerator of which shall be the excess (the "Percentage Interest Excess") of 1%
over the Percentage Interest of any remaining General Partners, and the
denominator of which shall be 99%. Thereafter, such successor General Partner
shall, notwithstanding any other provision of this Agreement, be entitled to the
Percentage Interest Excess of all Partnership allocations and distributions.
(e) If, at the time of the Departing Partner's departure, the
Partnership is indebted to the Departing Partner under this Agreement or any
other instrument or agreement for funds advanced, properties sold, services
rendered, or costs and expenses incurred by the Departing Partner (including,
without limitation, any amounts advanced pursuant to the revolving line of
credit described in Section 7.13), the Partnership shall, within sixty (60) days
after the effective date of such Departing Partner's departure, pay to the
Departing Partner the full amount of such indebtedness. The successor to the
Departing Partner shall assume all obligations theretofore included by the
Departing Partner, a General Partner of the Partnership, and the Partnership and
such successor shall take all such action as shall be necessary to terminate any
guarantees of the Departing Partner, and any of its Affiliates, of any
obligations of the Partnership. If, for whatever reason, the creditors of the
Partnership shall not consent to such termination of any such guarantees, the
successor to the Departing Partner and the Partnership shall be required to
indemnify the Departing Partner for any liabilities and expenses incurred by the
Departing Partner on account of such guarantees.
14.6 WITHDRAWAL OF LIMITED PARTNERS.
No Limited Partner shall have any right to withdraw from the
Partnership; provided, however, that upon a transfer of a Limited Partner's
Units in accordance with Article XII, such Limited Partner shall cease to be
a Limited Partner with respect to the Units so transferred. No
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Limited Partner shall be entitled to receive any distribution from the
Partnership for any reason or upon any event except as expressly set forth in
Articles VI and XV.
ARTICLE XV
DISSOLUTION AND LIQUIDATION
15.1 NO DISSOLUTION.
The Partnership shall not be dissolved by the admission of additional
Limited Partners or Substituted Limited Partners or by the admission of
additional General Partners or Substituted General Partners in accordance with
the terms of this Agreement.
15.2 EVENTS CAUSING DISSOLUTION.
The Partnership shall be dissolved and its affairs wound up upon the
occurrence of any of the following events:
(a) the expiration of the term of the Partnership, as provided
in Section 4.1;
(b) the withdrawal of the Managing General Partner or the
occurrence of any other event that results in the Managing General Partner
ceasing to be the Managing General Partner (other than by reason of a
transfer pursuant to Section 12.2 or a withdrawal occurring upon or after, or
a removal effective upon or after, selection of a successor pursuant to
Section 14.1 or 14.2, as the case may be);
(c) the "Bankruptcy" (as hereinafter defined) of the
Managing General Partner;
(d) a written determination by the Managing General Partner
that projected future revenues of the Partnership will be insufficient to
enable payment of projected Partnership costs and expenses or, if sufficient,
will be such that continued operation of the Partnership is not in the best
interests of the Partners;
(e) an election by a Majority Vote of Limited Partners, with
the approval of the General Partners, to terminate, liquidate, and dissolve
the Partnership; or
(f) the occurrence of any other event that, under the
Delaware RULPA, would cause the dissolution of the Partnership or that would
make it unlawful for the business of the Partnership to be continued.
For purposes of this Agreement, the term "Bankruptcy" shall mean, and
the Managing General Partner shall be deemed "Bankrupt" upon, (i) the entry
of a decree or order for relief of the Managing General Partner by a court of
competent jurisdiction in any involuntary case involving the Managing General
Partner under any bankruptcy, insolvency, or other similar law
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now or hereafter in effect; (ii) the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator, or other similar agent for the
Managing General Partner or for any substantial part of the Managing General
Partner's assets or property; (iii) the ordering of the winding up or
liquidation of the Managing General Partner's affairs; (iv) the filing with
respect to the Managing General Partner of a petition in any such involuntary
bankruptcy case, which petition remains undismissed for a period of ninety
(90) days or which is dismissed or suspended pursuant to Section 305 of the
Federal Bankruptcy Code (or any corresponding provision of any future United
States bankruptcy law); (v) the commencement by the Managing General Partner
of a voluntary case under any bankruptcy, insolvency, or other similar law
now or hereafter in effect; (vi) the consent by the Managing General Partner
to the entry of an order for relief in an involuntary case under any such law
or to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator, or other similar agent for the
Managing General Partner or for any substantial part of the Managing General
Partner's assets or property; (vii) the making by the Managing General
Partner of any general assignment for the benefit of creditors; or (viii) the
failure by the Managing General Partner generally to pay its debts as such
debts become due.
15.3 RIGHT TO CONTINUE BUSINESS OF PARTNERSHIP.
Upon an event described in Sections 15.2(b), 15.2(c), or 15.2(f) (but
not an event described in Section 15.2(f) that makes it unlawful for the
business of the partnership to be continued), the Partnership thereafter
shall be dissolved and liquidated unless, within ninety (90) days after the
event described in any of such Sections, an election to reconstitute and
continue the business of the Partnership shall be made in writing by (i) the
remaining General Partner, if any, in its sole and absolute discretion; or
(ii) in the event there is no remaining General Partner, or in the event that
any remaining General Partner does not so elect to reconstitute and continue
the business of the Partnership, then, subject to receipt by the Partnership
of an Opinion of Independent Counsel to the effect described in Section 14.3,
by the unanimous written agreement of all remaining Partners; provided that
by a Super-Majority Vote of the Limited Partners the Limited Partners may
elect to reconstitute and continue the business of the Partnership upon
receipt of an Opinion from Independent Counsel that unanimous written
agreement of the Limited Partners is not required for the Partnership or
Operating Partnership to be treated as a partnership for federal income tax
purposes. If such an election to continue the Partnership is made, then:
(i) if such election was made by all remaining Partners, a
successor Managing General Partner shall be selected unanimously by
all remaining Partners;
(ii) if such election was made by the remaining General Partner,
such Person shall be the Managing General Partner (and if not
previously the Managing General Partner, shall serve as Managing
General Partner until a successor to the Managing General Partner is
admitted to the Partnership);
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(iii) the Partnership shall continue until another event
causing dissolution in accordance with this Article XV shall occur;
(iv) the Partnership Interest of the former General Partner
shall be subject to disposition, at the option of the former General
Partner, in the manner provided in Section 14.5(a) (which option shall
be exercised contemporaneously with the selection of the successor
General Partner); and
(v) all necessary steps shall be taken to amend this Agreement
and the Certificate of Limited Partnership to reflect the
reconstitution and continuation of the business of the Partnership.
15.4 DISSOLUTION.
Except as otherwise provided in Section 15.3, upon the dissolution of
the Partnership, the Certificate of Limited Partnership shall be canceled in
accordance with the provisions of the Delaware RULPA, and the Managing
General Partner (or, if the dissolution is caused by the withdrawal,
bankruptcy, dissolution, or removal of the Managing General Partner, then the
Person designated as Liquidating Trustee in Section 15.5 hereof) promptly
shall notify the Partners and Assignees of such dissolution.
15.5 LIQUIDATION.
Upon dissolution of the Partnership, unless an election to continue the
business of the Partnership is made pursuant to Section 15.3, the Managing
General Partner, or, in the event the dissolution is caused by an event
described in Section 15.2(b) or 15.2(c), a Person or Persons selected by a
Majority Vote of the Limited Partners, shall be the Liquidating Trustee. The
Liquidating Trustee shall proceed without any unnecessary delay to sell or
otherwise liquidate the Partnership Assets and shall apply and distribute the
proceeds of such sale or liquidation in the following order of priority, unless
otherwise required by mandatory provisions of applicable law:
(a) to pay (or to make provision for the payment of) all
creditors of the Partnership, including current and former Partners, in the
order of priority provided by law other than obligations to make
distributions to current and former Partners;
(b) to pay, on a pro rata basis, all current and former
Partners with respect to obligations to make distributions thereto; and
(c) after the payment (or the provision for payment) of all
debts, liabilities, and obligations of the Partnership, including, without
limitation, the payment of expenses of liquidation of the Partnership, and
the establishment of a reasonable reserve (including an amount estimated by
the Liquidating Trustee to be sufficient to pay an amount reasonably
anticipated to
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be required to be paid pursuant Section 7.10 hereof), to the Partners and
Assignees in accordance with Section 6.7.
The Liquidating Trustee, if other than the Managing General Partner,
shall be entitled to receive such compensation for its services as Liquidating
Trustee as may be approved by a Majority Vote of the Limited Partners. The
Liquidating Trustee shall agree not to resign at any time without sixty (60)
days prior written notice and, if other than the Managing General Partner, may
be removed at any time, with or without cause, by written notice of removal
approved by a Majority Vote of the Limited Partners. Upon dissolution, removal,
or resignation of the Liquidating Trustee, a successor and substitute
Liquidating Trustee (who shall have and succeed to all rights, powers and duties
of the original Liquidating Trustee) shall be selected within ninety (90) days
thereafter by a Majority Vote of the Limited Partners. The right to appoint a
successor or substitute Liquidating Trustee in the manner provided herein shall
be recurring and continuing for so long as the functions and services of the
Liquidating Trustee are authorized to continue under the provisions hereof, and
every reference herein to the Liquidating Trustee will be deemed to refer also
to any such successor or substitute Liquidating Trustee appointed in the manner
herein provided. Except as expressly provided in this Article XV, the
Liquidating Trustee appointed in the manner provided herein shall have and may
exercise, without further authorization or consent of any of the parties hereto,
all of the powers conferred upon the Managing General Partner under the terms of
this Agreement (but subject to all of the applicable limitations, contractual
and otherwise, upon the exercise of such powers) to the extent necessary or
desirable in the good faith judgment of the Liquidating Trustee to carry out the
duties and functions of the Liquidating Trustee hereunder (including the
establishment of reserves for liabilities that are contingent or uncertain in
amount) for and during such period of time as shall be reasonably required in
the good faith judgment of the Liquidating Trustee to complete the winding up
and liquidation of the Partnership as provided for herein. In the event that no
Person is selected to be the Liquidating Trustee as herein provided within one
hundred twenty (120) days following the event of dissolution, or in the event
the Limited Partners fail to select a successor or substitute Liquidating
Trustee within the time periods set forth above, any Partner may make
application to a Court of Chancery of the State of Delaware to wind up the
affairs of the Partnership and, if deemed appropriate, to appoint a Liquidating
Trustee.
15.6 REASONABLE TIME FOR WINDING UP.
A reasonable time shall be allowed for the orderly winding up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 15.5 in order to minimize any losses otherwise attendant
upon such a winding up.
15.7 TERMINATION OF PARTNERSHIP.
Except as otherwise provided in this Agreement, the Partnership shall
terminate when all of the assets of the Partnership shall have been converted
into cash, the net proceeds therefrom, as well as any other liquid assets of the
Partnership, after payment of or due provision for all debts, liabilities and
obligations of the Partnership, shall have been distributed to the Partners as
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provided for in Sections 6.7 and 15.5, and the Certificate of Limited
Partnership shall have been canceled in the manner required by the Delaware
RULPA.
ARTICLE XVI
AMENDMENTS; MEETINGS; RECORD DATE
16.1 AMENDMENT TO BE ADOPTED SOLELY BY THE MANAGING GENERAL PARTNER.
The Managing General Partner (pursuant to the Managing General Partner's
powers of attorney from the Limited Partners and Assignees described in Article
XVII), without the consent or approval at the time of any Limited Partner or
Assignee (each Limited Partner and Assignee, by acquiring a Unit or Depositary
Unit and requesting admission to the Partnership, being deemed to consent to any
such amendment), may amend any provision of this Agreement, and execute, swear
to, acknowledge, deliver, file, and record all documents required or desirable
in connection therewith, to reflect:
(a) a change in the name of the Partnership or the location of
the principal place of business of the Partnership;
(b) the admission, substitution, termination, or withdrawal of
Partners in accordance with this Agreement;
(c) a change that is necessary to qualify the Partnership as a
limited partnership or a partnership in which the Limited Partners have limited
liability under the laws of any state or that is necessary or advisable in the
opinion of the Managing General Partner to ensure that the Partnership will not
be treated as an association taxable as a corporation for federal income tax
purposes;
(d) a change that is (i) of an inconsequential nature and
does not adversely affect the Limited Partners or any Assignees in any
material respect; (ii) necessary or desirable to cure any ambiguity, to
correct or supplement any provision herein that would be inconsistent with
any other provision herein, or to make any other provision with respect to
matters or questions arising under this Agreement that will not be
inconsistent with the provision of this Agreement; (iii) necessary or
desirable to satisfy any requirements, conditions, or guidelines contained in
any opinion, directive, order, ruling, or regulation of any federal or state
agency or contained in any federal or state statute; (iv) necessary or
desirable to facilitate the trading of the Depositary Units or comply with
any rule, regulation, guideline, or requirement of any securities exchange on
which the Depositary Units are or will be listed for trading, compliance with
any of which the Managing General Partner deems to be in the interests of the
Partnership, the Limited Partners, and any Assignees; or (v) required or
contemplated by this Agreement;
(e) a change in any provision of this Agreement which requires
any action to be taken by or on behalf of the Managing General Partner or the
Partnership pursuant to the
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requirements of applicable Delaware law if the provisions of applicable
Delaware law are amended, modified, or revoked so that the taking of such
action is no longer required; or
(f) any other amendments similar to the foregoing.
The authority set forth in Section 16.1(e) shall specifically include the
authority to make such amendments to this Agreement and to the Certificate of
Limited Partnership as the Managing General Partner deems is necessary or
desirable in the event the Delaware RULPA is amended to eliminate or change any
provision now in effect.
16.2 AMENDMENT PROCEDURES.
Except as specifically provided in Sections 16.1 and 16.3, all
amendments to this Agreement shall be made solely in accordance with the
following procedures:
(a) Any amendments of this Agreement must be proposed either:
(i) by the Managing General Partner, by submitting the
text of the proposed amendment to all Limited Partners in
writing; or
(ii) by Limited Partners owning (as Limited Partners and
not as Assignees) at least twenty-five percent (25%) of the total
Units and Depositary Units owned by Limited Partners (as Limited
Partners and not as Assignees), by submitting their proposed
amendment in writing to the Managing General Partner. The
Managing General Partners shall, within sixty (60) days after
the receipt of any such proposed amendment, or as soon thereafter
as is reasonably practicable, submit the text of the proposed
amendment to all Limited Partners. The Managing General Partner
may include in such submission its recommendation as to the
proposed amendment.
(b) If an amendment is proposed pursuant to this Section
16.2, the Managing General Partner shall seek the written consent of the
Limited Partners to such amendment or shall call a meeting of the Limited
Partners to consider and vote on the proposed amendment, unless, in the
Opinion of Independent Counsel, such proposed amendment would be illegal
under Delaware law if adopted, in which case the Managing General Partner
shall not be required to take any further action with respect thereto. A
proposed amendment shall be effective only if approved by the General
Partners in writing and by a Majority Vote of the Limited Partners, unless a
greater percentage vote of the Limited Partners is required by law or any
other provision of this Agreement. The Managing General Partner shall keep
all Partners advised of the status of any proposed amendment and shall notify
all Partners upon final adoption or rejection of any proposed amendment.
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16.3 AMENDMENT RESTRICTIONS.
Notwithstanding the provisions of Sections 16.1 and 16.2, (a) no amendment
to this Agreement shall be permitted without a unanimous vote of the Limited
Partners if such amendment, in the Opinion of Independent Counsel, (i) would
cause the loss of limited liability of the Partnership under the Operating
Partnership Agreement or of the Limited Partners under this Agreement, or (ii)
would cause the Partnership or the Operating Partnership to be treated as an
association taxable as a corporation for federal income tax purposes; and (b) no
amendment to any provision of Article VIII shall be permitted without the
written consent of BKC, whether or not BKC is a General Partner at the time of
such amendment.
16.4 MEETINGS.
Meetings of the Limited Partners may be called by the Managing General
Partner or by Limited Partners owning (as Limited Partners and not as Assignees)
at least twenty percent (20%) of the Units and Depositary Units owned by Limited
Partners as Limited Partners (and not as Assignees). Any Partner calling a
meeting shall specify the number of Units and Depositary Units as to which the
Partner is exercising the right to call a meeting and only those specified Units
and Depositary Units shall be counted for the purpose of determining whether the
required twenty percent (20%) standard of the preceding sentence has been met.
Limited Partners desiring to call a meeting shall deliver to the Managing
General Partner one or more calls in writing stating that the Limited Partners
signing such writing wish to call a meeting and indicating the specific purposes
for which the meeting is to be called. Action at the meeting shall be limited
to those specific matters specified in the call of the meeting. Within sixty
(60) days after receipt of such a call from Limited Partners, or within such
greater time as may be reasonably necessary for the Partnership to comply with
any statutes, rules, regulations, listing agreements, or similar requirements
governing the holding of a meeting or the solicitation of proxies for use at
such a meeting, the Managing General Partner shall send a notice of the meeting
to the Limited Partners either directly or indirectly through the Depositary. A
meeting shall be held at a reasonable time and convenient place determined by
the Managing General Partner or the Liquidating Trustee, as the case may be, on
a date not more than sixty (60) days after the mailing of notice of the meeting.
Except as otherwise expressly specified by this Agreement (such as in the case
of matters requiring a Majority Vote of the Limited Partners or a Super-Majority
Vote of the Limited Partners), matters submitted to the Limited Partners for
determination at a meeting at which a quorum is present shall be determined by
the affirmative vote of a majority of the Units and Depositary Units present and
voting at such meeting. Limited Partners may vote either in person or by proxy
at any meeting. No action shall be taken at any meeting unless the Partnership
has received an Opinion of Independent Counsel that such action (i) would not
cause the loss of limited liability of the Partnership under the Operating
Partnership Agreement or of the Limited Partners under this Agreement and (ii)
would not cause the Partnership or the Operating Partnership to be treated as an
association taxable as a corporation for federal income tax purposes. Each
Limited Partner shall have one vote for each Unit or Depositary Unit as to which
he has been admitted to the Partnership as a Limited Partner. A Limited Partner
may cast its vote at any meeting in person or by proxy. No action shall be
taken by the Limited Partners
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without a meeting duly called and held or without written consent in
accordance with Section 16.12.
16.5 NOTICE OF A MEETING.
Notice of a meeting called pursuant to Section 16.4 shall be given either
personally in writing or by mail or other means of written communication
addressed to each Limited Partner at the address of the Limited Partner
appearing on the books of the Depositary or the Partnership. An affidavit or
certificate of mailing of any notice or report in accordance with the provisions
of this Article XVI executed by the Managing General Partner, Depositary,
Transfer Agent, registrar of Depositary Units, or mailing organization shall
constitute conclusive (but not exclusive) evidence of the giving of notice. If
any notice addressed to a Limited Partner at the address of such Limited Partner
appearing on the books of the Partnership or Depositary is returned to the
Partnership by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver such notice, the notice and
any subsequent notices or reports shall be deemed to have been duly given
without further mailing if they are available for the Limited Partner at the
principal office of the Partnership for a period of one year from the date of
the giving of the notice to all other Limited Partners.
16.6 RECORD DATE.
For purposes of determining the Limited Partners entitled to notice of or
to vote at a meeting of the Limited Partners or to give consents without a
meeting as provided in Section 16.12, the Managing General Partner or the
Liquidating Trustee, if any, may set a Record Date, which Record Date, shall not
be less than ten (10) days nor more than sixty (60) days prior to the date of
such meeting (unless such requirement conflicts with any rule, regulation,
guideline, or requirement of any securities exchange on which the Depositary
Units are listed for trading, in which case the rule, regulation, guidelines, or
requirement of such securities exchange shall govern).
16.7 ADJOURNMENT.
When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting and a new Record Date need not be fixed if the
time and place of such adjourned meeting are announced at the meeting at which
such adjournment is taken, unless such adjournment shall be for more than
forty-five (45) days. At the adjourned meeting, the Partnership may transact
any business that would have been permitted to be transacted at the original
meeting. If the adjournment is for more than forty-five (45) days, or if a new
Record Date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given in accordance with this Article XVI.
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16.8 WAIVER OF NOTICE; CONSENT TO MEETING; APPROVAL OF MINUTES.
The transactions of any meeting of Limited Partners, however called and
noticed, and wherever held, are as valid as though they had been approved at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or after the meeting, each of the
Limited Partners entitled to vote, not present in person or by proxy, signs a
written waiver of notice, or a consent to the holding of the meeting, or an
approval of the minutes thereof. All such waivers, consents, and approvals
shall be filed with the Partnership records or made a part of the minutes of
such meeting. Attendance of a Limited Partner at a meeting shall constitute a
waiver of notice of the meeting; provided, however, that no such waiver shall
occur when the Limited Partner objects, at the beginning of the meeting, to the
transaction of any business at such meeting because the meeting is not lawfully
called or convened; and provided further, that attendance at a meeting is not a
waiver of any right to object to the consideration of any matters required to be
included in the notice of the meeting, but not so included, if the objection is
expressly made at the meeting.
16.9 QUORUM.
Limited Partners of record who are Limited Partners (rather than
Assignees) with respect to more than fifty percent (50%) of the total number
of all outstanding Units and Depositary Units held by all Limited Partners (as
Limited Partners rather than Assignees) of record, whether represented in
person or by proxy, shall constitute a quorum at a meeting of Limited
Partners. The Limited Partners present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment
of such meeting, notwithstanding the withdrawal of enough Limited Partners to
leave less than a quorum, if any action taken (other than adjournment) is
approved by the requisite number of Limited Partners specified in this
Agreement. In the absence of a quorum, any meeting of Limited Partners may be
adjourned from time to time by the affirmative vote of a majority of the Units
and Depositary Units represented either in person or by proxy at such meeting,
but no other business may be transacted, except as provided in Section 16.4.
16.10 CONDUCT OF MEETING.
The Managing General Partner or the Liquidating Trustee, as the case may
be, shall be solely responsible for convening, conducting, and adjourning any
meeting of Limited Partners, including, without limitation, the determination of
Persons entitled to vote at such meeting, the existence of a quorum for such
meeting, the satisfaction of the requirements of Section 16.4 with respect to
such meeting, the conduct of voting at such meeting, the validity and effect of
any proxies represented at such meeting, and the determination of any
controversies, votes, or challenges arising in connection with or during such
meeting or voting. The Managing General Partner, or the Liquidating Trustee, as
the case may be, shall designate a Person to serve as chairman of any meeting
and further shall designate a Person to take the minutes of any meeting, which
Person, in either case, may be, without limitation, a Partner or any employee or
agent of the Managing General Partner. The Managing General Partner or the
Liquidating Trustee, as the
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case may be, may make all such other regulations, consistent with applicable
law and this Agreement, as it may deem advisable concerning the conduct of any
meeting of the Limited Partners, including regulations in regard to the
appointment of proxies, the appointment and duties of inspectors of votes, and
the submission and examination of proxies and other evidence of the right to
vote.
16.11 VOTING AND OTHER RIGHTS.
(a) Only those Limited Partners who are Record Holders of Depositary
Receipts or Units on the Record Date set pursuant to Section 16.6 shall be
entitled to notice of, or to vote at, a meeting of Limited Partners.
(b) With respect to Depositary Units that are held for a Person's
account by another Person (such as a broker, dealer, bank, trust company, or
clearing corporation, or an agent of any of the foregoing), in whose name the
Depositary Receipts evidencing such Depositary Units are registered, such
broker, dealer, or other agent shall, in exercising any voting rights in respect
of such Depositary Units on any matter, vote such Depositary Units in favor of,
and at the direction of, the Person on whose behalf such broker, dealer, or
other agent is holding such Depositary Units, and the Partnership shall be
entitled to assume it is so acting without further inquiry.
16.12 ACTION WITHOUT A MEETING.
Any action that may be taken at a meeting of the Limited Partners may be
taken without a meeting if a consent in writing setting forth the action so
taken is signed by Limited Partners owning not less than the minimum number of
Units or Depositary Units that would be necessary to authorize or take such
action at a meeting at which all of the Limited Partners were present and voted.
Prompt notice of the taking of action without a meeting shall be given to the
Limited Partners who have not consented thereto in writing. The Managing
General Partner may specify that any written ballot submitted to Limited
Partners for the purpose of taking any action without a meeting shall be
returned to the Partnership within the time, not less than twenty (20) days,
specified by the Managing General Partner. If a ballot returned to the
Partnership does not vote all of the Units held by the Limited Partner, as a
Limited Partner (rather than Assignee), the Partnership shall be deemed to have
failed to receive a ballot for the Units that were not voted. If consent to the
taking of any action by the Limited Partners is solicited by any person other
than by or on behalf of the Managing General Partner, the written consents shall
have no force and effect unless and until (i) they are deposited with the
Partnership in care of the Managing General Partner, and (ii) consents
sufficient to take the action proposed are dated as of a date not more than
ninety (90) days prior to the date sufficient consents are deposited with the
Partnership.
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ARTICLE XVII
POWER OF ATTORNEY
Each Limited Partner (including any additional or Substituted Limited
Partner) and each Assignee who accepts Depositary Units is deemed to irrevocably
constitute, appoint, and empower the Managing General Partner (and any successor
by merger, transfer, election, or otherwise), and each of the Managing General
Partner's authorized officers and attorneys-in-fact, with full power of
substitution, as the true and lawful agent and attorney-in-fact of such Limited
Partner or Assignee, with full power and authority in such Limited Partner's or
Assignee's name, place, and stead and for such Limited Partner's or Assignee's
use of benefit:
(a) to make, execute, verify, consent to, swear to, acknowledge,
make oath as to, publish, deliver, file, and/or record in the
appropriate public offices (i) all certificates and other instruments,
including, at the option of the Managing General Partner, this Agreement
and the Certificate of Limited Partnership and all amendments and
restatements thereof, that the Managing General Partner deems
appropriate or necessary to qualify, or continue the qualification of,
the Partnership as a limited partnership (or a partnership in which the
Limited Partners have limited liability) in the State of Delaware and
all jurisdictions in which the Partnership may or may intend to conduct
business or own property; (ii) all other certificates, instruments, and
documents as may be requested by, or may be appropriate under the laws
of any state or other jurisdiction in which the Partnership may or may
intend to conduct business or own property; (iii) all instruments that
the Managing General Partner deems appropriate or necessary to reflect
any amendment, change, or modification of this Agreement in accordance
with the terms hereof, (iv) all conveyances and other instruments or
documents that the Managing General Partner deems appropriate or
necessary to effectuate or reflect the dissolution, termination, and
liquidation of the Partnership pursuant to the terms of this Agreement;
(v) any and all financing statements, continuation statements,
mortgages, or other documents necessary to grant to or perfect for
secured creditors of the Partnership, including the General Partners and
Affiliates, a security interest, mortgage, pledge or lien on all or any
of the Partnership Assets; (vi) all instrument or papers required to
continue the business of the Partnership pursuant to Article XV; (vii)
all instruments (including this Agreement and the Certificate of Limited
Partnership and amendments and restatements thereof) relating to the
admission of any Partner pursuant to Article XII; and (viii) all other
instruments as the attorneys-in-fact or any one of them may deem
necessary or advisable to carry out fully the provisions of this
Agreement in accordance with its terms; and
(b) to enter into the Deposit Agreement and deposit all Units of
such Limited Partner in the Deposit Account established by the
Depositary pursuant to the Deposit Agreement. The execution and
delivery by any of said attorneys-in-fact of any such agreements,
amendments, consents, certificates, or other instruments shall be
conclusive evidence that such execution and delivery was authorized
hereby.
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Nothing herein contained shall be construed as authorizing any Person
acting as attorney-in-fact pursuant to this Article XVII to take action as a
attorney-in-fact for any Limited Partner or Assignee to increase in any Way the
liability of such Limited Partner or Assignee beyond the liability expressly set
forth in this Agreement, or to amend this Agreement except in accordance with
Article XVI.
The appointment by each Limited Partner and Assignee of the Persons
designated in this Article XVIII as attorneys-in-fact shall be deemed to be a
power of attorney coupled with an interest in recognition of the fact that each
of the Limited Partners and Assignees under this Agreement will be relying upon
the power of such Persons to act pursuant to this power of attorney for the
orderly administration of the affairs of the Partnership. The foregoing power
of attorney is hereby declared to be irrevocable, and it shall survive, and
shall not be affected by, the subsequent death, incompetency, dissolution,
disability, incapacity, bankruptcy, or termination of any Limited Partner or
Assignee and it shall extend to such Limited Partner's or Assignee's heirs'
successors, and assigns. Each Limited Partner and Assignee hereby agrees to be
bound by any representations made by any Person acting as attorney-in-fact
pursuant to this power of attorney in accordance with this Agreement. Each
Limited Partner and Assignee hereby waives any and all defenses that may be
available to contest, negate, or disaffirm the action of any Person taken as
attorney-in-fact under this power of attorney in accordance with this Agreement.
Each Limited Partner and Assignee shall execute and deliver to the Managing
General Partner, within fifteen (15) days after receipt of the Managing General
Partner's request therefor, all such further designations, powers of attorney,
and other instruments as the Managing General Partner deems necessary to
effectuate this Agreement and the purposes of the Partnership.
ARTICLE XVIII
MISCELLANEOUS PROVISIONS
18.1 ADDITIONAL ACTIONS AND DOCUMENTS.
Each of the Partners hereby agrees to take or cause to be taken such
further actions, to execute, acknowledge, deliver, and file or cause to be
executed, acknowledged, delivered, and filed such further documents and
instruments, and to use best efforts to obtain such consents, as may be
necessary or as may be reasonably requested in order to fully effectuate the
purposes, terms and conditions of this Agreement, whether before, at, or after
the closing of the transactions contemplated by this Agreement.
18.2 NOTICES.
All notices, demands, requests, or other communications which may be or
are required to be given, served, or sent by a Partner or the Partnership
pursuant to this Agreement shall be in writing and shall be personally
delivered, mailed by first-class mail, postage prepaid, or transmitted by
facsimile, telegram or telex, addressed as follows:
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(a) If to the Managing General Partner:
QSV Properties Inc.
Attn: Chairman or President
5310 Harvest Hill Road
Suite 270
Dallas, Texas 75230
Facsimile No.: (972) 490-9119
(b) If to a Limited Partner or Assignee:
The Last Known Business Residence or Mailing Address of Such
Limited Partner or Assignee Reflected in the Records of the
Partnership or the Depositary.
(c) If to the Partnership:
U.S. Restaurant Properties Master L.P.
Attn: Managing General Partner
5310 Harvest Hill Road
Suite 270
Dallas, Texas 75230
Facsimile No.: (972) 490-9119
(d) If to the REIT:
U.S. Restaurant Properties, Inc.
Attn: Chief Executive Officer
5310 Harvest Hill Road
Suite 270
Dallas, Texas 75230
Facsimile No.: (972) 490-9119
Each Partner and Assignee and the Partnership may designate by notice in writing
a new address to which any notice, demand, request or communication may
thereafter be so given, served or sent. Each notice, demand, request, or
communication which shall be delivered, mailed or transmitted in the manner
described above shall be deemed to have been duly given when delivered in
person, sent by first class mail, or transmitted by facsimile, telegram, or
telex.
18.3 SEVERABILITY.
The invalidity of any one or more provisions hereof or of any other
agreement or instrument given pursuant to or in connection with this Agreement
shall not affect the remaining portions of this Agreement or any such other
agreement or instrument or any part thereof, all of
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which are inserted conditionally on their being held valid in law; and in the
event that one or more of the provisions contained herein or therein should be
invalid, or should operate to render this Agreement or any such other
agreement or instrument invalid, this Agreement and such other agreements and
instruments shall be construed as if such invalid provisions had not been
inserted.
18.4 SURVIVAL.
It is the express intention and agreement of the Partners that all
covenants, agreements, statements, representations, warranties and indemnities
made in this Agreement shall survive the execution and delivery of this
Agreement.
18.5 WAIVERS.
Neither the waiver by a Partner of a breach of or a default under any of
the provisions of this Agreement, nor the failure of a Partner, on one or more
occasions, to enforce any of the provisions of this Agreement or to exercise any
right, remedy, or privilege hereunder shall thereafter be construed as a waiver
of any subsequent breach or default of a similar nature, or as a waiver of any
such provisions, rights, remedies, or privileges hereunder.
18.6 EXERCISE OF RIGHTS.
No failure or delay on the part of a Partner or the Partnership in
exercising any right, power, or privilege hereunder and no course of dealing
between the Partners or between a Partner and the Partnership shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power, or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege. The rights and remedies
herein expressly provided are cumulative and not exclusive of any other rights
or remedies which a Partner or the Partnership would otherwise have at law or in
equity or otherwise.
18.7 BINDING EFFECT.
Subject to any provisions hereof restricting assignment, this Agreement
shall be binding upon and shall inure to the benefit of the Partners (and BKC
and its successors and assigns for purposes of Article VIII and Section 16.3(b))
and their respective heirs, devisees, executors, administrators, legal
representatives, successors, and assigns.
18.8 LIMITATION ON BENEFITS OF THIS AGREEMENT.
It is the explicit intention of the Partners that, with the exception of
the rights of BKC, its successors and assigns, in connection with Article VIII
and Section 16.3(b), no person or entity other than the Partners and the
Partnership is or shall be entitled to bring any action to enforce any provision
of this Agreement against any Partner or the Partnership, and that except as set
forth in Section 8.1(b), the covenants, undertakings, and agreements set forth
in this
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Agreement shall be solely for the benefit of, and shall be enforceable only
by, the Partners (or their respective successors and assigns permitted
hereunder) and the Partnership.
18.9 FORCE MAJEURE.
If the Managing General Partner is rendered unable, wholly or in part, by
"force majeure" (as herein defined) to carry out any of its obligations under
this Agreement, other than the obligation hereunder to make money payments, the
obligations of the Managing General Partner, insofar as they are affected by
such force majeure, shall be suspended during, but no longer than, the
continuance of such force majeure. The term "force majeure" as used herein
shall mean an act of God, strike, lockout or other industrial disturbance, act
of public enemy, war, blockade, public riot, lightning, fire, storm, flood,
explosion, governmental restraint, unavailability of equipment, and any other
cause, whether of the kind specifically enumerated above or otherwise, which is
not reasonably within the control of the Managing General Partner.
18.10 CONSENT OF LIMITED PARTNERS AND ASSIGNEES.
By acceptance of a Unit or Depositary Unit, each Limited Partner and each
Assignee expressly consents and agrees that whenever in this Agreement it is
specified that an action may be taken upon the affirmative vote of less than all
of the Limited Partners, such action may be so taken upon the concurrence of
less than all of the Limited Partners and each such Limited Partner and Assignee
shall be bound by the results of such action.
18.11 ENTIRE AGREEMENT.
This Agreement contains the entire agreement among the Partners with
respect to the transactions contemplated herein, and supersedes all prior oral
or written agreements, commitments, or understandings with respect to the
matters provided for herein.
18.12 PRONOUNS.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular, or plural, as the identity of the person
or entity may require.
18.13 HEADINGS.
Article, Section and subsection headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
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18.14 GOVERNING LAW.
This Agreement, the rights and obligations of the parties hereto, and any
claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of Delaware (but not including the choice of law rules
thereof).
18.15 EXECUTION IN COUNTERPARTS.
To facilitate execution, this Agreement may be executed in as many
counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
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ARTICLE XIX
EXECUTION
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement or
have caused this Agreement to be duly executed on their behalf, as of the day
and year first hereinabove set forth.
MANAGING GENERAL PARTNER:
ATTEST: QSV PROPERTIES INC.
By: By:
------------------------------ -------------------------------
Name: Fred H. Margolin Name: Robert J. Stetson
Title: Secretary Title: President and Chief
Executive Officer
LIMITED PARTNERS:
ATTEST: QSV PROPERTIES INC., as Managing
General Partner, Attorney-in-Fact for
the Limited Partners and Assignees
By: By:
------------------------------ -------------------------------
Name: Fred H. Margolin Name: Robert J. Stetson
Title: Secretary Title: President and Chief
Executive Officer
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EXHIBIT A
TO AGREEMENT OF
LIMITED PARTNERSHIP
OF U.S. RESTAURANT
PROPERTIES MASTER L.P.
CERTIFICATE
FOR
LIMITED PARTNERSHIP UNITS
OF
U.S. RESTAURANT PROPERTIES MASTER L.P.
NO. _______ ______ UNITS
QSV Properties Inc., as the Managing General Partner of U.S. Restaurant
Properties Master L.P. (the "Partnership"), a Delaware limited partnership,
hereby certifies that ______________________ is the registered owner of ______
units of limited partnership interest in the Partnership ("Units"). The rights,
preferences, and limitations of the Units are set forth in the Second Amended
and Restated Agreement of Limited Partnership under which the Partnership is
existing, and in the Certificate of Limited Partnership filed for record in the
Office of the Secretary of State of the State of Delaware, copies of which are
on file at the Managing General Partner's principal office at 5310 Harvest Hill
Road, Suite 270, Dallas, Texas 75230. THIS CERTIFICATE IS NONNEGOTIABLE AND IS
NOT TRANSFERABLE EXCEPT UPON DEATH OR BY OPERATION OF LAW.
QSV PROPERTIES INC.
Managing General Partner of
U.S. Restaurant Properties Master L.P.
Dated: By:
--------------------- ---------------------------------
Title:
------------------------------
BY ACCEPTANCE OF THIS CERTIFICATE FOR LIMITED PARTNERSHIP UNITS, AND AS A
CONDITION TO BEING ENTITLED TO ANY RIGHTS IN OR BENEFITS WITH RESPECT TO THE
UNITS EVIDENCED HEREBY, A HOLDER HEREOF (INCLUDING ANY TRANSFEREE HEREOF) IS
DEEMED TO HAVE AGREED, WHETHER OR NOT SUCH
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HOLDER IS ADMITTED TO THE PARTNERSHIP AS A SUBSTITUTED LIMITED PARTNER WITH
RESPECT TO THE UNITS EVIDENCED HEREBY, TO COMPLY WITH AND BE BOUND BY ALL
TERMS AND CONDITIONS OF THE AGREEMENT OF LIMITED PARTNERSHIP UNDER WHICH THE
PARTNERSHIP WAS FORMED AND IS EXISTING (INCLUDING, WITHOUT LIMITATION,
PROVISIONS THEREOF RELATING TO CONFLICTS OF INTEREST, LIMITATIONS ON
LIABILITY, AND INDEMNIFICATION OF THE GENERAL PARTNERS THEREOF), A COPY OF
WHICH HAS BEEN AVAILABLE FOR INSPECTION AND MAY BE OBTAINED UPON REQUEST (FREE
OF CHARGE) FROM THE PARTNERSHIP.
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EXHIBIT 10.2
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
U.S. RESTAURANT PROPERTIES OPERATING L.P.
(FORMERLY BURGER KING OPERATING
LIMITED PARTNERSHIP)
DATED AS OF _________________, 1997
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ARTICLE I - CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - FORMATION; NAME; PLACE OF BUSINESS. . . . . . . . . . . . . . . . . 13
2.1. Formation of Partnership; Certificate of Limited Partnership.. . . 13
2.2. Name of Partnership. . . . . . . . . . . . . . . . . . . . . . . . 13
2.3. Place of Business. . . . . . . . . . . . . . . . . . . . . . . . . 14
2.4. Registered Office and Registered Agent . . . . . . . . . . . . . . 14
2.5. Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE III - PURPOSES, NATURE OF BUSINESS,
AND POWERS OF PARTNERSHIP. . . . . . . . . . . . . . . . . . . . . 16
3.1. Purposes and Business. . . . . . . . . . . . . . . . . . . . . . . 16
3.2. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV - TERM OF PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V - CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1. Capital Contributions of the Partners. . . . . . . . . . . . . . . 17
5.2. Additional Issuances of Partnership Interests and Capital
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.3. Contribution of Proceeds of Issuance of Common Stock . . . . . . . 19
5.4. Exchange of Units. . . . . . . . . . . . . . . . . . . . . . . . . 19
5.5. Minimum Percentage Interest of General Partner . . . . . . . . . . 20
5.6. No Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . 20
5.7. Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.8. Negative Capital Accounts. . . . . . . . . . . . . . . . . . . . . 23
5.9. No Interest on Amounts in Capital Account. . . . . . . . . . . . . 23
5.10. Advances to Partnership. . . . . . . . . . . . . . . . . . . . . . 24
5.11. Liability of Limited Partner . . . . . . . . . . . . . . . . . . . 24
5.12. Return of Capital. . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI - ALLOCATION OF PROFITS AND LOSSES;
DISTRIBUTIONS OF CASH FLOW AND CERTAIN PROCEEDS. . . . . . . . . . 24
6.1. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . 24
6.2. Allocations for Capital Account Purposes . . . . . . . . . . . . . 26
6.3. Allocations for Tax Purposes . . . . . . . . . . . . . . . . . . . 28
6.4. Allocation of Income and Loss With Respect to Interest
Transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.5. Distributions of Cash Flow . . . . . . . . . . . . . . . . . . . . 30
6.6. Distribution of Proceeds from Interim Capital Transactions . . . . 30
6.7. Distribution of Proceeds from Terminating Capital Transactions;
Liquidation Distributions . . . . . . . . . . . . . . . . . . . . 30
6.8. Taxes Withheld . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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TABLE OF CONTENTS
(Continued)
PAGE
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ARTICLE VII - MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.1. Management and Control of Partnership. . . . . . . . . . . . . . . 32
7.2. Powers of Managing General Partner . . . . . . . . . . . . . . . . 32
7.3. Restrictions on Authority of Managing General Partner. . . . . . . 38
7.4. Title to Partnership Assets. . . . . . . . . . . . . . . . . . . . 39
7.5. Working Capital Reserve. . . . . . . . . . . . . . . . . . . . . . 39
7.6. Other Business Activities of Partners. . . . . . . . . . . . . . . 39
7.7. Transactions with Managing General Partner or Affiliates . . . . . 40
7.8. Net Worth Representation; Independent Judgment . . . . . . . . . . 40
7.9. Liability of General Partners to Partnership and the Limited
Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.10. Indemnification of General Partners and Affiliates . . . . . . . . 40
7.11. No Management by Limited Partners. . . . . . . . . . . . . . . . . 42
7.12. Other Matters Concerning General Partners. . . . . . . . . . . . . 42
7.13. Revolving Line of Credit; Other Loans to or from a General
Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.14. Periodic Consideration of Sale or Refinancing. . . . . . . . . . . 44
7.15. Other Limitations. . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VIII - ACQUISITION, OPERATION, AND DISPOSITION
OF RESTRICTED RESTAURANT PROPERTIES . . . . . . . . . . . . . . . 45
8.1. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.2. Contribution to Partnership; Acquisition of Restricted
Restaurant Properties . . . . . . . . . . . . . . . . . . . . . . 46
8.3. Use and Other Restrictions . . . . . . . . . . . . . . . . . . . . 46
8.4. Restrictions on Transfer of Restricted Restaurant Properties . . . 51
8.5. Rent Relief. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.6. Successor Policy . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.7. Competitive Facilities . . . . . . . . . . . . . . . . . . . . . . 57
8.8. Acquisition of Restricted Restaurant Properties by General
Partners or Affiliates. . . . . . . . . . . . . . . . . . . . . . 58
8.9. Termination of Lease for Restricted Restaurant Property
Following Termination of BKC Franchise Agreement. . . . . . . . . 59
8.10. Independent Consultant . . . . . . . . . . . . . . . . . . . . . . 60
8.11. Consent to Use of Name and Trademarks. . . . . . . . . . . . . . . 61
8.12. Acquisition of Fee Title to Properties Subject to Primary
Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.13. Location of Other Restaurant Properties. . . . . . . . . . . . . . 62
ARTICLE IX - COMPENSATION OF GENERAL PARTNERS;
PAYMENT OF PARTNERSHIP EXPENSES. . . . . . . . . . . . . . . . . . 62
9.1. Compensation to General Partners . . . . . . . . . . . . . . . . . 62
9.2. Expenses in Connection With Organization of Partnership and
Initial Public Offering . . . . . . . . . . . . . . . . . . . . . 63
9.3. Operational Expenses . . . . . . . . . . . . . . . . . . . . . . . 64
9.4. Reimbursement of the General Partners. . . . . . . . . . . . . . . 67
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TABLE OF CONTENTS
(Continued)
PAGE
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ARTICLE X - BANK ACCOUNTS; BOOKS AND RECORDS;
FISCAL YEAR; STATEMENTS; TAX MATTERS . . . . . . . . . . . . . . . 67
10.1. Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.2. Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . 68
10.3. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.4. Financial Statement and Information. . . . . . . . . . . . . . . . 69
10.5. Accounting Decisions . . . . . . . . . . . . . . . . . . . . . . . 70
10.6. Where Maintained . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.7. Preparation of Tax Returns . . . . . . . . . . . . . . . . . . . . 70
10.8. Tax Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.9. Tax Controversies. . . . . . . . . . . . . . . . . . . . . . . . . 71
10.10. Organizational Expenses. . . . . . . . . . . . . . . . . . . . . . 71
10.11. Taxation as a Partnership. . . . . . . . . . . . . . . . . . . . . 71
10.12. Qualification as a REIT. . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE XI - TRANSFER OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . 72
11.1. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.2. Transfers of Interests of General Partners . . . . . . . . . . . . 72
11.3. Transfer of Interest of Limited Partners . . . . . . . . . . . . . 73
11.4. Substituted Limited Partners . . . . . . . . . . . . . . . . . . . 74
11.5. Assignees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.6. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE XII - ADMISSION OF SUCCESSOR GENERAL PARTNERS . . . . . . . . . . . . . . 76
12.1. Admission of Successor General Partners. . . . . . . . . . . . . . 76
12.2. Admission of Additional General Partners . . . . . . . . . . . . . 77
ARTICLE XIII - WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS . . . . . . . . . . . . . 77
13.1. Withdrawal or Removal of General Partners. . . . . . . . . . . . . 77
13.2. Amendment of Agreement and Certificate of Limited Partnership. . . 78
13.3. Interest of Departing Partner and Successor. . . . . . . . . . . .. 78
ARTICLE XIV - DISSOLUTION AND LIQUIDATION . . . . . . . . . . . . . . . . . . . . 80
14.1. No Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . 80
14.2. Events Causing Dissolution . . . . . . . . . . . . . . . . . . . . 80
14.3. Right to Continue Business of Partnership. . . . . . . . . . . . . 81
14.4. Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
14.5. Liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
14.6. Reasonable Time for Winding Up . . . . . . . . . . . . . . . . . . 83
14.7. Termination of Partnership . . . . . . . . . . . . . . . . . . . . 83
ARTICLE XV - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
15.1. Amendments to be Adopted Solely by the Managing General Partner. . 84
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<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
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15.2. Amendment Procedures . . . . . . . . . . . . . . . . . . . . . . . 85
15.3. Amendment Restrictions . . . . . . . . . . . . . . . . . . . . . . 86
15.4. Meetings of the Partners . . . . . . . . . . . . . . . . . . . . . 86
ARTICLE XVI - MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 87
16.1. Additional Actions and Documents . . . . . . . . . . . . . . . . . 87
16.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
16.3. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
16.4. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
16.5. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
16.6. Exercise of Rights . . . . . . . . . . . . . . . . . . . . . . . . 89
16.7. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . 89
16.8. Limitation on Benefits of this Agreement . . . . . . . . . . . . . 90
16.9. Limitation to Preserve REIT Status . . . . . . . . . . . . . . . . 90
16.10. Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . . 91
16.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 91
16.12. Pronouns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
16.13. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
16.14. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 92
16.15. Execution in Counterparts. . . . . . . . . . . . . . . . . . . . . 92
ARTICLE XVII - EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
</TABLE>
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<PAGE>
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
U.S. RESTAURANT PROPERTIES OPERATING L.P.
(FORMERLY BURGER KING OPERATING LIMITED PARTNERSHIP)
This Third Amended and Restated Agreement of Limited Partnership (this
"Agreement") is entered into as of ________________, 1997, by and among QSV
Properties Inc., a Delaware corporation having its principal office at 5310
Harvest Hill Road, Suite 270 , Dallas, Texas 75230 (the "Managing General
Partner") (or any other person or entity who shall in the future execute and
deliver this Agreement as a Substituted General Partner pursuant to the
provisions hereof), as the general partner (the "General Partner"), U.S.
Restaurant Properties Master L.P., a Delaware limited partnership having its
principal place of business at 5310 Harvest Hill Road, Suite 270, Dallas,
Texas 75230 (the "MLP") and U.S. Restaurant Properties, Inc., a Maryland
corporation having its principal place of business at 5310 Harvest Hill Road,
Suite 270, Dallas, Texas 75230 (the "REIT" and, together with the MLP, the
"Limited Partners") (the General Partner and the Limited Partners sometimes
hereinafter referred to as a "Partner," individually, and as the "Partners,"
collectively).
WHEREAS, the Managing General Partner, the MLP and Burger King
Corporation, a Florida corporation ("BKC"), as the Special General Partner,
heretofore have entered into an Agreement of Limited Partnership dated as of
December 10, 1985;
WHEREAS, the Managing General Partner, the MLP and BKC amended and
restated such Agreement of Limited Partnership in its entirety as of January
6, 1986 and February 3, 1986, and further amended such Agreement of Limited
Partnership by Amendments No. 1 and 2 thereto through November 30, 1994;
WHEREAS, BKC withdrew as Special General Partner effective as of
November 30, 1994;
WHEREAS, the Managing General Partner and the MLP amended and restated
such Agreement of Limited Partnership in its entirety as of March 17, 1995
(the "Second Amended and Restated Agreement"); and
WHEREAS, the Partners desire to further amend and restate such Second
Amended and Restated Agreement in its entirety, as hereinafter set forth;
NOW THEREFORE, for and in consideration of the foregoing, and of the
covenants and agreements hereinafter set forth, it is hereby agreed as
follows:
<PAGE>
ARTICLE I
CERTAIN DEFINITIONS
Unless the context otherwise specifies or requires, the terms defined in
this Article I shall, for the purposes of this Agreement, have the meanings
herein specified. Certain other capitalized terms used in this Agreement are
defined in Articles VI, VIII and XIII. Unless otherwise specified, all
references herein to Articles or Sections are to Articles or Sections of this
Agreement.
ACCOUNTING FIRM: The independent public accountants who are responsible
for assisting in maintaining the Partnership tax accounting and allocation
records and advising the Managing General Partner with respect thereto, as
selected and approved by the Managing General Partner from time to time, in
its sole and absolute discretion. The Accounting Firm and the Auditing Firm
are not required to be the same.
ADDITIONAL LIMITED PARTNER: Any Person who is admitted to the
Partnership as a Limited Partner pursuant to Sections 5.4 and 12.2 and who is
shown as such on the book and records of the Partnership.
ADJUSTED BASIS: The basis for determining gain or loss for federal
income tax purposes from the sale or other disposition of property, as
defined in Section 1011 of the Code.
ADJUSTED PROPERTY: Any property the Carrying Value of which has been
adjusted pursuant to Section 5.5(d)(i) or Section 5.5(d)(ii).
AFFILIATE: (a) Any Person (as hereinafter defined) directly or
indirectly owning, controlling, or holding power to vote ten percent (10%) or
more of the outstanding voting securities of the Person in question; (b) any
Person ten percent (10%) or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held with power to vote by the
Person in question; (c) any Person directly or indirectly controlling,
controlled by, or under common control with the Person in question; (d) if
the Person in question is a corporation, any executive officer or director of
the Person in question or of any corporation directly or indirectly
controlling the Person in question; and (e) if the Person in question is a
partnership, any general partner owning or controlling ten percent (10%) or
more of either the capital or profits interests in such partnership. As used
in this definition of "Affiliate," the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
AGREEMENT: This Third Amended and Restated Agreement of Limited
Partnership, as it may be further amended or supplemented from time to time.
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<PAGE>
AMENDED AGREEMENT: The Amended and Restated Agreement of Limited
Partnership of Burger King Operating Limited Partnership, dated as of
February 3, 1986, entered into by and among the Managing General Partner, BKC
and the MLP, as amended by Amendment Nos. 1 and 2 thereto.
ANCILLARY PROPERTY: Personal property (other than personal property
included in the definitions of "Other Restaurant Properties," "Restricted
Restaurant Properties" and "Retail Properties") of whatever kind used in
connection with a Partnership Property, including, without limitation,
supplies, furnishings, equipment, trade dress and franchise, license and
other rights.
APPRAISER: Real Estate Research Corporation or its successor, or in the
event that Real Estate Research Corporation is not available for any reason
to provide an appraisal with respect to any matter hereunder, Arthur D.
Little and Company or its successor, or in the event that both Real Estate
Research Corporation or its successor and Arthur D. Little and Company or its
successor are not available for any reason to provide an appraisal with
respect to any matter hereunder, Marshall and Stevens, Incorporated or its
successor, or in the event that all of the foregoing companies are not
available for any reason to provide an appraisal with respect to any matters
hereunder, such other independent, nationally recognized real estate
valuation firm selected by the Managing General Partner in its reasonable
discretion.
ASSIGNEE: A Person to whom one or more Partnership Units have been
transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
AUDITING FIRM: The independent public accountants who are responsible
for auditing the financial statements of the Partnership as set forth in
Section 10.4, as selected and approved by the Managing General Partner from
time to time, in its sole and absolute discretion. The Auditing Firm and the
Accounting Firm are not required to be the same.
BKC: Burger King Corporation and the successors and assigns of Burger
King Corporation.
BKC FRANCHISE AGREEMENT: A franchise agreement, whether now existing or
hereafter entered into, between a BKC Franchisee and BKC authorizing the BKC
Franchisee to operate a BK Restaurant, as the same may be amended, renewed,
or extended by BKC.
BKC FRANCHISEES: Persons who operate BK Restaurants pursuant to BKC
Franchise Agreements.
BK RESTAURANTS: Burger King "fast food" restaurants, whether operated
by BKC, an Affiliate of BKC or a BKC Franchisee. "BK Restaurant" means any
one of the BK Restaurants.
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<PAGE>
BUSINESS DAY: Monday through Friday of each week, except that a legal
holiday recognized as such by the Government of the United States or the
State of Texas shall not be regarded as a Business Day.
CAPITAL ACCOUNT: The capital account established and maintained for
each Partner pursuant to Section 5.5.
CAPITAL CONTRIBUTION: Any property (including cash) contributed to the
Partnership by or on behalf of a Partner.
CARRYING VALUE: (a) With respect to a property contributed to the
Partnership, the fair market value of such property at the time of
contribution, reduced (but not below zero) by all deductions for
depreciation, amortization, cost recovery and expense in lieu of depreciation
debited to the Capital Accounts of Partners and Assignees pursuant to Section
5.5(a) with respect to such property as of the time of determination, and (b)
with respect to any other property, the Adjusted Basis of such property as of
the time of determination. The Carrying Value of any property shall be
adjusted from time to time in accordance with Sections 5.5(c) and 5.5(d), and
to reflect changes, additions or other adjustments to the Carrying Value for
dispositions, acquisitions or improvements of Partnership properties, as
deemed to be necessary or appropriate by the Managing General Partner.
CERTIFICATE OF LIMITED PARTNERSHIP: The Certificate of Limited
Partnership, and any and all amendments thereto, filed on behalf of the
Partnership with the Recording Office as required under the Delaware RULPA.
CODE: The Internal Revenue Code of 1986, as amended to date and
hereafter amended. Any reference herein to a specific section or sections of
the Code shall be deemed to include a reference to any corresponding
provision of future law.
COMMISSION: The Securities and Exchange Commission.
COMMON STOCK: The common stock, par value $.001 per share, of the REIT.
CONTRIBUTED PROPERTY: Each Contributing Partner's interest in each
property (or interest therein), or other consideration, in such form as may
be permitted by the Delaware RULPA, but excluding cash and cash equivalents,
contributed directly or indirectly to the Partnership by such Contributing
Partner (or deemed contributed to the Partnership upon termination thereof
pursuant to Section 708 of the Code). Once the Carrying Value of a
Contributed Property is adjusted pursuant to Section 5.5(d), such property
shall no longer constitute a Contributed Property for purposes of Section
6.3(b), but shall be deemed an Adjusted Property for such purposes.
CONTRIBUTING PARTNER: Each Partner contributing directly or indirectly
(or deemed to have contributed upon termination of the Partnership pursuant
to Section 708 of the Code) a Contributed Property to the Partnership in
exchange for a Partnership Interest.
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<PAGE>
CONVERSION FACTOR: 1.0, provided that in the event that the REIT (a)
declares or pays a dividend on its outstanding shares of Common Stock in
shares of Common Stock or makes a distribution to all holders of its
outstanding shares of Common Stock; (b) subdivides its outstanding shares of
Common Stock; or (c) combines its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, the Conversion Factor shall be
adjusted by multiplying the Conversion Factor by a fraction, the numerator of
which shall be the number of shares of Common Stock issued and outstanding on
the record date for such dividend, distribution, subdivision or combination,
assuming for such purpose that such dividend, distribution, subdivision or
combination has occurred as of such time, and the denominator of which shall
be the actual number of shares of Common Stock (determined without the above
assumption) issued and outstanding on the record date for such dividend,
distribution, subdivision or combination. Any adjustment to the Conversion
Factor shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
DELAWARE RULPA: The Delaware Revised Uniform Limited Partnership Act
(Del. Code Ann. tit. 6 Section 17-101 ET SEQ.), as amended to date and as it
may be amended from time to time hereafter, and any successor to such Act.
DEPARTING PARTNER: A General Partner who has withdrawn (other than by
reason of a transfer pursuant to Section 11.2) or been removed pursuant to
Section 13.1 as of the effective date of the withdrawal or removal of such
General Partner.
EFFECTIVE DATE: The date as of which the Managing General Partner and
the Limited Partners execute this Agreement.
EXCHANGE ACT: Securities Exchange Act of 1934, as amended, and the
regulations of the Commission promulgated thereunder.
FISCAL YEAR: The fiscal year of the Partnership for financial
accounting purposes, and for federal, state, and local income tax purposes,
which shall be the calendar year unless changed by the Managing General
Partner in accordance with Section 10.3.
GENERAL PARTNER INTEREST: A Partnership Interest held by a General
Partner, in its capacity as general partner of the Partnership. A General
Partner Interest may be expressed as a number of Partnership Units.
GENERAL PARTNERS: The Managing General Partner and any Substituted
General Partners. "General Partner" means one of the General Partners.
IMMEDIATE FAMILY: With respect to any natural Person, such natural
Person's spouse and such natural Person's natural or adoptive parents,
descendants (whether natural or adopted), nephews, nieces, brothers, sisters,
sons and daughters-in-law.
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<PAGE>
INCAPACITY OR INCAPACITATED: (a) As to any individual Partner, death,
total physical disability or entry by a court of competent jurisdiction
adjudicating him or her incompetent to manage his or her Person or his or her
estate; (b) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (c) as to any partnership which is a Partner, the
dissolution and commencement of winding up of the partnership; (d) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership; (e) as to any trustee of a trust which is
a Partner, the termination of the trust (but not the substitution of a new
trustee); or (f) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (i) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency
or other similar law nor or thereafter in effect, (ii) the Partner is
adjudged as bankrupt or insolvent, or a final and nonappealable order for
relief under any bankruptcy, insolvency or similar law now or thereafter in
effect has been entered against the Partner, (iii) the Partner executes and
delivers a general assignment for the benefit of the Partner's creditors,
(iv) the Partner files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against the Partner in
any proceeding of the nature described in clause (ii) above, (v) the Partner
seeks, consents to or acquiesces in the appointment of a trustee, receiver or
liquidator for the Partner or for all or any substantial part of the
Partner's properties, (vi) any proceeding seeking liquidation, reorganization
or other relief of or against such Partner under any bankruptcy, insolvency
or other similar law now or hereafter in effect has not been dismissed
without one hundred twenty (120) days after the commencement thereof, (vii)
the appointment without the Partner's consent or acquiescence of a trustee,
receiver or liquidator has not been vacated or stayed within ninety (90) days
of such appointment, or (viii) an appointment referred to in clause (g) which
has been stayed is not vacated within ninety (90) days after the expiration
of any such stay.
INDEPENDENT CONSULTANT: Agribusiness Associates, Inc., or in the event
Agribusiness Associates, Inc., is unable or unwilling to advise the Managing
General Partner on a particular matter or informs the Managing General
Partner that it no longer is willing to serve as Independent Consultant, or
in the event Agribusiness Associates, Inc., is terminated as the Independent
Consultant in accordance with Section 8.10(b), any substitute consultant
selected by the Managing General Partner in accordance with Section 8.10(b).
INITIAL PUBLIC OFFERING: The initial public offering of Units by the
MLP, completed on ________________.
INVESTORS PARTNERSHIP AGREEMENT: The third amended and restated limited
partnership agreement, dated concurrently herewith, pursuant to which the MLP
was organized and is existing, as it may be further amended or supplemented
from time to time.
LIMITED PARTNER INTEREST: A Partnership Interest of a Limited Partner
in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the
holder of such a Partnership Interest may be entitled, as provided in this
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Agreement, together with all obligations of such Persons to comply with the
terms and provisions of this Agreement. A Limited Partner Interest may be
expressed as a number of Partnership Units.
LIMITED PARTNERS: The MLP, the REIT and any Additional Limited
Partners. "Limited Partner" means any one of the Limited Partners.
LIQUIDATING TRUSTEE: The Managing General Partner, unless the
dissolution of the Partnership is caused by the withdrawal, bankruptcy,
removal or dissolution of the Managing General Partner, in which event the
Liquidating Trustee shall be the Person or Persons selected pursuant to
Section 14.5.
MAJORITY VOTE OF THE LIMITED PARTNERS: The written consent of, or an
affirmative vote by, in accordance with the provisions of Section 15.2,
Limited Partners (including the REIT) of record who are Limited Partners (and
not Assignees) with respect to more than fifty percent (50%) of the total
number of all outstanding Partnership Units held by all Limited Partners of
record, as Limited Partners (rather than as Assignees).
MANAGING GENERAL PARTNER: QSV, or any successor appointed pursuant to
Section 11.2, 13.1 or 14.3, as the case may be.
MLP: U.S. Restaurant Properties Master L.P., a Delaware limited
partnership (formerly Burger King Investors Master L.P.).
NASDAQ: The National Association of Securities Dealers Automated
Quotations System.
NATIONAL SECURITIES EXCHANGE: An exchange registered with the
Commission under Section 6(a) of the Exchange Act.
NONRECOURSE DEDUCTIONS: The meaning ascribed to it in Treasury
Regulations Section 1.704-2(b)(1).
NOTICE OF EXCHANGE: The Notice of Exchange substantially in the form of
EXHIBIT B to this Agreement.
OPINION OF INDEPENDENT COUNSEL: A written opinion of the law firm of
Winstead Sechrest & Minick P.C. or other counsel designated by or acceptable
to the Managing General Partner, in its sole and absolute discretion.
ORIGINAL AGREEMENT: The Agreement of Limited Partnership of Burger King
Operating Limited Partnership, dated as of December 10, 1985, entered into by
and among the Managing General Partner, BKC and the MLP.
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OTHER RESTAURANT PROPERTIES: Those certain properties for which food
sales account for 10% or more of the gross revenues generated by the
improvements on such properties and (a) properties (regardless of use)
acquired adjacent to such properties or acquired in conjunction with the use
or ownership of such properties, (b) properties that were formerly such type
of properties which are not currently being used for any purpose, and (c) any
unimproved land which is adjacent to such a property or on which such a
property is reasonably expected to be constructed within one (1) year
following the date of acquisition of such land, in any case in which the
Partnership, the REIT or any Affiliate or either of them has acquired or
acquires an interest, whether consisting of land to be held in fee simple or
as a leasehold and any improvements thereon (including all real property and
certain personal property associated therewith), together with (i) any other
properties acquired pursuant to Section 7.2(v) with respect to such
properties, (ii) any properties adjacent to such properties, (iii) any
buildings, improvements or other structures situated on such properties, and
(iv) any further right, title or interest acquired in such properties.
"Other Restaurant Property" means any one of the Other Restaurant Properties.
PARTNER: A General Partner or Limited Partner. "Partners" means the
General Partners and the Limited Partners.
PARTNER MINIMUM GAIN: The meaning ascribed to it in Treasury
Regulations Section 1.704-2(i)(2).
PARTNER NONRECOURSE DEBT: The meaning ascribed to it in Treasury
Regulations Section 1.704-2(b)(4).
PARTNER NONRECOURSE DEDUCTIONS: The meaning ascribed to it in Treasury
Regulations Section 1.704-2(i)(2).
PARTNERSHIP: The limited partnership created by this Agreement and any
successor partnership thereto continuing the business of the Partnership
which is a reformation or reconstitution of the partnership governed by this
Agreement.
PARTNERSHIP ASSETS: All assets and property, whether tangible or
intangible and whether real, personal or mixed, at any time owned by the
Partnership.
PARTNERSHIP INTEREST: As to any Partner, all of the interests of that
Partner in the Partnership, including, without limitation, such Partner's (a)
right to a distributive share of the profits and losses of the Partnership,
(b) right to a distributive share of Partnership Assets, and (c) right, if a
General Partner, to participate in the management of the business and affairs
of the Partnership.
PARTNERSHIP MINIMUM GAIN: The meaning ascribed to it in Treasury
Regulations Section 1.704-2(b)(2).
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PARTNERSHIP PROPERTIES: The Other Restaurant Properties, the Restricted
Restaurant Properties and the Retail Properties. "Partnership Property"
means any one of the Partnership Properties.
PARTNERSHIP UNITS: Fractional shares of the Partnership Interests of
all Partners issued pursuant to Sections 5.1, 5.2 and 5.3. "Partnership
Unit" means any one of the Partnership Units.
PERCENTAGE INTEREST: As to a Partner, its interest in the Partnership
as determined by dividing the Partnership Units owned by such Partner by the
total number of Partnership Units then outstanding and as specified in
EXHIBIT A attached hereto, as such EXHIBIT A may be amended from time to
time.
PERSON: Any individual, corporation, association, partnership, joint
venture, trust, estate, or other entity or organization.
PRICE INDEX: The Consumer Price Index for Urban Wage Earners and
Clerical Workers, all items, All Urban, Base 1967 = 100, issued by the Bureau
of Labor Statistics of the U.S. Department of Labor; provided, however, that
if such Consumer Price Index shall be discontinued with no successor or
comparable consumer price index, the Managing General Partner, in its sole
and absolute discretion, shall designate a substitute formula.
PRIMARY LEASE: A lease, whether now existing or hereafter entered into,
pursuant to which the Partnership, as the lessee (either in its own name or
as an assignee of BKC pursuant to the Real Estate Purchase Agreement or
otherwise), holds the right to occupy and use a Partnership Property or any
portion thereof.
QSV: QSV Properties Inc., a Delaware corporation.
REAL ESTATE PURCHASE AGREEMENT: The amended and restated Purchase and
Sale Agreement entered into concurrently with the execution of the Amended
Agreement by and between the Partnership, as purchaser, and BKC, as seller,
pursuant to which the Partnership purchased from BKC, and BKC sold to the
Partnership, certain of the Partnership Properties.
RECAPTURE INCOME: Any gain recognized by the Partnership (but computed
without regard to any adjustment required by Section 734 or 743 of the Code)
upon the disposition of any property or asset of the Partnership that does
not constitute capital gain for federal income tax purposes because such gain
represents the recapture of deductions previously taken with respect to such
property or assets (determined without regard to Section 291(a)(1)) of the
Code.
RECORDING OFFICE: The Secretary of State of the State of Delaware.
REIT: U.S. Restaurant Properties, Inc., a Maryland corporation.
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REIT PARTNER: (a) A Partner that is, or has made an election to qualify
as, a real estate investment trust under the Code, (b) any "qualified REIT
subsidiary" (within the meaning of Section 856(i)(2) of the Code) of any
Partner that is, or has made an election to qualify as, a real estate
investment trust under the Code and (c) any Partner that is a "qualified REIT
subsidiary" (within the meaning of Section 856(i)(2) of the Code) of a real
estate investment trust.
REIT STOCK AMOUNT: A number of shares of Common Stock equal to the
product of the number of Partnership Units offered for exchange by a Partner,
multiplied by the Conversion Factor, provided that in the event the REIT
issues to all holders of Common Stock rights, options, warrants or
convertible or exchangeable securities entitling the stockholders to
subscribe for or purchase shares of Common Stock, or any other securities or
property (collectively, the "rights"), then the REIT Stock Amount shall also
include such rights that a holder of that number of shares of Common Stock
would be entitled to receive.
RESTRICTED RESTAURANT PROPERTIES: Those certain restaurant properties,
consisting of the land in which the Partnership holds fee simple title or a
leasehold interest and the improvements thereon (including all real property
and certain personal property associated therewith), (a) held as of the
Effective Date or (b) if (and so long as) a BK Restaurant is located thereon,
acquired after the Effective Date, together with (i) any other properties
acquired pursuant to Section 7.2(v) with respect to such properties after the
Effective Date, (ii) any properties adjacent to such properties that are
acquired by the Partnership after the Effective Date, (iii) any buildings,
improvements or other structures situated on such properties after the
Effective Date, and (iv) any further right, title or interest acquired in
such properties after the Effective Date (including, without limitation, fee
title acquired pursuant to Section 8.12). "Restricted Restaurant Property"
means any one of the Restricted Restaurant Properties.
RETAIL PROPERTIES: Those certain properties, other than Other
Restaurant Properties and Restricted Restaurant Properties, for which the
sales of goods or services to the public account for substantially all of the
gross revenues generated by the improvements on such properties and (a)
properties (regardless of use) acquired adjacent to such properties or
acquired in conjunction with the use or ownership of such properties, (b)
properties that were formerly such type of properties which are not currently
being used for any purpose, and (c) any unimproved land which is adjacent to
such a property or on which such a property is reasonably expected to be
constructed within one (1) year following the date of acquisition of such
land, in any case in which the Partnership, the REIT or any Affiliate of
either of them has acquired or acquires an interest, whether consisting of
land to be held in fee simple or as a leasehold and any improvements thereon
(including all real property and certain personal property associated
therewith), together with (i) any other properties acquired pursuant to
Section 7.2(v) with respect to such properties, (ii) any properties adjacent
to such properties, (iii) any buildings, improvements or other structures
situated on such properties, and (iv) any further right, title or interest
acquired in such properties. "Retail Property" means any one of the Retail
Properties.
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SECOND AMENDED AND RESTATED AGREEMENT: The Second Amended and Restated
Agreement of Limited Partnership of U.S. Restaurant Properties Operating
L.P., dated as of March 17, 1995, by and between QSV Properties, Inc. and
U.S. Restaurant Properties Master L.P.
SECOND PUBLIC OFFERING: The public offering of Units by the MLP
completed in __________________, 1995.
SECTION 754 ELECTION: An election under Section 754 of the Code
relating to the adjustment of Adjusted Basis of Partnership Assets, as
provided in Sections 734 and 743 of the Code.
SECURITIES ACT: Securities Act of 1933, as amended, and the regulations
of the Commission promulgated thereunder.
SHARE PRICE: As of any date of determination: (a) if the shares of
Common Stock are listed or admitted to trading on one or more National
Securities Exchanges, the average of the last reported sale prices per share
regular way or, in case no such reported sale takes place on any such day,
the average of the last reported bid and asked prices per share regular way,
in either case on the principal National Securities Exchange on which the
shares of Common Stock are listed or admitted to trading, for the five (5)
trading days immediately preceding the date of determination; (b) if the
shares of Common Stock are not listed or admitted to trading on a National
Securities Exchange but are quoted by Nasdaq, the average of the last
reported sales prices per share regular way or, in case no reported sale
takes place on any such day or the last reported sales prices are not then
quoted, the average of the closing bid prices per share, for the five (5)
trading days immediately preceding such date of determination, as furnished
by the National Quotation Bureau Incorporated or such other nationally
recognized quotation service as may be selected by the Managing General
Partner for such purpose, if such Bureau is not at the time furnishing
quotations; or (c) if the shares of Common Stock are not listed or admitted
to trading on a National Securities Exchange or quoted by Nasdaq, an amount
equal to the fair market value of a share as of such date of determination,
as determined by the Managing General Partner using any reasonable method of
valuation.
SPECIAL ALLOCATIONS: The special allocations of items of income, gain,
deduction and loss pursuant to Sections 6.2(c) and (d).
SUBSTITUTED GENERAL PARTNER: A Person who is admitted to the
Partnership as an additional or successor General Partner in accordance with
Section 12.1.
SUBSTITUTED LIMITED PARTNER: A Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4.
SUCCESSOR POLICY: The "successor policy" of BKC relating to the
extension and/or renewal of BKC Franchise Agreements with BKC Franchisees,
which policy, in connection with such extensions and/or renewals, makes
provision for replacing, reconstructing, expanding and/or
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otherwise improving BK Restaurants. All references are to the "Successor
Policy" as in effect on the date hereof, as the same may be modified,
amended, supplemented, superseded or replaced by BKC from time to time in its
sole and absolute discretion.
TERMINATION DATE: December 31, 2035.
THIRD PUBLIC OFFERING: The public offering of Units by the MLP
completed in June 1996.
TPC: The Pillsbury Company, a Delaware corporation and the owner on the
date of the Amended Agreement of all of the issued and outstanding stock of
BKC.
TREASURY REGULATIONS: The Income Tax Regulations promulgated under the
Code, as hereafter amended. Any reference herein to a specific section or
sections of specific Treasury Regulations shall be deemed to include a
reference to any corresponding provision of future Treasury Regulations.
UNIT: A unit representing an equal undivided interest in an interest in
the MLP.
UNIT PRICE: As of any date of determination: (a) if the Units are
listed or admitted to trading on one or more National Securities Exchanges,
the average of the last reported sale prices per Unit regular way or, in case
no such reported sale takes place on any such day, the average of the last
reported bid and asked prices per Unit regular way, in either case on the
principal National Securities Exchange on which the Units are listed or
admitted to trading, for the five (5) trading days immediately preceding the
date of determination; (b) if the Units are not listed or admitted to trading
on a National Securities Exchange but are quoted by Nasdaq, the average of
the last reported sales prices per Unit regular way or, in case no reported
sale takes place on any such day or the last reported sales prices are not
then quoted, the average of the closing bid prices per Unit, for the five (5)
trading days immediately preceding such date of determination, as furnished
by the National Quotation Bureau Incorporated or such other nationally
recognized quotation service as may be selected by the Managing General
Partner for such purpose, if such Bureau is not at the time furnishing
quotations; or (c) if the Units are not listed or admitted to trading on a
National Securities Exchange or quoted by Nasdaq, an amount equal to the fair
market value of a Unit as of such date of determination, as determined by the
Managing General Partner using any reasonable method of valuation.
UNREALIZED GAIN: The excess, if any, of the fair market value of a
Partnership Asset as of the date of determination over the Carrying Value of
the Partnership Asset as of such date of determination.
UNREALIZED LOSS: The excess, if any, of the Adjusted Basis of a
Partnership Asset as of the date of determination over the fair market value
of such Partnership Asset as of the date of determination.
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WORKING CAPITAL RESERVE: The reserve for working capital established by
the Managing General Partner pursuant to Section 7.5.
ARTICLE II
FORMATION; NAME; PLACE OF BUSINESS
2.1. FORMATION OF PARTNERSHIP; CERTIFICATE OF LIMITED PARTNERSHIP.
The General Partner and the Limited Partners agreed to continue the limited
partnership formed as of December 10, 1985, pursuant to the provisions of the
Delaware RULPA and the terms and conditions of the Original Agreement, the
Amended Agreement and the Second Amended and Restated Agreement. Promptly after
the execution of the Original Agreement, the Managing General Partner, in
accordance with the Delaware RULPA, filed with the Recording Office the
Certificate of Limited Partnership. Subsequently, the Managing General Partner,
in accordance with the Delaware RULPA, filed with the Recording Office an
amendment to the Certificate of Limited Partnership regarding the withdrawal of
BKC as the Special General Partner and the change in name of the Partnership.
If the laws of any jurisdiction in which the Partnership transacts business so
require, the Managing General Partner also shall file with the appropriate
office in that jurisdiction a copy of the Certificate of Limited Partnership and
any other documents necessary for the Partnership to qualify to transact
business in such jurisdiction and shall use its best efforts to file with the
appropriate office in that jurisdiction a copy of the Certificate of Limited
Partnership and any other documents necessary to establish and maintain the
Limited Partner's limited liability in such jurisdiction. The Partners further
agree and obligate themselves to execute, acknowledge and cause to be filed for
record, in the place or places and manner prescribed by law, any amendments to
the Certificate of Limited Partnership as may be required, either by the
Delaware RULPA, by the laws of a jurisdiction in which the Partnership transacts
business, or by this Agreement, to reflect changes in the information contained
therein or otherwise to comply with the requirements of law for the
continuation, preservation and operation of the Partnership as a limited
partnership under the Delaware RULPA.
2.2. NAME OF PARTNERSHIP.
The name under which the Partnership shall conduct its business is U.S.
Restaurant Properties Operating L.P. The business of the Partnership may be
conducted under any other name deemed necessary or desirable by the Managing
General Partner, in its sole and absolute discretion, except that such other
name may not include the surname of any Limited Partner unless such surname is
also the name or surname of the Managing General Partner. The words "Limited
Partnership" shall be included in the name of the Partnership where necessary
for complying with the laws of any jurisdiction that so requires. The Managing
General Partner (and, if necessary, all other General Partners) promptly shall
execute, file and record any assumed or fictitious name certificates required by
the laws of Delaware or any other state in which the Partnership transacts
business, and shall publish such certificates or other statements or
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certificates as are required by the laws of Delaware or any other state in which
the Partnership transacts business.
2.3. PLACE OF BUSINESS.
The principal place of business of the Partnership on the date hereof is
located at 5310 Harvest Hill Road, Suite 270, Dallas, Texas 75230. The Managing
General Partner may hereafter change the principal place of business of the
Partnership to such other place or places within the United States as the
Managing General Partner may determine from time to time, in its sole and
absolute discretion, provided that the Managing General Partner shall, if
necessary, amend the Certificate of Limited Partnership in accordance with
applicable requirements of the Delaware RULPA. The Managing General Partner
may, in its sole and absolute discretion, establish and maintain such other
offices and additional places of business of the Partnership, either within or
without the State of Delaware, as it deems appropriate.
2.4. REGISTERED OFFICE AND REGISTERED AGENT.
The street address of the registered office of the Partnership shall
be at 1209 Orange Street, Wilmington, Delaware 19801, and the Partnership's
registered agent at such address shall be The Corporation Trust Company.
2.5. POWER OF ATTORNEY.
Each Limited Partner (including any additional or Substituted Limited
Partner) and each Assignee who accepts Partnership Units is deemed to
irrevocably constitute, appoint and empower the Managing General Partner (and
any successor by merger, transfer, election or otherwise), and each of the
Managing General Partner's authorized officers and attorneys-in-fact, with full
power of substitution, as the true and lawful agent and attorney-in-fact of such
Limited Partner or Assignee, with full power and authority in such Limited
Partner's or Assignee's name, place and stead and for such Limited Partner's or
Assignee's use of benefit to make, execute, verify, consent to, swear to,
acknowledge, make oath as to, publish, deliver, file and/or record in the
appropriate public offices (a) all certificates and other instruments,
including, at the option of the Managing General Partner, this Agreement and the
Certificate of Limited Partnership and all amendments and restatements thereof,
that the Managing General Partner deems appropriate or necessary to qualify, or
continue the qualification of, the Partnership as a limited partnership (or a
partnership in which the Limited Partners have limited liability) in the State
of Delaware and all jurisdictions in which the Partnership may or may intend to
conduct business or own property; (b) all other certificates, instruments and
documents as may be required by, or may be appropriate under, the laws of any
state or other jurisdiction in which the Partnership may or may intend to
conduct business or own property; (c) all instruments that the Managing General
Partner deems appropriate or necessary to reflect any amendment, change or
modification of this Agreement in accordance with the terms hereof; (d) all
conveyances and other instruments or documents that the Managing General Partner
deems appropriate or necessary to effectuate or reflect the dissolution,
termination, and liquidation of the Partnership pursuant to the terms of this
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Agreement; (e) any and all financing statements, continuation statements,
mortgages or other documents necessary to grant to or perfect for secured
creditors of the Partnership, including the General Partners and Affiliates, a
security interest, mortgage, pledge or lien on all or any of the Partnership
Assets; (f) all instrument or papers required to continue the business of the
Partnership pursuant to Article XIV; (g) all instruments (including this
Agreement and the Certificate of Limited Partnership and amendments and
restatements thereof) relating to the admission of any Partner pursuant to
Article XI; and (h) all other instruments as the attorneys-in-fact or any one of
them may deem necessary or advisable to carry out fully the provisions of this
Agreement in accordance with its terms. The execution and delivery by any of
said attorneys-in-fact of any such agreements, amendments, consents,
certificates or other instruments shall be conclusive evidence that such
execution and delivery was authorized hereby.
Nothing herein contained shall be construed as authorizing any Person
acting as attorney-in-fact pursuant to this Section 2.5 to take action as a
attorney-in-fact for any Limited Partner or Assignee to increase in any way the
liability of such Limited Partner or Assignee beyond the liability expressly set
forth in this Agreement, or to amend this Agreement except in accordance with
Article XV.
The appointment by each Limited Partner and Assignee of the Persons
designated in this Section 2.5 as attorneys-in-fact shall be deemed to be a
power of attorney coupled with an interest in recognition of the fact that each
of the Limited Partners and Assignees under this Agreement will be relying upon
the power of such Persons to act pursuant to this power of attorney for the
orderly administration of the affairs of the Partnership. The foregoing power
of attorney is hereby declared to be irrevocable, and it shall survive, and
shall not be affected by, the subsequent Incapacity or termination of any
Limited Partner or Assignee and it shall extend to such Limited Partner's or
Assignee's heirs, successors and assigns. Each Limited Partner and Assignee
hereby agrees to be bound by any representations made by any Person acting as
attorney-in-fact pursuant to this power of attorney in accordance with this
Agreement. Each Limited Partner and Assignee hereby waives any and all defenses
that may be available to contest, negate or disaffirm the action of any Person
taken as attorney-in-fact under this power of attorney in accordance with this
Agreement. Each Limited Partner and Assignee shall execute and deliver to the
Managing General Partner, within fifteen (15) days after receipt of the Managing
General Partner's request therefor, all such further designations, powers of
attorney and other instruments as the Managing General Partner deems necessary
to effectuate this Agreement and the purposes of the Partnership.
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ARTICLE III
PURPOSES, NATURE OF BUSINESS,
AND POWERS OF PARTNERSHIP
3.1. PURPOSES AND BUSINESS.
The purposes of the Partnership shall be (a) to invest in, acquire, own,
hold a leasehold interest in, manage, maintain, operate, lease, sublease,
improve, finance, reconstruct, sell, exchange, franchise and otherwise dispose
of Partnership Properties and Ancillary Property, whether itself, through other
Persons or otherwise; (b) to originate loans secured by liens on real estate;
and (c) to enter into any lawful transaction and engage in any lawful activities
in furtherance of the foregoing purposes; provided, however, that such business
arrangements and interests may be limited to and conducted in such a manner so
as to permit any REIT Partner at all times to be classified as a real estate
investment trust under the Code.
3.2. POWERS.
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, the following:
(a) To borrow money and issue evidences of indebtedness, and to secure
the same by mortgages, deeds of trust, security interests, pledges or other
liens on all or any part of the Partnership Assets;
(b) To secure and maintain insurance against liability or other loss
with respect to the activities and assets of the Partnership (including, without
limitation, insurance against liabilities under Section 7.10);
(c) To employ or retain such persons as may be necessary or appropriate
for the conduct of the Partnership's business, including permanent, temporary or
part-time employees and independent attorneys, accountants, consultants and
contractors;
(d) To acquire, own, hold a leasehold interest in, maintain, use,
lease, sublease, manage, operate, sell, exchange, transfer or otherwise deal in
assets and property as may be necessary or convenient for the purposes and
business of the Partnership;
(e) To incur expenses and to enter into, guarantee, perform and carry
out contracts or commitments of any kind, to assume obligations and to execute,
deliver, acknowledge and file documents in furtherance of the purposes and
business of the Partnership;
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(f) To pay, collect, compromise, arbitrate, litigate or otherwise
adjust, contest or settle any and all claims or demands of or against the
Partnership;
(g) To invest in interest-bearing accounts and short-term investments,
including, without limitation, obligations of Federal, state and local
governments and their agencies, mutual funds (including money market funds),
commercial paper, time deposits and certificates of deposit of commercial banks,
savings banks or savings and loan associations;
(h) To originate loans secured by liens on real estate; and
(i) To engage in any kind of activity and to enter into and perform
obligations of any kind necessary to or in connection with, or incidental to,
the accomplishment of the purposes and business of the Partnership, so long as
said activities and obligations may be lawfully engaged in or performed by a
limited partnership under the Delaware RULPA.
ARTICLE IV
TERM OF PARTNERSHIP
4.1. TERM.
The Partnership commenced on the date upon which the Certificate of
Limited Partnership was duly filed with the Recording Office pursuant to
Section 2.1 and shall continue until the Termination Date unless dissolved
and liquidated before the Termination Date in accordance with the provisions
of Article XIV.
ARTICLE V
CAPITAL
5.1. CAPITAL CONTRIBUTIONS OF THE PARTNERS.
The Partners have made the Capital Contributions as set forth in
EXHIBIT A attached to this Agreement. Each Partner shall own Partnership
Units in the amount set forth for such Partner in EXHIBIT A, as the same may
be amended from time to time, and shall have a Percentage Interest in the
Partnership as set forth in EXHIBIT A, as the same may be amended from time
to time, which Percentage Interest shall be adjusted in EXHIBIT A from time
to time by the General Partner to the extent necessary to reflect accurately
sales, exchanges or other transfers, redemptions, Capital Contributions, the
issuance of additional Partnership Units, or similar events having an effect
on a Partner's Percentage Interest. Except as provided by law, Sections 5.2
and 10.10, the Partners shall have no obligation or right to make any
additional Capital Contributions or loans to the Partnership. To the extent
the Partnership acquires any property by the merger of any other Person into
the Partnership, Persons who receive Partnership Interests in exchange for
their interests in the Person merging into the Partnership shall become
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Partners and shall be deemed to have made Capital Contributions as provided
in the applicable merger agreement and as set forth in EXHIBIT A, as amended
to reflect such Capital Contributions. The number of Partnership Units held
by the General Partner, in its capacity as general partner (equal to one
percent (1%) of all outstanding Partnership Units from time to time), shall
be deemed to be the General Partner Interest.
5.2. ADDITIONAL ISSUANCES OF PARTNERSHIP INTERESTS AND CAPITAL
CONTRIBUTIONS.
(a) The Managing General Partner is hereby authorized to cause the
Partnership from time to time to issue to Partners (including the Managing
General Partner) or other persons (including, without limitation, in connection
with the contribution of property to the Partnership) additional Partnership
Interests in one or more classes, or one or more series of any of such classes,
with such designations, preferences and relative, participating, optional or
other special rights, powers and duties, including rights, powers and duties
senior to Limited Partner Partnership Interests, all as shall be determined by
the Managing General Partner in its sole and absolute discretion subject to
Delaware law, including, without limitation, (i) the allocations of items of
Partnership income, gain, loss, deduction and credit to each such class or
series of Partnership Interests; (ii) the right of each such class or series of
Partnership Interests to share in Partnership distributions; and (iii) the
rights of each such class or series of Partnership Interests upon dissolution
and liquidation of the Partnership; provided that no such additional Partnership
Interests shall be issued to the MLP or the REIT unless either (A)(1) the
additional Partnership Interests are issued in connection with the grant, award
or issuance of Units or shares of capital stock of the REIT, which Units or
shares have designations, preferences and other rights such that the economic
interests attributable to such Units or shares are substantially similar to the
designations, preferences and other rights of the additional Partnership
Interests issued to the MLP or the REIT in accordance with this Section 5.4(a)
and (2) the MLP or the REIT shall make a Capital Contribution to the Partnership
in an amount equal to the proceeds, if any, raised in connection with the
issuance of such Units or shares of capital stock, or (B) the additional
Partnership Interests are issued to all Partners in proportion to their
respective Percentage Interests (as defined in Article VI).
(b) After the Effective Date, neither the MLP nor the REIT shall grant,
award or issue any additional Units or shares of capital stock, or rights,
options, warrants or convertible or exchangeable securities containing the right
to subscribe for or purchase such Units or shares of capital stock (collectively
"New Securities"), other than to all holders of such Units or shares of capital
stock unless (i) the Managing General Partner shall cause the Partnership to
issue to the MLP or the REIT Partnership Interests or rights, options, warrants
or convertible or exchangeable securities of the Partnership having
designations, preferences and other rights, all such that the economic interests
are substantially the same as those of the New Securities, and (ii) the MLP or
the REIT makes a Capital Contribution to the Partnership of the proceeds from
the grant, award or issuance of such New Securities and from the exercise of
rights contained in such New Securities. Without limiting the foregoing, the
MLP and the REIT are expressly authorized to issue New Securities for less than
fair market value, and the Managing General Partner is expressly authorized to
cause the Partnership to issue to the MLP and the REIT corresponding
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Partnership Interests, so long as (A) the Managing General Partner concludes
in good faith that such issuance is in the interests of the Managing General
Partner and the Partnership (for example, and not by way of limitation, the
issuance of shares of Common Stock and corresponding Partnership Units
pursuant to an employee stock purchase plan providing for employee purchases
of shares of Common Stock at a discount from fair market value or employee
stock options that have an exercise price that is less than the fair market
value of the Common Stock, either at the time of issuance or at the time of
exercise), and (B) the MLP and the REIT makes a Capital Contribution to the
Partnership of all proceeds from such issuance and exercise.
5.3. CONTRIBUTION OF PROCEEDS OF ISSUANCE OF COMMON STOCK.
In connection with the initial public offering of Common Stock by the
REIT and any other issuance of Common Stock or New Securities pursuant to
Section 5.2, the REIT shall contribute to the Partnership any proceeds (or a
portion thereof) raised in connection with such issuance; provided that if
the proceeds actually received by the REIT are less than the gross proceeds
of such issuance as a result of any underwriter's discount or other expenses
paid or incurred in connection with such issuance, then the REIT shall be
deemed to have made a Capital Contribution to the Partnership in the amount
equal to the sum of the net proceeds of such issuance plus the amount of such
underwriter's discount and other expenses paid by the Company (which discount
and expense shall be treated as an expense for the benefit of the Partnership
for purposes of Section 9.4). In the case of employee purchases of New
Securities at a discount from fair market value, the amount of such discount
representing compensation to the employee, as determined by the Managing
General Partner, shall be treated as an expense of the issuance of such New
Securities.
5.4. EXCHANGE OF UNITS.
(a) Subject to Section 5.4(b), on or after the date hereof, each
Limited Partner (other than the REIT) shall have the right (the "Exchange
Right") to require the REIT to acquire all or a portion of the Partnership
Units held by such Limited Partner in exchange for the REIT Stock Amount.
The Exchange Right shall be exercised pursuant to a Notice of Exchange
delivered to the REIT (with a copy to the Partnership) by the Limited Partner
who is exercising the Exchange Right (the "Exchanging Partner"). A Limited
Partner may not exercise the Exchange Right for fewer than one thousand
(1,000) Partnership Units or, if such Limited Partner holds fewer than one
thousand (1,000) Partnership Units, all of the Partnership Units held by such
Partner. The Exchanging Partner shall have no right, with respect to any
Partnership Units so exchanged, to receive any distributions paid with
respect to the Partnership Units on or after the date of the Notice of
Exchange. The Assignee of any Limited Partner may exercise the rights of
such Limited Partner pursuant to this Section 5.4(a), and such Limited
Partner shall be deemed to have assigned such rights to such Assignee and
shall be bound by the exercise of such rights by such Assignee. In
connection with any exercise of such rights by an Assignee on behalf of a
Limited Partner, the REIT Stock Amount shall be paid by the REIT directly to
such Assignee and not to such Limited Partner.
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(b) Notwithstanding the provisions of Section 5.4(a), a Partner
shall not be entitled to exercise the Exchange Right pursuant to Section
5.4(a) if the delivery of shares of Common Stock to such Partner by the REIT
pursuant to Section 5.4(a) would be prohibited under the Amended Articles of
Incorporation of the REIT.
5.5. MINIMUM PERCENTAGE INTEREST OF GENERAL PARTNER.
The provisions of Sections 5.2 and 5.3 shall be applied so that in
all events the Percentage Interest of the General Partners shall be equal to
at least 1.00%. In the event the issuance of additional Partnership
Interests pursuant to Section 5.2 would (but for this Section 5.5) have the
effect of reducing the Percentage Interest of the General Partners to less
than 1.00%, the REIT shall transfer Partnership Units to the General Partners
(and, as of the effective date of such issuance, the REIT shall be deemed to
hold Partnership Units for the benefit of the General Partners) to the extent
necessary to cause the General Partners' Percentage Interest, after giving
effect to such issuance, to be equal to at least 1.00%. In the event any
additional Capital Contributions are to be made or deemed made to the
Partnership by the General Partner and the REIT pursuant to Section 5.2 or
5.3, such additional Capital Contributions or deemed Capital Contributions
shall be allocated between the General Partner and the REIT in the amounts
necessary to cause the General Partners' Percentage Interest, after giving
effect to such Capital Contributions, to be equal to at least 1.00%.
5.6. NO PREEMPTIVE RIGHTS.
No Person shall have any preemptive, preferential or other similar
right with respect to (a) additional Capital Contributions or loans to the
Partnership; or (b) issuance or sale of any Partnership Units or other
Partnership Interests.
5.7. CAPITAL ACCOUNTS.
(a) A separate Capital Account shall be established and maintained
for each Partner. The Capital Account of each Partner and Assignee shall be
(i) credited with (A) the cash and the initial Carrying Value of any property
(net of liabilities secured by such Contributed Property that the Partnership
is considered to assume or take subject to under Section 752 of the Code)
contributed to the Partnership by such Partner or Assignee, and (B) all items
of Partnership income or gain (including income or gain exempt from tax)
computed in accordance with Section 5.7(b) and allocated to such Partner
pursuant to Article VI, and shall be (ii) debited with (A) all items of
Partnership deduction and loss computed in accordance with Section 5.7(b) and
allocated to such Partner pursuant to Article VI, and (B) all cash and the
fair market value of any property (net of liabilities secured by such
distributed property that such Partner is considered to assume or take
subject to under Section 752 of the Code) distributed by the Partnership to
such Partner or Assignee pursuant to Article VI. Notwithstanding anything to
the contrary contained herein, the Capital Account of a Partner or Assignee
shall be determined in all events solely in accordance with the rules set
forth in Treasury Regulations Section 1.704-1(b)(2)(iv), as the same may be
amended or revised from time to time. Any references in this Agreement to
the Capital
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Account of a Partner or Assignee shall be deemed to refer to such Capital
Account as the same may be credited or debited from time to time as set forth
above.
(b) For purposes of computing the amount of any item of income,
gain, deduction or loss to be reflected in Capital Accounts, the
determination, recognition and classification of each such item shall be the
same as its determination, recognition and classification for federal income
tax purposes (including any method of depreciation, cost recovery or
amortization used for this purpose), provided that:
(i) In accordance with the requirements of Treasury Regulations
Section 1.704-1(b)(2)(iv)(g), any deductions for depreciation, cost
recovery or amortization, attributable to a Partnership Asset
contributed to the Partnership, shall be determined as if the Adjusted
Basis of such Partnership Asset on the date it was acquired by the
Partnership were equal to the Carrying Value of such Partnership Asset
as of such date. Upon an adjustment pursuant to Section 5.7(d) to the
Carrying Value of any Partnership property subject to depreciation, cost
recovery or amortization, any further deductions for such depreciation,
cost recovery or amortization attributable to such property shall be
determined (A) as if the Adjusted Basis of such property were equal to
the Carrying Value of such property immediately following such
adjustment and (B) using a predetermined rate of depreciation, cost
recovery or amortization derived from the same method for useful life
as is applied for federal income tax purposes. As a result, the amount
of depreciation, cost recovery or amortization deductions computed for
purposes of this Section 5.7(b) with respect to any Adjusted Property
shall bear the same relationship to the Carrying Value of such property
as the depreciation, cost recovery or amortization computed for federal
income tax purposes with respect to such property bears to the Adjusted
Basis of such property. Solely for the purposes of this Section 5.7(b),
depreciation, cost recovery or amortization deductions with respect to
property with an Adjusted Basis of zero shall. be at the rate which
would apply for tax purposes if (1) in the case of Contributed Property,
such property were placed in service on the date contributed, and (2) in
the case of Adjusted Property, such property were placed in service on
the date of adjustment required pursuant to Section 5.7(d)(i) or
5.7(d)(ii), provided that if such Adjusted Property was Contributed
Property, which was contributed with the tax basis of zero and such
property is not fully depreciated for Capital Account purposes at the
day of the adjustment, all deductions for depreciation, cost recovery
or amortization of such property shall be derived from the method and
useful life theretofore determined pursuant to clause (1) above;
(ii) Any income, gain or loss attributable to the taxable
disposition of any Partnership Asset shall be determined by the
Partnership as if the Adjusted Basis of such Partnership Asset as of
such date of disposition were equal in amount to the Partnership's
Carrying Value with respect to such Partnership Asset as of such date;
(iii) If the Partnership's Adjusted Basis in any depreciable
property is reduced pursuant to Section 48(q) of the Code, then the
amount of such reduction shall be treated
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as an expense for the year in which such reduction occurs and allocated
to the Partners in the ratio in which depreciation with respect to such
property is allocable. Any restoration of any such reduction in
Adjusted Basis shall be allocated to the Partners to whom the expense
was chargeable;
(iv) Immediately prior to the distribution of any Partnership
Asset, any Unrealized Gain or Unrealized Loss attributable to such
Partnership Asset shall, for purposes hereof, be deemed to be gain or
loss recognized by the Partnership and shall be allocated among the
Partners in accordance with Article VI. In determining such Unrealized
Gain or Unrealized Loss, the fair market value of such Partnership Asset
shall be determined pursuant to Section 8.8;
(v) All fees and other expenses incurred (or treated as
incurred) by the Partnership to promote the sale of (or to sell)
interests in the Partnership that can neither be deducted nor amortized
under Section 709 of the Code shall, for purposes of Capital Account
maintenance, be treated as an item of deduction and shall be allocated
among the Partners pursuant to Article VI; and
(vi) Except as otherwise provided in Treasury Regulations
Section 1.707-1(b)(2)(iv)(m), the computation of all items of income,
gain, loss, and deduction shall be made without regard to any Section
754 Election that may be made by the Partnership, and as to those items
described in Section 705(a)(1)(A) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not included in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes.
(c) Generally, a transferee (including any Assignee) of a Partnership
Interest will succeed to the Capital Account relating to the Partnership
Interest transferred. However, if the transfer causes a termination of the
Partnership under Section 708(b)(1)(B) of the Code, the Partnership properties
shall be deemed to have been distributed in liquidation of the Partnership to
the Partners and Assignees and deemed recontributed by such Partners and
Assignees in reconstitution of the Partnership. In such event, the Carrying
Values of the Partnership properties shall be adjusted immediately prior to such
deemed distribution pursuant to Section 5.7(d)(ii). The Capital Accounts of such
reconstituted Partnership shall be maintained in accordance with the principles
of this Section 5.7.
(d) (i) Consistent with the provisions of Treasury Regulations Section
1.704-1(b)(2)(iv)(f), upon an issuance of additional Partnership
Interests for cash or Contributed Property, the Capital Accounts of
all Partners and Assignees shall, immediately prior to such issuance,
be adjusted (consistent with the provisions hereof) upwards or downwards
to reflect any Unrealized Gain or Unrealized Loss attributable to each
Partnership property (as if such Unrealized Gain or Unrealized Loss had
been recognized upon an actual sale of each such property, immediately
prior to such issuance, and had been allocated to the Partners, at such
time, pursuant to Section 6.2). In determining such Unrealized Gain or
Unrealized Loss, the aggregate fair market value of
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Partnership properties as of any date of determination shall be
determined in the discretion of the Managing General Partner. The
Carrying Values of all Partnership properties shall be adjusted to
reflect their relative fair market values, as determined hereunder by
the Managing General Partner in its sole and absolute discretion. Once
the aggregate fair market value has been determined, the Managing
General Partner shall allocate such aggregate value among the properties
of the Partnership, in a manner it deems reasonable, to determine a fair
market value for individual properties.
(ii) In accordance with Treasury Regulations Section
1.704-1(b)(2)(iv)(f), immediately prior to the actual or deemed
distribution of any Partnership property, the Capital Accounts of all
Partners and Assignees shall, immediately prior to any such
distribution, be adjusted (consistent with the provisions hereof)
upwards or downwards to reflect any Unrealized Gain or Unrealized Loss
attributable to each Partnership property, as if such Unrealized Gain
or Unrealized Loss had been recognized upon an actual sale of each
property, immediately prior to such distribution, and had been allocated
to the Partners and Assignees, at such time, pursuant to Section 6.2. In
determining such Unrealized Gain or Unrealized Loss, the aggregate fair
market value of Partnership properties as of any date of determination
shall be determined in the discretion of the Managing General Partner.
The Managing General Partner shall allocate such aggregate market value
among the properties of the Partnership, in a manner it deems
reasonable, to determine a fair market value for individual properties.
5.8. NEGATIVE CAPITAL ACCOUNTS.
(a) Except to the extent provided in Section 5.8(b), and except to the
extent that the Partners are required to make Capital Contributions under
Section 5.3, no Partner shall be required to pay to the Partnership or any other
Partner any deficit balance which may exist from time to time in such Partner's
or Assignee's Capital Account.
(b) Notwithstanding the foregoing, if any General Partner has a deficit
balance in its Capital Account following the liquidation of its Partnership
Interest, as determined after taking into account all Capital Account
adjustments for the Partnership Fiscal Year during which such liquidation
occurs, it is unconditionally obligated to restore the amount of such deficit or
negative balance to the Partnership by the end of such Fiscal Year (or, if
later, within 90 days after the date of such liquidation), which such amount
shall, upon liquidation of the Partnership, be paid to creditors of the
Partnership or distributed to other Partners in accordance with their positive
Capital Account balances.
5.9. NO INTEREST ON AMOUNTS IN CAPITAL ACCOUNT.
No Partner or Assignee shall be entitled to receive any interest on its
outstanding Capital Account balance.
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5.10. ADVANCES TO PARTNERSHIP.
If any Partner or Assignee shall advance funds to the Partnership in
excess of the amounts required hereunder to be contributed by it to the
capital of the Partnership, the making of such advances shall not result in
any increase in the amount of the Capital Account of such Partner or Assignee
or entitle such Partner or Assignee to any increase in its Percentage
Interest (as defined in Article VI). The amounts of any such advances shall
be a debt of the Partnership to such Partner or Assignee and shall be payable
or collectible only out of the Partnership Assets in accordance with the
terms and conditions upon which such advances are made.
5.11. LIABILITY OF LIMITED PARTNER.
Except as provided in the Delaware RULPA and Section 6.8 and Section
7.10(e), (a) the Limited Partners or Assignees shall not be personally liable
for any debts, liabilities, contracts or obligations of the Partnership; (b)
the Limited Partners shall be liable only to make payments of such Limited
Partners' Capital Contributions pursuant to Section 5.4; and (c) after the
Limited Partners' Capital Contributions shall be fully paid, the Limited
Partners shall not be required to make any further Capital Contributions or
to lend any funds to the Partnership.
5.12. RETURN OF CAPITAL.
Except upon the dissolution of the Partnership or as otherwise
specifically provided in this Agreement, no Partner or Assignee shall have
the right to demand or to receive the return of all or any part of the
Capital Account or Capital Contributions of such Partner or Assignee.
ARTICLE VI
ALLOCATION OF PROFITS AND LOSSES;
DISTRIBUTIONS OF CASH FLOW AND CERTAIN PROCEEDS
6.1. CERTAIN DEFINITIONS.
(a) "CASH FLOW" shall mean and refer to the sum of the following:
(i) the taxable income (or loss) of the Partnership for federal
income tax purposes as shown on the books of the Partnership for the
period for which such determination is being made, excluding taxable
income or gain or loss for Capital Transactions (as defined in Section
6.1(b)); increased by (A) the amount of cost recovery or depreciation
deductions or amortization or similar deductions in lieu thereof
deductible by the Partnership in computing such taxable income and any
other non-cash accruals deductible in determining federal taxable income
or loss for such period, and (B) any non-taxable income or receipts of
the Partnership for such period (including, without limitation, any
amounts received during such period that were included in taxable income
in a prior period) except (1) Capital Contributions to the Partnership
pursuant to Article
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V and (2) the proceeds of any loans to the Partnership, and reduced by
(w) payments from the sum of the foregoing upon the principal of any
loans to the Partnership, (x) expenditures from the sum of the foregoing
for the acquisition, improvement or replacement of property (including,
without limitation, expenditures in connection with the Successor Policy
pursuant to Section 8.6), the financing of tenants or other reinvestment
or use in the business of the Partnership (all as determined by the
Managing General Partner in its sole and absolute discretion) not
financed through Capital Contributions to the Partnership, loans to the
Partnership or any reserves previously set aside by the Partnership for
such purposes, and for the payment of items attributable to the
acquisition, improvement or replacement of property which are not
deductible in determining federal taxable income when paid, (y) any
amounts including gross income for such period that were not received by
the Partnership during such period, and (z) transfers from the sum of
the foregoing to reserves for the acquisition, improvement, or
replacement of property, for the repayment of loans and other
indebtedness, for security deposits or other necessary escrows or
deposits, to meet anticipated expenses and/or for other reinvestment or
use as the Managing General Partner shall deem to be necessary or
advisable in its sole and absolute discretion (including, without
limitation, expenditures to purchase or otherwise acquire Partnership
Units and the creation of or additions to the Working Capital Reserve
established pursuant to Section 7.5 and any reserves established by the
Managing General Partner either to implement the Successor Policy
pursuant to Section 8.6, to acquire title to any Restaurant Property
subject to a Primary Lease pursuant to Section 8.12, or to set aside
cash for the purpose of making future distributions of Cash Flow to the
Partners and Assignees consistent with a policy of avoiding fluctuations
in the amount of quarterly distributions of Cash Flow to the extent
practicable); plus
(ii) any other funds (including amounts previously set aside as
reserves by the Managing General Partner if and to the extent the
Managing General Partner no longer regards such reserves as reasonably
necessary in the efficient conduct of the business of the Partnership)
deemed available for distribution and designated as Cash Flow by the
Managing General Partner.
The Managing General Partner shall determine, in its sole and absolute
discretion, whether funds are derived from or financed through a particular
source or used for a particular purpose for purposes of determining Partnership
Cash Flow for any period. In determining the Cash Flow for any quarterly period
within a Fiscal Year, the Managing General Partner shall have the authority to
apportion expenses and revenues of the Partnership among quarterly periods
within the Fiscal Year in any reasonable manner consistent with the principles
applied in determination of the Partnership's taxable income or loss, as the
case may be, for such Fiscal Year.
(b) "CAPITAL TRANSACTION" means an "Interim Capital Transaction" or
a "Terminating Capital Transaction," as the case may be. An "Interim Capital
Transaction" shall refer to (i) a transaction pursuant to which the
Partnership borrows funds, (ii) a sale, condemnation, exchange, abandonment,
casualty not followed by reconstruction, or other disposition, whether by
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foreclosure or otherwise, of a portion (but less than substantially all) of
the Partnership Assets, or (iii) an insurance recovery or any other
transaction which, in accordance with generally accepted accounting
principles, is considered capital in nature, but which is not a Terminating
Capital Transaction. Notwithstanding the foregoing, no transaction shall be
considered to be an Interim Capital Transaction for purposes of this
Agreement if the "net proceeds" thereof ("net proceeds" shall mean the
proceeds received by the Partnership after the payment of all costs and
expenses of any kind or nature incurred by the Partnership in connection with
such transaction) are not material in amount and, in such instance, any
proceeds attributable to such transaction shall be included in computing Cash
Flow. A "Terminating Capital Transaction" shall refer to any sale,
condemnation, exchange, abandonment or other disposition, whether by
foreclosure or otherwise, of all or substantially all of the then remaining
Partnership Assets and/or any other transaction which will result in a
dissolution and liquidation of the Partnership. Any sale or other disposition
of any Partnership Assets in connection with the dissolution and liquidation
of the Partnership pursuant to Article XIV shall be considered a "Terminating
Capital Transaction" for purposes of this Article VI.
(c) "NET PROCEEDS OF A CAPITAL TRANSACTION" means the proceeds
received by the Partnership in connection with a Capital Transaction, after
(i) the payment of all costs and expenses of any kind or nature incurred by
the Partnership in connection with such Capital Transaction, (ii) the
utilization of any such proceeds in connection with the discharge of debts
and other obligations of the Partnership required or intended (as determined
by the Managing General Partner, in its sole and absolute discretion) to be
discharged with the proceeds of such Capital Transaction, (iii) the retention
of such proceeds or a portion thereof in connection with creation of or
addition to the Working Capital Reserve established pursuant to Section 7.5
or the acquisition, improvement or replacement of property, the financing of
tenants or reinvestment or other use in the business of the Partnership (all
as determined by the Managing General Partner, in its sole and absolute
discretion), or (iv) the retention of such proceeds or a portion thereof in
connection with the creation of or addition to any reserves established by
the to provide for any amounts required to be paid by the Partnership either
pursuant to Section 8.06 in connection with the Successor Policy, pursuant to
Section 8.12 pursuant to the purchase of title to any Restricted Restaurant
Property subject to a Primary Lease or for other reinvestment or use, all as
the Managing General Partner shall deem necessary or advisable in its sole
and absolute discretion. In the event the proceeds of any Interim Capital
Transactions are to be paid in more than one installment, then each such
installment shall be treated as a separate Interim Capital Transaction for
purposes of this Article VI.
6.2. ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES.
For purposes of maintaining the Capital Accounts and in determining
the rights of the Partners and Assignees among themselves, the following
allocations shall be made:
(a) Each item of income, gain, loss and deduction of the Partnership
for any taxable period during the term of this Agreement shall be allocated
among the Partners and Assignees, pro rata, in accordance with their
respective Percentage Interests.
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(b) Notwithstanding the provisions of Section 6.2(a), in the event
that any fees, interest or other amounts paid to any of the General Partners
pursuant to this Agreement, or any agreement between the Partnership and any
General Partner providing for the payment of such amount, and deducted by the
Partnership in reliance on Sections 701(a) and/or 707(c) of the Code, are
disallowed as deductions to the Partnership on its federal income tax return
and are treated as Partnership distributions, then there shall be allocated
to the General Partner to which such fees, interest or other amounts were
paid, prior to the allocations pursuant to Section 6.2(a), an amount of
Partnership income for the year in which such fees, interest or other amounts
were paid, equal to the amount of such fees, interest or other amounts that
are treated as Partnership distributions.
(c) SPECIAL ALLOCATIONS. Except as otherwise provided in this
Agreement, the following special allocations will be made in the following
order and priority:
(i) Notwithstanding any other provision of this Section 6.2, if
there is a net decrease in Partner Minimum Gain during any taxable year
or other period for which allocations are made, each Partner or Assignee
will be specially allocated items of Partnership income and gain for
that period (and, if necessary, subsequent periods) in accordance with
the requirements of Treasury Regulations Section 1.704-2(i)(4). This
Section 6.2(c)(i) is intended to comply with the minimum gain charge-
back requirements of Treasury Regulations Section 1.704-2(i)(4).
(ii) Notwithstanding any other provision of this Section 6.2,
if there is a net decrease in Partnership Minimum Gain during any
taxable year or other period for which allocations are made, each
Partner or Assignee will be specially allocated items of Partnership
income and gain for that period (and, if necessary, subsequent periods)
in accordance with the requirements of Treasury Regulations Section
1.704-2(f). This Section 6.2(c)(ii) is intended to comply with the
minimum gain charge-back requirements of Treasury Regulations Section
1.704-2(f).
(iii) Nonrecourse Deductions for any taxable year or other
period for which allocations are made will be allocated among the
Partners or Assignees in proportion to their respective Percentage
Interests.
(iv) Any Partner Nonrecourse Deductions for any taxable year
or other period for which allocations are made will be allocated to the
Partner or Assignee who bears the economic risk of loss with respect to
the Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable in accordance with Treasury Regulations
Section 1.704-2(i)(1).
(v) To the extent an adjustment to the adjusted tax basis of
any Partnership asset under Section 734(b) or 743(b) of the Code is
required to be taken into account in determining Capital Accounts under
Treasury Regulations Section 1.704-1(b)(2)(iv)(m), the amount of the
adjustment to the Capital Accounts will be treated as an item of gain
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(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis), and the gain or loss will be specially
allocated to the Partners or Assignees in a manner consistent with the
manner in which their Capital Accounts are required to be adjusted under
Treasury Regulations Section 1.704-1(b)(2)(iv)(m).
(vi) Notwithstanding any other provision of this Agreement, no
allocation of any item of income, gain, loss or deduction will be made
to a Partner or Assignee if the allocation would not have "economic
effect" under Treasury Regulations Section 1.704-1(b)(2)(ii) or
otherwise would not be in accordance with the Partner's or Assignee's
interest in the Partnership within the meaning of Treasury Regulations
Section 1.704-1(b)(3). The Managing General Partner will have the
authority to reallocate any item in accordance with this Section
6.2(c)(vi).
(d) CURATIVE ALLOCATIONS. The allocations set forth in Section 6.2(c)
(the "Regulatory Allocations") are intended to comply with certain requirements
of Treasury Regulations Section 1.704-2. The Regulatory Allocations may not be
consistent with the manner in which the Partners and Assignees intend to divide
Partnership distributions. Accordingly, the Managing General Partner is
authorized to divide other allocations of items of income, gain, deduction and
loss among the Partners and Assignees so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions would
be divided among the Partners but for application of the Regulatory Allocations.
In general, the reallocation will be accomplished by specially allocating other
items of income, gain, deduction and loss, to the extent they exist, among the
Partners and Assignees so that the net amount of the Regulatory Allocations and
the special allocations to each Partner is zero. However, the Managing General
Partner will have discretion to accomplish this result in any reasonable manner
that is consistent with Section 704 of the Code and the related Treasury
Regulations.
(e) MINIMUM ALLOCATIONS TO MANAGING GENERAL PARTNER. Notwithstanding
anything in this Agreement (other than allocations contained in Section 6.2(d)
required by Sections 704(b) and 704(c) of the Code) to the contrary, the
interest of the Managing General Partner in each material item of Partnership
income, gain, deduction and loss shall equal at least .99% of each such item at
all times during the existence of the Partnership.
6.3. ALLOCATIONS FOR TAX PURPOSES.
(a) Except as otherwise provided in this Section 6.3, for federal
income tax purposes, each item of income, gain, loss and deduction shall be
allocated among the Partners and Assignees in the same manner as its
correlative item of "book" income, gain, loss or deduction has been allocated
pursuant to Section 6.2.
(b) In an attempt to eliminate any disparities between the Carrying
Value and the Adjusted Basis of Contributed Property or Adjusted Property,
items of income, gain, loss, depreciation and cost recovery deductions shall
be allocated for federal income tax purposes among the Partners and Assignees
as follows:
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(i) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners and
Assignees in the manner provided under Section 704(c)(1) of the
Code that takes into account the variation between the Carrying
Value of such property and its Adjusted Basis at the time of
contribution.
(ii) In the case of an Adjusted Property, such items
attributable thereto shall (A) first, be allocated among the
Partners and Assignees in a manner consistent with the principles
of Section 704(c)(1) of the Code to take into account the Unrealized
Gain or Unrealized Loss attributable to such property and the
allocations thereof pursuant to Section 5.6(d), and (B) second, in
the event such property was originally a Contributed Property, be
allocated among the Partners and Assignees in a manner consistent
with Section 6.3(b)(i).
(iii) Except as otherwise provided in Section 6.3(b)(iv), in
the case of all other properties, items of income, gain, loss and
deduction attributable to such property shall be allocated among the
Partners and Assignees in accordance with Section 6.3(a).
(iv) Any items of income, gain, loss or deduction otherwise
allocable under Section 6.3(a) or 6.3(b)(iii) shall be subject to
allocation by the Managing General Partner in any reasonable manner
designed to eliminate, to the maximum extent possible, any disparities
between the Carrying Value and the Adjusted Basis in a Contributed
Property or an Adjusted Property otherwise resulting from the
application of the ceiling limitation (under Section 704(c)(1) of the
Code or its principles) to the allocations provided under Section
6.3(b)(i) or 6.3(b)(ii).
(c) To the extent of any Recapture Income resulting from the sale or
other taxable disposition of Partnership Assets, the amount of any gain from
such disposition allocated to (or recognized by) a Partner or Assignee for
federal income tax purposes pursuant to the above provisions shall be deemed
to be Recapture Income to the extent such Partner or Assignee (or its
predecessors in interest) has been allocated or has claimed any deduction
directly or indirectly giving rise to the treatment of such gain as Recapture
Income.
(d) All items of income, gain, loss and deduction recognized by the
Partnership for federal income tax purposes and allocated to the Partners and
Assignees in accordance with the provisions hereof and all basis allocations
shall be determined without regard to any election under Section 754 of the
Code which may be made by the Partnership.
6.4. ALLOCATION OF INCOME AND LOSS WITH RESPECT TO INTEREST TRANSFERRED.
If any Partnership Interest is transferred during any taxable period,
the share of Partnership items of income, gain, deduction or loss
attributable to such interest for such taxable period shall be divided and
allocated proportionately between the transferor and the transferee based
upon the number of days during such taxable period for which each party was
the holder of the Partnership Interest transferred.
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6.5. DISTRIBUTIONS OF CASH FLOW.
(a) ALLOCATION AND DISTRIBUTION. Cash Flow of the Partnership shall
be determined for each calendar quarter of each Fiscal Year. Cash Flow as so
determined shall be distributed in cash to the Partners and Assignees, pro
rata, in accordance with their respective Percentage Interests. The General
Partners shall take such reasonable efforts, as determined by them in their
sole and absolute discretion, to cause the Partnership to distribute
sufficient amounts to enable any REIT Partner to pay stockholder dividends
that will satisfy the requirements for qualifying as a real estate investment
trust under the Code.
(b) TIMING OF DISTRIBUTIONS. Cash Flow shall be distributed
quarterly, within seventy-five (75) days after the end of each calendar
quarter of a Fiscal Year, commencing with the calendar quarter ended March
31, 1986. The Partners and Assignees agree that, within thirty (30) days
after determination by the Partnership that an overpayment was made to any
Partner or Assignee for any Fiscal Year pursuant to this Section 6.5, such
Partner or Assignee shall repay, allow as a credit against future
distributions or make such other adjustments as may be appropriate to remedy
such overpayment. Likewise, appropriate adjustment shall be made to remedy
any underpayment.
6.6. DISTRIBUTION OF PROCEEDS FROM INTERIM CAPITAL TRANSACTIONS.
The Net Proceeds of an Interim Capital Transaction shall be
distributed to the Partners and Assignees, pro rata, in accordance with their
respective Percentage Interests. Distributions pursuant to this Section 6.6
shall be made within seventy-five (75) days of the receipt of proceeds with
respect to an Interim Capital Transaction.
6.7. DISTRIBUTION OF PROCEEDS FROM TERMINATING CAPITAL TRANSACTIONS;
LIQUIDATION DISTRIBUTIONS.
(a) The Net Proceeds of a Terminating Capital Transaction and any
other remaining assets of the Partnership to be distributed to the Partners
and Assignees in connection with liquidation and dissolution of the
Partnership pursuant to Article XIV, after the payment of all debts,
liabilities and obligations of the Partnership in the manner provided in
Section 14.5 (including, without limitation, all amounts owing to the General
Partners under this Agreement (other than this Article VI) or under any
agreement between the Partnership and the General Partners entered into by
the General Partners other than in their capacity as Partners in the
Partnership), including, without limitation, the payment of expenses of
liquidation of the Partnership, and the establishment of a reasonable reserve
(including an amount estimated by the Managing General Partner to be
sufficient to pay any amount reasonably anticipated to be required to be paid
pursuant to Section 7.10), shall be distributed to the Partners and
Assignees, pro rata, in proportion to the positive balances, if any, in their
respective Capital Accounts.
(b) Notwithstanding any provision in this Section 6.7 to the contrary,
in the event that the Net Proceeds of the Terminating Capital Transaction are
to be paid to the Partnership in more
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than one installment, each such installment (including any interest thereon)
shall be allocated among the Partners and Assignees in accordance with their
respective "Installment Percentages." The "Installment Percentage" of each
Partner and Assignee shall be equal to (i) the aggregate amount of cash that
would have been distributed to that Partner or Assignee under Sections 6.7(a)
and (b) had the Net Proceeds of the Terminating Capital Transaction been paid
in one lump sum, divided by (ii) the total Net Proceeds that would have been
distributed to all of the Partners and Assignees under those Sections.
6.8. TAXES WITHHELD.
Each Limited Partner hereby authorizes the Partnership to withhold
from, or pay on behalf of or with respect to, such Limited Partner any amount
of federal, state, local or foreign taxes that the General Partners determine
that the Partnership is required to withhold or pay with respect to any
amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld
or paid by the Partnership pursuant to Section 1441, 1442, 1445 or 1446 of
the Code. Any amount paid on behalf of or with respect to a Limited Partner
shall constitute a loan by the Partnership to such Limited Partner, which
loan shall be repaid by such Limited Partner within fifteen (15) days after
notice from the General Partners that such payment must be made unless (a)
the Partnership withholds such payment from a distribution which would
otherwise be made to the Limited Partner; or (b) the General Partners
determine, in their sole and absolute discretion, that such payment may be
satisfied out of the available funds of the Partnership which would, but for
such payment, be distributed to the Limited Partner. Any amounts withheld
pursuant to the foregoing clauses (a) and (b) shall be treated as having been
distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest
in such Limited Partner's Partnership Interest to secure such Limited
Partner's obligation to pay to the Partnership any amounts required to be
paid pursuant to this Section 6.8. In the event that a Limited Partner fails
to pay any amounts owed to the Partnership pursuant to this Section 6.8 when
due, the General Partners may, in their sole and absolute discretion, elect
to make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of
the Partnership as against such defaulting Limited Partner. Without
limitation, in such event the General Partners shall have the right to
receive distributions that would otherwise be distributable to such
defaulting Limited Partner until such time as such loan, together with all
interest thereon, has been paid in full, and any such distributions so
received by the General Partners shall be treated as having been distributed
to the defaulting Limited Partner and immediately paid by the defaulting
Limited Partner to the General Partners in repayment of such loan. Any
amounts as payable by a Limited Partner hereunder shall bear interest at the
lesser of (i) the base rate on corporate loans at large United States money
center commercial banks, as published from time to time in The Wall Street
Journal, plus four (4) percentage points, or (ii) the maximum lawful rate of
interest on such obligation, such interest to accrue from the date such
amount is due (I.E., fifteen (15) days after demand) until such amount is
paid in full. Each Limited Partner shall take such actions as the Partnership
or the
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General Partners shall request in order to perfect or enforce the security
interest created hereunder.
ARTICLE VII
MANAGEMENT
7.1. MANAGEMENT AND CONTROL OF PARTNERSHIP.
Except as otherwise expressly provided or limited by the provisions
of this Agreement (including, without limitation, the provisions of Article
VIII), the Managing General Partner shall have full, exclusive and complete
discretion to manage and control the business and affairs of the Partnership,
to make all decisions affecting the business and affairs of the Partnership
and to take all such actions as it deems necessary or appropriate to
accomplish the purposes of the Partnership as set forth herein. The Managing
General Partner shall use reasonable efforts to carry out the purposes of the
Partnership and shall devote to the management of the business and affairs of
the Partnership such time as the Managing General Partner, in its reasonable
discretion, shall deem to be reasonably required for the operation thereof.
The Limited Partners shall have no authority, right or power to bind the
Partnership, or to manage or control, or to participate in the management or
control of, the business and affairs of the Partnership in any manner
whatsoever.
7.2. POWERS OF MANAGING GENERAL PARTNER.
Subject to the limitation of Section 7.3, which vests certain approval
rights in the Limited Partners, and to the limitations and restrictions set
forth in Article VIII, the Managing General Partner (acting on behalf of the
Partnership) shall have the right, power and authority, in the management of the
business and affairs of the Partnership, to do or cause to be done any and all
acts, at the expense of the Partnership, deemed by the Managing General Partner
to be necessary or appropriate to effectuate the business, purposes and
objectives of the Partnership. The power and authority of the Managing General
Partner pursuant to this Agreement shall be liberally construed to encompass all
acts and activities in which a partnership may engage under the Delaware RULPA.
The power and authority of the Managing General Partner shall include, without
limitation, the power and authority on behalf of the Partnership:
(a) To acquire, own, lease, sublease, manage, hold, deal in, control or
dispose of any interests or rights in personal property or real property,
including interests in any Partnership Property, whether realty or personalty,
including, without limitation, the powers to sell, exchange, lease, sublease,
mortgage, pledge, convey in trust, enter into joint ventures or partnerships
respecting or otherwise hypothecate or dispose of all or any portion of any
Partnership Property or any other Partnership Asset or any interest therein;
provided, however, that the use of any Restricted Restaurant Property and any
sale or other disposition of any Restricted Restaurant Property shall be subject
to the restrictions and limitations set forth in Sections 8.3 and 8.4;
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(b) Subject to the restrictions and limitations set forth in Section
8.3 but without limiting the generality of Section 7.2(a), to negotiate,
enter into, renegotiate, extend, renew, terminate, modify, amend, waive,
execute, acknowledge or take any other action on behalf of the Partnership
with respect to any Primary Lease (including, without limitation, to exercise
any right of the Partnership under any Primary Lease to acquire title to a
Partnership Property pursuant to a right of first refusal) or any lease or
sublease of a Partnership Property whether to a BKC Franchisee or otherwise,
or any provision thereof;
(c) Subject to the restrictions and limitations set forth in
Sections 8.3 and 8.4, to create, by grant or otherwise, easements,
servitudes, rights-of-way, and other rights in and to any Partnership
Property;
(d) To alter, improve, expand, repair, raze, replace or reconstruct
a Partnership Property; provided, however, that any improvement, expansion,
replacement, or reconstruction of a Partnership Property pursuant to the
Successor Policy (as further described in Section 8.6) shall be subject to
the terms and conditions of Section 8.6;
(e) Subject to the restrictions and limitations set forth in
Sections 8.3 and 8.4, to let or lease, or sublet or sublease, any Partnership
Property for any period, and for any purpose;
(f) To apply proceeds of any sale, exchange, mortgage, pledge or
other disposition of any Partnership Property or any other Partnership Asset
to payment of liabilities of the Partnership and to pay, collect, compromise,
arbitrate or otherwise adjust any and all other claims or demands of or
against the Partnership or to hold such proceeds against the payment of
contingent liabilities, known or unknown;
(g) To maintain or cause to be maintained records of all rights and
interests acquired or disposed of by the Partnership, all correspondence
relating to the business of the Partnership, and the original records (or
copies on such media as the Managing General Partner may deem appropriate) of
all statements, bills and other instruments furnished the Partnership in
connection with its business;
(h) To maintain records and accounts of all operations and
expenditures, make all filings and reports required under applicable rules
and regulations of any governmental department, bureau or agency, any
securities exchange and any automated quotation system of a registered
securities association, and furnish the Partners with all necessary United
States federal, state or local income tax reporting information or such
information with respect to any other jurisdiction;
(i) To purchase and maintain (either directly or through
participation under insurance contracts purchased and maintained by any
Affiliate), in its sole and absolute discretion and at the expense of the
Partnership, liability, indemnity and any other insurance (including, without
limitation, errors and omissions insurance and insurance to cover the
obligations of the Partnership under Section 7.10), sufficient to protect the
Partnership, the General Partners, their
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officers, directors, employers, agents and Affiliates or any other Person
from those liabilities and hazards which may be insured against in the
conduct of the business and in the management of the business and affairs of
the Partnership;
(j) To make, execute, assign, acknowledge and file on behalf of the
Partnership any and all documents or instruments of any kind which the
Managing General Partner may deem necessary or appropriate in carrying out
the purposes and business of the Partnership, including, without limitation,
powers of attorney, agreements of indemnification, sales contracts, deeds,
options, loan obligations, mortgages, deeds of trust, notes, documents or
instruments of any kind or character, and amendments thereto. Any person,
firm or corporation dealing with the Managing General Partner shall not be
required to determine or inquire into the authority or power of the Managing
General Partner to bind the Partnership or to execute, acknowledge or deliver
any and all documents in connection therewith;
(k) To borrow money or to obtain credit in such amounts, on such
terms and conditions and at such rates of interest and upon such other terms
and conditions as the Managing General Partner deems appropriate, from banks,
other lending institutions or any other Person, including the Partners, for
any purpose of the Partnership, including, without limitation, any loan
incurred for the purpose of making one or more distributions to any or all
Partners, including any distributions which are, in whole or in part, a
return of Capital Contributions; and subject to the restrictions and
limitations set forth in Section 8.4, in connection with such loans to
mortgage, pledge, assign or otherwise encumber or alienate any or all of the
Partnership Properties or other Partnership Assets, including any income
therefrom, to secure or provide for the repayment thereof. As between any
lender and the Partnership, it shall be conclusively presumed that the
proceeds of such loans are to be and will be used for the purposes authorized
herein and that the Managing General Partner has the full power and authority
to borrow such money and to obtain such credit;
(l) To originate loans or otherwise provide financing, whether
through guarantees, letters of credit or otherwise, secured by liens on real
estate to borrowers who meet the Partnership's underwriting criteria, which
shall be established by the Managing General Partner;
(m) To assume obligations, enter into contracts, including contracts
of guaranty or suretyship, incur liabilities, lend money and otherwise use
the credit of the Partnership, and, subject to the restrictions and
limitations set forth in Sections 8.3 and 8.4, to secure any of the
obligations, contracts or liabilities of the Partnership by mortgage, pledge
or other encumbrance of all or any part of the property, franchises and
income of the Partnership;
(n) To invest funds of the Partnership in interest-bearing accounts
and short-term investments, including, without limitation, obligations of the
federal, state and local governments and their agencies, mutual funds
(including money market funds), time deposits, commercial paper and
certificates of deposit of commercial banks, savings banks or savings and
loan associations; provided that the Managing General Partner shall not
invest Partnership funds in such a manner that the Partnership will be
considered to be holding itself out as being engaged
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primarily in the business of investing, reinvesting or trading in securities
or otherwise will be deemed to be an investment company under the Investment
Company Act of 1940, as amended;
(o) To make any election on behalf of the Partnership as is or may
be permitted under the Code or under the taxing statute or rule of any state,
local, foreign or other jurisdiction, and to supervise the preparation and
filing of all tax and information returns which the Partnership may be
required to file;
(p) To maintain the buildings, appurtenances and grounds of the
Partnership Properties in accordance with acceptable standards, including
within such maintenance, without limitation thereof, interior and exterior
cleaning, painting and decorating, plumbing, carpentry and such other normal
maintenance and repair work as may be appropriate;
(q) To collect all rents and other charges from lessees of the
Partnership Properties due the Partnership. The Managing General Partner
shall have full power and authority to request, demand, collect, receive and
receipt for all such rents and other charges, to institute legal proceedings
in the name of the Partnership for the collection thereof and for the
dispossession of any Person from a Partnership Property, to settle or
compromise all such legal proceedings and any other disputes with respect to
such rents and other charges and to incur such expenses in connection
therewith as the Managing General Partner shall determine to be necessary or
appropriate, which expenses may include the costs of counsel for any such
matter;
(r) To cause to be disbursed (i) the aggregate amount required to be
paid pursuant to any indebtedness of the Partnership, including therein
amounts due under any mortgages or deeds of trust for interest, amortization
of principal and for allocation to reserve or escrow funds; (ii) the amount
of rent payable by the terms of any Primary Lease; (iii) the amount of all
real estate taxes and other impositions levied by appropriate authorities
(including, without limitation, amounts required to be paid by any BKC
Franchisee pursuant to any lease with respect to a Restricted Restaurant
Property); and (iv) amounts otherwise due and payable as expenses of the
Partnership incurred in furtherance of the purposes of this Agreement
(including, without limitation, amounts payable to the General Partners);
(s) To employ and engage suitable agents, employees, advisers,
consultants and counsel (including any custodian, investment adviser,
accountant, attorney, corporate fiduciary, bank or other reputable financial
institution, or any other agents, employees or Persons who may serve in such
capacity for the Managing General Partner or any Affiliate of the Managing
General Partner) to carry out any activities which the Managing General
Partner is authorized or required to carry out or conduct under this
Agreement, including, without limitation, a Person who may be engaged to
undertake some or all of the general management, property management,
financial accounting and record keeping or other duties of the Managing
General Partner, to indemnify such Persons against liabilities incurred by
them in acting in such capacities on behalf of the Partnership and to rely on
the advice given by such Persons, it being agreed and understood that the
Managing General Partner shall not be responsible for any acts or omissions
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of any such Persons and shall assume no obligations in connection therewith
other than the obligation to use due care in the selection thereof;
(t) To enter into an agreement or agreements with real estate
brokers or agents, investment banking firms, appraisers or others providing
for the engagement of such Persons on an exclusive or non-exclusive basis to
advise or represent the Partnership in the valuation, sale, transfer,
assignment, lease, sublease, mortgaging or other encumbering of, or other
dealings in, the Partnership Properties, it being understood that the
Managing General Partner shall not be responsible for any acts or omissions
of any such Person and shall assume no obligations in connection therewith
other than the obligation to use due care in the selection thereof; provided,
however, that no commission in connection with any sale or other disposition
of a Partnership Property shall exceed six percent (6%) of the gross proceeds
from such sale or disposition, and that no commission in connection with any
such sale or other disposition shall be payable to a General Partner or any
of its Affiliates;
(u) To consult with the Independent Consultant pursuant to the
provisions of Section 8.10 with respect to any matter related to the business
and affairs of the Partnership;
(v) To take such actions and make such decisions as may be necessary
or appropriate, in the reasonable judgment of the Managing General Partner,
to resolve or avoid any actual or potential conflict of interest between the
Partnership and any General Partners or any Affiliates thereof, including,
without limitation, subject to Section 8.8, to cause the Partnership to
accept from BKC or a third party, in exchange or substitution for one or more
Restricted Restaurant Properties, one or more other properties on which a BK
Restaurant leased to a BKC Franchisee is located; provided, however, that, so
long as Section 1031 of the Code or any similar provision shall remain in
effect, any such substitution or exchange must qualify as an exchange of
property of a like-kind in which no gain or loss is recognized to the
Partnership except to the extent of any cash received in connection therewith;
(w) To hold Partnership Properties or other Partnership Assets in
the name of one or more nominees, with or without disclosure of the fiduciary
relationship;
(x) To pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend or compromise, upon such terms as it may determine and upon
such evidence as it may deem sufficient, any obligation, suit, liability,
cause of action or claim, including taxes, either in favor of or against the
Partnership;
(y) To qualify the Partnership to do business in any state,
territory, dependency or foreign country;
(z) To purchase any Partnership Property subject to a Primary Lease
whether pursuant to a first right of refusal under such Primary Lease or
otherwise;
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(aa) To enter into a property management agreement with BKC pursuant
to which BKC agrees on behalf of the Managing General Partner, at no
additional expense to the Partnership, to exercise certain day-to-day
management responsibilities with respect to the Partnership Properties and to
perform related administrative services upon the terms and conditions set
forth therein, to extend, renew, terminate, modify, amend or waive such
agreement or any provision thereof and to take such action pursuant to or in
connection with such agreement as the Managing General Partner shall
determine appropriate; provided, however, that the Managing General Partner
shall have no obligation to enter into any such agreement;
(bb) To distribute money or Partnership Assets to Partners and
Assignees in accordance with Article VI, regardless of the source of such
money or Partnership Assets, including, without limitation, money borrowed by
the Partnership or by the Managing General Partner on behalf of the
Partnership;
(cc) To acquire fee simple title or a leasehold interest in any
Partnership Property and Ancillary Property related thereto and to provide
for the purchase price for such property from funds otherwise constituting
Cash Flow or the Net Proceeds of a Capital Transaction, whether at the time
of acquisition or thereafter to pay principal, interest or other amounts
payable in respect of any financing related to such acquisition;
(dd) To lease, sell or otherwise transfer Ancillary Property to any
tenant of a Partnership Property, to provide financing, whether through
loans, guarantees or otherwise, for any tenant of a Partnership Property and
to provide the funds for such transactions from funds otherwise constituting
Cash Flow or the Net Proceeds of a Capital Transaction, whether at the time
of such transaction or thereafter to pay principal, interest or other amounts
payable in respect of any financing undertaken for such purpose;
(ee) To mortgage, lien or otherwise encumber or restrict any
Restricted Restaurant Property and use the proceeds thereof in respect of
Other Restaurant Properties, Retail Properties or for any other Partnership
purpose; and to mortgage, lien or otherwise encumber or restrict any Other
Restaurant Property or Retail Property and use the proceeds thereof in
respect of Restricted Restaurant Properties or for any other Partnership
purpose;
(ff) To operate or franchise any Partnership Property, whether
directly or through any Affiliates or other Persons;
(gg) To reinvest or otherwise use funds otherwise constituting Cash
Flow or the Net Proceeds of a Capital Transaction in or for Partnership
Properties, Ancillary Property or other Partnership Assets or for any other
Partnership purpose;
(hh) To form or acquire an interest in, and to contribute any
property to, any further limited or general partnerships, limited liability
companies, joint ventures or other relationships that it deems desirable
(including, without limitation, the acquisition of interests in, and the
contributions of property to, any subsidiary and other Person in which it has
an equity investment
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from time to time); provided, however, that, as long as any Partner has
determined to continue to qualify as a real estate investment trust under the
Code, the General Partners may not engage in any such formation, acquisition
or contribution that would cause such Partner to fail to qualify as a real
estate investment trust under the Code or fail to qualify as a "qualified
REIT subsidiary" within the meaning of Section 856(i)(2) of the Code;
(ii) To possess and exercise any additional rights and powers of a
general partner under the partnership laws of Delaware (including, without
limitation, the Delaware RULPA) and any other applicable laws, to the extent
not inconsistent with this Agreement; and
(jj) In general, to exercise in full all of the powers of the
Partnership as set forth in Section 3.2 and to do any and all acts and
conduct all proceedings and execute all rights and privileges, contracts and
agreements of any kind whatsoever, although not specifically mentioned in
this Agreement, that the Managing General Partner in its sole and absolute
discretion may deem necessary or appropriate to the conduct of the business
and affairs of the Partnership or to carry out the purposes of the
Partnership. The expression of any power or authority of the Managing
General Partner in this Agreement shall not in any way limit or exclude any
other power or authority which is not specifically or expressly set forth in
this Agreement.
7.3. RESTRICTIONS ON AUTHORITY OF MANAGING GENERAL PARTNER.
(a) Anything in this Agreement to the contrary notwithstanding, the
Managing General Partner shall have no authority to:
(i) pay for any services performed by a General Partner or an
Affiliate of a General Partner, except as otherwise expressly permitted
in this Agreement; or
(ii) take any action on any matter with respect to which the prior
approval of the Limited Partners is specifically required under this
Agreement without having received such prior approval.
(b) Notwithstanding any other provision of this Agreement, the
Managing General Partner shall not, unless approved by a Majority Vote of the
Limited Partners:
(i) except upon dissolution and liquidation of the Partnership
pursuant to Article XIV, cause the Partnership to sell, exchange,
assign, lease, sublease or otherwise dispose of all or substantially
all of the Partnership Assets (including by way of merger, consolidation
or other combination with any other Person) other than in ordinary
course of business of the Partnership; provided, however, that this
provision shall not be interpreted to preclude or limit the mortgage,
pledge, hypothecation or grant of a security interest in all or
substantially all of the Partnership Assets, and shall not apply to any
forced sale of any or all of the Partnership Assets pursuant to the
foreclosure of, or other realization upon, any such encumbrance; or
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(ii) cause the Partnership to merge or consolidate with any other
partnership or other entity (other than a Limited Partner).
7.4. TITLE TO PARTNERSHIP ASSETS.
Title to Partnership Assets, whether real, personal or mixed, or
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any
ownership interest in such Partnership Assets or any portion thereof. Title
to any or all of the Partnership Assets may be held in the name of the
Partnership, of the Managing General Partner or of one or more nominees, as
the Managing General Partner may determine. The Managing General Partner
hereby declares and warrants that any Partnership Assets for which legal
title is held in the name of the Managing General Partner shall be held in
trust by the Managing General Partner for the use and benefit of the
Partnership in accordance with the terms or provisions of this Agreement.
All Partnership Assets shall be recorded as the property of the Partnership
on its books and records, irrespective of the name in which legal title to
such Partnership Assets is held.
7.5. WORKING CAPITAL RESERVE.
The Managing General Partner shall have the right to cause the
Partnership to set up a Working Capital Reserve and to set aside therein such
funds as the Managing General Partner, in its sole and absolute discretion,
shall determine to be reasonable in connection with the operation of the
business of the Partnership. Any funds set aside for such Working Capital
Reserve may be invested by the Managing General Partner with a view to the
appropriate degree of safety of and return on such invested funds, and such
funds shall not be available for current distribution under Section 6.5;
provided, however, that some or all of such funds may subsequently be made
available for distribution pursuant to Section 6.5 should the Managing
General Partner, in its sole and absolute discretion, so elect. The Working
Capital Reserve established and maintained pursuant to this Section 7.5 shall
be in addition to any reserves established and maintained by the Managing
General Partner to implement the Successor Policy pursuant to Section 8.6.
7.6. OTHER BUSINESS ACTIVITIES OF PARTNERS.
Any Partner or Affiliate (including, without limitation, the Managing
General Partner and any Affiliate thereof) may have other business interests
or may engage in other business ventures of any nature or description
whatsoever, whether presently existing or hereafter created, including,
without limitation, the ownership, leasing, management, operation,
franchising, syndication and/or development of commercial real estate and/or
restaurants, and may compete, directly or indirectly, with the business of
the Partnership. No Partner or Affiliate thereof shall incur any liability
to the Partnership as the result of such Partner's or Affiliate's pursuit of
such other business interests and ventures and competitive activity, and
neither the Partnership nor any of the other Partners shall have any right to
participate in such other business interests or ventures or to receive or
share in any income or profits derived therefrom.
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7.7. TRANSACTIONS WITH MANAGING GENERAL PARTNER OR AFFILIATES.
In addition to transactions specifically contemplated by the terms
and provisions of this Agreement, including, without limitation, Articles
VIII and IX, the Partnership is expressly permitted to enter into other
transactions (including, without limitation, the acquisition of goods or
services) with the Managing General Partner, or any Affiliates thereof,
provided that the price and other terms of such other transactions are fair
to the Partnership and that the price and other terms of such transactions
are not less favorable to the Partnership than those generally prevailing
with respect to comparable transactions between unrelated parties.
7.8. NET WORTH REPRESENTATION; INDEPENDENT JUDGMENT.
In addition to their other duties and obligations, the General
Partners further agree as follows:
(a) The General Partners shall use their best efforts to maintain a
combined net worth equal to the total amount, if any, that could reasonably
be expected to be required in order for the Partnership to be treated as a
partnership for federal income tax purposes; and
(b) In acting on behalf of the Partnership, the Managing General
Partner will not act under the direction of or as an agent of or "dummy" for
the Limited Partners.
7.9. LIABILITY OF GENERAL PARTNERS TO PARTNERSHIP AND THE LIMITED PARTNERS.
The General Partners, their Affiliates and all officers, directors,
employees and agents of the General Partners and their Affiliates shall not
be liable to the Partnership or to the Limited Partners for any losses
sustained or liabilities incurred as a result of any act or omission of the
General Partners or their Affiliates if (a) the General Partner or Affiliate
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 (b) the conduct of
the General Partner or Affiliate did not constitute actual fraud, gross
negligence or willful or wanton misconduct.
7.10. INDEMNIFICATION OF GENERAL PARTNERS AND AFFILIATES.
(a) The Partnership shall indemnify and hold harmless the General
Partners, their Affiliates and all officers, directors, employees and agents
of the General Partners and their Affiliates (individually, an "Indemnitee")
from and against any and all losses, claims, demands, costs, damages,
liabilities, joint and several, expenses of any nature (including attorneys'
fees and disbursements), judgments, fines, settlements and other amounts
arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, in which the Indemnitee may
be involved, or threatened to be involved, as a party or otherwise, arising
out of or incidental to the Initial Public Offering, the Second Public
Offering or the Third Public Offering or the business of the Partnership or
the Limited Partners, including, without limitation, liabilities under the
federal and state securities laws, regardless of whether the Indemnitee
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continues to be a General Partner, an Affiliate or an officer, director,
employee or agent of a General Partner or of an Affiliate at the time any
such liability or expense is paid or incurred, if (i) the Indemnitee acted 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 proceeding,
had no reasonable cause to believe its conduct was unlawful, and (ii) the
Indemnitee's conduct did not constitute actual fraud, gross negligence or
willful or wanton misconduct. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not, in and of itself, create a
presumption or otherwise constitute evidence that the Indemnitee acted in a
manner contrary to that specified in (i) or (ii) above.
(b) Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 7.10 shall, from
time to time, be advanced by the Partnership prior to the final disposition
of such claim, demand, action, suit or proceeding upon receipt by the
Partnership of an undertaking by or on behalf of the Indemnitee to repay such
amount unless it shall be determined that such Person is entitled to be
indemnified as authorized in this Section 7.10.
(c) The indemnification provided by this Section 7.10 shall be in
addition to any other rights to which those indemnified may be entitled under
any agreement, with the approval of the Limited Partners, as a matter of law
or equity or otherwise, both as to an action in the Indemnitee's capacity as
a General Partner, an Affiliate or as an officer, director, employee or agent
of a General Partner or an Affiliate, and as to an action in another
capacity, and shall continue as to an Indemnitee who has ceased to serve in
such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain insurance (either
directly or through participation under insurance contracts purchased and
maintained by any Affiliate) on behalf of the General Partners and such other
Persons as the Managing General Partner shall determine against any liability
that may be asserted against or expense that may be incurred by such Person
in connection with the Initial Public Offering, the Second Public Offering or
the Third Public Offering and the activities of the Partnership or the
Limited Partners, regardless of whether the Partnership or the Limited
Partners would have the power to indemnify such Person against such liability
under the provisions of this Agreement.
(e) Except as set forth in the next sentence below, any
indemnification hereunder shall be satisfied solely out of the assets of the
Partnership and the Limited Partners. The limited partners or stockholders
of the Limited Partners shall not be subject to personal liability by reason
of these indemnification provisions; provided, however, that to the extent
that a limited partner of the Limited Partners shall recover from any
Indemnitee any amount that is subject to indemnification hereunder, the
limited partner or stockholders of the Limited Partners shall have personal
liability to the Partnership, the Limited Partners and the Indemnitee under
this Section 7.10 for and to the extent of such amount.
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(f) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.10 by reason of the fact that the Indemnitee had an
interest in the transaction with respect to which the indemnification applies
if the transaction was otherwise permitted by the terms of this Agreement.
(g) The provisions of this Section 7.10 are for the benefit of the
Indemnitees and shall not be deemed to create any rights for the benefit of
any other Persons.
7.11. NO MANAGEMENT BY LIMITED PARTNERS.
The Limited Partners shall not take part in the day-to-day management,
operation or control of the business and affairs of the Partnership. The
Limited Partners shall not have any right, power or authority to transact any
business in the name of the Partnership or to act for or on behalf of or to bind
the Partnership. The Limited Partners shall have no rights other than those
specifically provided herein or granted by law where consistent with a valid
provision hereof. In the event any laws, rules or regulations applicable to the
Partnership, or to the sale or issuance of securities by a Limited Partner,
require the Limited Partners to have certain rights, options, privileges or
consents not granted by the terms of this Agreement, then the Limited Partner
shall have and enjoy such rights, options, privileges and consents so long as
(but only so long as) the existence thereof does not result in a loss of the
limitation on liability enjoyed by the Limited Partners under the Delaware RULPA
or the applicable laws of any other jurisdiction.
7.12. OTHER MATTERS CONCERNING GENERAL PARTNERS.
(a) The General Partners may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, debenture
or other paper or document believed by them to be genuine and to have been
signed or presented by the proper party or parties.
(b) The General Partners may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by them and any opinion of any such Person
as to matters that the General Partners reasonably believe to be within its
professional or expert competence (including, without limitation, any opinion
of legal counsel to the effect that the Partnership would "more likely than
not" prevail with respect to any matter) shall be full and complete
authorization and protection in respect of any action taken or suffered or
omitted by a General Partner hereunder in good faith and in accordance with
such opinion.
(c) The General Partners shall have the right, in respect of any of
their powers or obligations hereunder, to act through a duly appointed
attorney or attorneys-in-fact. Each such attorney or attorney-in-fact shall,
to the extent provided by the General Partner in the power of attorney, have
full power and authority to do and perform all and every act and duty which
is permitted or required to be done by the General Partner hereunder. Each
such appointment shall
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be evidenced by a duly executed power of attorney giving and granting to each
such attorney or attorney-in-fact full power and authority to do and perform
all and every act and thing requisite and necessary to be done by the General
Partner in connection with the Partnership.
(d) Notwithstanding any other provision of this Agreement or the
Delaware RULPA, any action of the General Partners on behalf of the
Partnership or any decision of the General Partners to refrain from acting on
behalf of the Partnership, undertaken in the good faith belief that such
action or omission is necessary or advisable in order (i) to protect the
ability of any REIT Partner to continue to qualify as a real estate
investment trust under the Code, (ii) to avoid any REIT Partner incurring any
taxes under the Section 857 or 4981 of the Code or (iii) for any REIT Partner
to continue to qualify as a "qualified REIT subsidiary" (within the meaning
of Section 856(i)(2)) of the Code), is expressly authorized under this
Agreement and is deemed approved by all of the Limited Partners.
7.13. REVOLVING LINE OF CREDIT; OTHER LOANS TO OR FROM A GENERAL PARTNER.
(a) Pursuant to this Section 7.13(a) and Section 7.13(a) of the
Investors Partnership Agreement, the Managing General Partner shall make
available to the Partnership and the Limited Partners, jointly, on an "as
needed" basis an unsecured, interest-free, revolving line of credit in the
aggregate principal amount of Five Hundred Thousand Dollars ($500,000). The
proceeds of the revolving line of credit may be used by the Partnership
and/or the Limited Partners solely for purposes of providing to the
Partnership and/or the Limited Partners funds determined by the Managing
General Partner to be necessary for purposes of (i) maintaining sufficient
working capital and/or (ii) maintaining level quarterly distributions of Net
Cash Flow. The Partnership and the Limited Partners may borrow, repay and
reborrow under the revolving line of credit from time to time (subject to the
maximum aggregate principal amount limitation). Nothing herein shall be
construed to require the Managing General Partner to cause the Partnership or
the Limited Partners to retain cash (or to cause the Partnership or the
Limited Partners to borrow under the revolving line of credit in order to
retain cash) in excess of the immediate working capital needs of the
Partnership or the Limited Partners as the case may be. In addition, nothing
shall be construed to require the Partnership to use or exhaust the financing
available under the revolving line of credit, before obtaining other
financing permitted by this Agreement, whether for acquisitions,
reinvestment, working capital or otherwise. The revolving line of credit
shall terminate upon removal or withdrawal of the Managing General Partner.
(b) In addition to the revolving line of credit described in Section
7.13(a), any of the General Partners or any of their Affiliates may lend to
the Partnership funds needed by the Partnership for such periods of time as
the Managing General Partner may determine; provided, however, that (i)
interest payable on such indebtedness shall be calculated at a rate not to
exceed the rate announced by Morgan Guaranty Trust Company from time to time
as its "prime rate" plus one percent (1%) (as in effect on the first day of
each calendar quarter, as adjusted as of the first day of each succeeding
calendar quarter to reflect such rate in effect on such date) or the highest
lawful rate, whichever is less, and (ii) in no event shall such indebtedness
be on terms and conditions less favorable to the Partnership than the
Partnership could obtain from
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unaffiliated third parties or banks for the same purpose (without reference
to the General Partners' financial abilities or guarantees). In the event
that Morgan Guaranty Trust Company should during the term of this Agreement
abandon or abolish the practice of announcing an established "prime rate,"
the "prime rate" used during the remainder of said term for purposes of this
Agreement shall be the rate from time to time charged by Morgan Guaranty
Trust Company to its preferred commercial customers for unsecured short-term
loans. A certificate signed by an officer of Morgan Guaranty Trust Company
shall be binding and conclusive evidence of the "prime rate" in effect from
time to time.
(c) No loans shall be made by the Partnership to a General Partner
or any of its Affiliates.
7.14. PERIODIC CONSIDERATION OF SALE OR REFINANCING.
Commencing with the year 2000 and continuing once every five (5)
years thereafter, the Managing General Partner may consider whether or not,
in the reasonable judgment of the Managing General Partner, it would be in
the interest of the Partnership to effectuate a sale or refinancing of all or
a portion of the Restricted Restaurant Properties held as of the Effective
Date, with the proceeds of any such sale or financing to be distributed to
the Partners in accordance with Article VI. If the Managing General Partner,
in its reasonable judgment, determines that such a sale or financing would be
in the interest of the Partnership, then the Managing General Partner intends
to use reasonable efforts to cause the Partnership to effectuate such a sale
or financing; provided, however, that any such sale or other disposition of
part or all of such Restricted Restaurant Properties shall be subject to
Sections 7.3 and 8.4. This Section 7.14 does not constitute an obligation of
the Managing General Partner, but merely represents an expression of intent
by the Managing General Partner, as of the time of the Amended Agreement, as
to the manner in which it expected to manage the Partnership. In no event
shall any sale or financing transaction in connection with this Section 7.14
involve or require any direct or indirect financial obligation or other
financial support on the part of the Managing General Partner, BKC, TPC or
any Affiliate of the foregoing.
7.15. OTHER LIMITATIONS.
The following additional limitations shall apply to the operation and
management of the Partnership:
(a) No General Partner shall receive for its account any kickbacks
or rebates with respect to expenditures made by or on behalf of the
Partnership, nor shall any General Partner enter into any reciprocal
arrangement that has the effect of circumventing this Section 7.15(a) or
Section 9.1;
(b) The Partnership shall not grant any General Partner an exclusive
right, as agent, to sell any Partnership Property or other Partnership Asset;
and
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(c) No commission or other fee shall be payable to a General
Partner, directly or indirectly, in connection with the distribution or
reinvestment of any Net Proceeds of a Capital Transaction, except as provided
in Section 9.3.
ARTICLE VIII
ACQUISITION, OPERATION, AND DISPOSITION
OF RESTRICTED RESTAURANT PROPERTIES
8.1. GENERAL.
(a) The Partners hereby expressly agree that, in addition to any
other provisions of this Agreement, the acquisition, ownership, operation and
disposition of the Partnership Properties by the Partnership shall be in
accordance with, and shall be subject to, the provisions, restrictions and
limitations set forth in this Article VIII; provided that, except for Section
8.13, this Article VIII shall not apply to any of the Other Restaurant
Properties or the Retail Properties. The Partners further expressly agree
that any action taken by a General Partner or Affiliate thereof in accordance
with, or pursuant to, the provisions of this Article VIII conclusively shall
be deemed to be fair to and in the best interests of the Partnership, the
Limited Partners and the General Partners, and the fact that an action of a
General Partner or an Affiliate is undertaken in accordance with, or pursuant
to, this Article VIII shall be a complete and absolute defense to any claim
or action asserting the invalidity of such action or any claim or action for
damages or other relief based upon an assertion that such action resulted in
a breach by a General Partner or an Affiliate of this Agreement or any duty,
fiduciary or otherwise, owed by the General Partners and their affiliates to
the Partnership or the Limited Partners.
(b) The Partners expressly acknowledge and agree that the
provisions, restrictions and limitations set forth in this Article VIII are
reasonable in all respects, are pursuant to and consistent with the purposes
of the Partnership, are necessary to induce BKC to enter into the Real Estate
Purchase Agreement and to otherwise deal with Restricted Restaurant
Properties, and are necessary to protect the business and interests of BKC
and the Partnership. In the event that the Partnership shall breach or
violate or fail to perform any of its obligations set forth in this Article
VIII, then, at the option of BKC, BKC shall be entitled to proceed to enforce
the obligations of the Partnership hereunder by any action at law, suit in
equity, or other appropriate proceeding, whether for damages, for special
performance of an obligation contained herein or for an injunction or other
equitable remedy against any violation of the provisions hereof. The
Partnership hereby agrees to indemnify and hold harmless BKC from and against
any assessment, payment, damage, expense, loss, cost, liability or deficiency
(including, without limitation, interest, penalties and reasonable attorneys'
fees and disbursements) incurred by BKC in enforcing or sustaining the
provisions hereof or resulting from or in connection with any such breach,
violation, or failure.
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8.2. CONTRIBUTION TO PARTNERSHIP; ACQUISITION OF RESTRICTED RESTAURANT
PROPERTIES.
The Managing General Partner has previously caused the Partnership to
acquire certain Restricted Restaurant Properties from BKC in accordance with
and subject to the terms and conditions set forth in the Real Estate Purchase
Agreement, including the exhibits thereto, and caused the Partnership to pay
to BKC the purchase price for such Restricted Restaurant Properties specified
in the Real Estate Purchase Agreement.
8.3. USE AND OTHER RESTRICTIONS.
(a) Except as otherwise expressly provided in this Section 8.3, the
Partnership shall not, without the prior written consent of BKC, in its sole
and absolute discretion, use any Restricted Restaurant Property or permit any
Restricted Restaurant Property to be used for any purpose other than the
operation thereon of a BK Restaurant and other uses related thereto.
(b) (i) In furtherance of the provisions of Section 8.3(a), in the event
that BKC renews or extends a BKC Franchise Agreement with respect to a
Restricted Restaurant Property at any time at or prior to the expiration
of such BKC Franchise Agreement, then, regardless of the duration of
such renewal or extension the Partnership promptly shall, without
additional charge, renew or extend the lease of the Restricted
Restaurant Property to such BKC Franchisee for a period coterminous with
the period of such renewal or extension and for and upon substantially
the same rental and other terms and conditions as and upon which BKC is
then renewing or extending leases with BKC Franchisees for properties
owned or leased (as the case may be) by BKC, or in the event BKC at such
time is no longer renewing or extending leases with BKC Franchisees for
properties owned or leased (as the case may be) by BKC, then upon
substantially the same rental and other terms and conditions as and upon
which BKC most recently was renewing or extending such leases with BKC
Franchisees (except that, for purposes of determining the guaranteed
minimum rental thereunder, the lessor's "investment" in Restricted
Restaurant Properties held as of the Effective Date shall be deemed to
be equal to the sum of the investment of BKC with respect to such
Restricted Restaurant Property prior to the date of its acquisition by
the Partnership plus any investment by the Partnership with respect to
such Restricted Restaurant Property after such date (and in no event
shall such "investment" include the purchase price paid by the
Partnership to BKC for such Restricted Restaurant Property pursuant to
the Real Estate Purchase Agreement)); provided that the rental for such
lease may be greater than the rental upon which BKC is then (or, if
applicable, was) so renewing or extending such leases. Notwithstanding
anything to the contrary contained herein, any extension or renewal of a
lease of a Restricted Restaurant Property pursuant to the Successor
Policy shall be in accordance with the Successor Policy as then in
effect and Section 8.6 (including, without limitation, the provisions of
Section 8.6(b) relating to determination of the annual minimum rental
under a lease extended or renewed in accordance with the Successor
Policy). Without limiting the foregoing, the Managing General Partner,
in its sole and absolute discretion, at the request of BKC or a BKC
Franchisee, shall be permitted to consent to a renewal
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or extension of a lease of a Restricted Restaurant Property for a rental
less favorable to the Partnership than the rental upon which BKC is then
renewing or extending leases with BKC Franchisees for properties owned
or leased (as the case may be) by BKC (or, if applicable, the rental
upon which BKC most recently was renewing or extending such leases with
BKC Franchisees) if BKC agrees to treat the excess of the rental at
which BKC is then renewing or extending such leases (or, if applicable,
the rental at which BKC most recently was renewing or extending such
leases) over the rental payable to the Partnership in connection with
such renewal or extension as "rent relief" subject to the provisions of
Section 8.5.
(ii) In the event that (A) either (1) a BKC Franchise Agreement
authorizing the operation of a BK Restaurant on a Restricted Restaurant
Property is terminated automatically, is terminated by BKC or is
terminated by the mutual agreement of the parties thereto prior to the
expiration of the stated term thereof, or (2) a BKC Franchise Agreement
expires according to the terms thereof and is not renewed or extended
by BKC at or prior to the expiration of such BKC Franchise Agreement,
and (B) during the six (6) month period commencing on the date of such
termination or expiration either (1) BKC and a Person that meets BKC's
then existing franchisee financial capability requirements enter into a
BKC Franchise Agreement authorizing such Person to operate a BK
Restaurant on the Restaurant Property, and BKC notifies the Partnership
thereof, or (2) BKC notifies the Partnership that BKC desires to operate
a BK Restaurant on the Restaurant Property, then the Partnership
promptly shall terminate any lease of the Restaurant Property with the
terminated BKC Franchisee (if such lease then has not terminated or
expired) and enter into a new lease of the Restaurant Property with the
new BKC Franchisee or with BKC, as the case may be. The rental, duration
and other terms and conditions of any such new lease shall be
substantially the same as the rental, duration and other terms and
conditions as and upon which BKC is then entering into new leases with
BKC Franchisees for properties owned or leased (as the case may be) by
BKC, or in the event BKC at such time is no longer entering into new
leases with BKC Franchisees for properties owned or leased, as the case
may be, by BKC, then substantially the same rental duration and other
terms and conditions as and upon which BKC most recently was entering
such leases with BKC Franchisees (except that, for purposes of
determining the guaranteed annual minimum rental thereunder, the
lessor's "investment" in Restricted Restaurant Properties held as of
the Effective Date shall be deemed to be equal to the sum of the
investment of BKC with respect to such Restaurant Property prior to the
date of its acquisition by the Partnership plus any investment of the
Partnership with respect to such Restaurant Property after such date
(and in no event shall such "investment" include the purchase price paid
by the Partnership to BKC for such Restricted Restaurant Property
pursuant to the Real Estate Purchase Agreement)). Without limiting the
foregoing, the Managing General Partner, in its sole and absolute
discretion, at the request of BKC or a BKC Franchisee, shall be
permitted to enter into a new lease of a Restricted Restaurant Property
for a rental less favorable to the Partnership than the rental upon
which BKC is then entering into leases with BKC Franchisees for
properties owned or leased (as the case may be) by BKC (or, if
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applicable, the rental upon which BKC most recently was entering into
such leases with BKC Franchisees) if BKC agrees to treat the excess of
the rental at which BKC is then entering into such leases (or, if
applicable, the rental at which BKC most recently was entering into
such leases) over the rental payable to the Partnership in connection
with such new lease as "rent relief" subject to the provisions of
Section 8.5. During the period (the "Determination Period") that BKC
is considering whether to enter into a new BKC Franchise Agreement with
respect to the Restricted Restaurant Property or operate itself a BK
Restaurant on the Restricted Restaurant Property (but in no event after
the expiration of the six (6) month period described in clause (B)
above), BKC shall pay to the Partnership an amount equal to the excess
of the guaranteed amount rental payable to the Partnership under the
terminated BKC Franchisee's lease for the Determination Period (computed
without regard to any termination or expiration of such lease) over the
amount of rent, if any, actually collected by the Partnership thereunder
for the Determination Period. The Partnership shall, at the expense of
BKC, take all such actions as BKC reasonably may request to enforce the
provisions of the terminated BKC Franchisee's lease applicable during
the Determination Period. If BKC does not, prior to the end of the
Determination Period, enter into a new BKC Franchise Agreement with
respect to the Restricted Restaurant Property or elect to operate itself
a BK Restaurant on the Restricted Restaurant Property, then subject to
Section 8.9 hereof, the Partnership shall be free to take such actions
with respect to the terminated BKC Franchisee's lease as the Partnership
may deem appropriate. Notwithstanding anything to the contrary
contained herein, BKC shall have the right at any time, upon written
notice to the Partnership, to terminate the Determination Period with
respect to any Restricted Restaurant Property, in which event all rights
and obligations of BKC in connection with such terminated Determination
Period shall terminate, effective as of the date on which the
Partnership receives such notice and as of the payment by BKC of all
amounts payable hereunder with respect to the Determination Period.
(iii) In the event that BKC approves the assignment by a BKC
Franchisee of a BKC Franchise Agreement with respect to a Restricted
Restaurant Property to another person or entity that meets BKC's then
existing franchisee financial capability requirements or to BKC, then,
subject to the assumption by such new BKC Franchisee or BKC, as the case
may be, of all of the former BKC Franchisee's obligations and
liabilities thereafter accruing under the former BKC Franchisee's lease
of the Restricted Restaurant Property, the Partnership promptly shall,
without additional charge, approve and permit the assignment of such
lease with respect to such Restricted Restaurant Property to the new
BKC Franchisee or to BKC, as the case may be. Upon such assignment and
assumption, the former BKC Franchisee, at the request of BKC, shall be
released from all obligations and liabilities thereafter accruing under
such lease; provided, however, that a release in connection with an
assignment or assumption shall be required pursuant hereto only if BKC,
as a matter of policy, is then granting such releases in connection with
the assignment or assumption of leases with BKC Franchisees for
properties owned or leased, as the case may be, by BKC. In addition to
the foregoing, in the event that BKC consents to the assignment by a BKC
Franchisee of a Franchise
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Agreement with respect to a Restricted Restaurant Property to a
corporation in which such BKC Franchisee has a financial interest,
then, upon the request of such BKC Franchisee, the Partnership shall
approve the assignment of the BKC Franchisee's lease of such Restricted
Restaurant Property to such corporation upon the condition that such
BKC Franchisee shall remain fully responsible for all liabilities and
obligations accruing under such lease subsequent to such assignment.
(iv) The Partnership shall give BKC prompt written notice of the
occurrence of any default by a BKC Franchisee under any lease of a
Restricted Restaurant Property. BKC shall have the right (but not the
obligation), within the longer of thirty (30) days after the receipt by
BKC of such written notice of such default or any applicable grace
period provided to the lessee under such lease, to cure any default by
the lessee under such lease, and the Partnership shall not terminate
such lease unless such default is not cured within such applicable
period. The Partnership also shall give BKC prompt written notice of
the occurrence of any event which results automatically in the
termination of any such lease. BKC shall have the right (but not the
obligation), within thirty (30) days after receipt of such notice, to
assume all obligations and liabilities of the lessee under such lease
accruing from the date of such automatic termination. If BKC exercises
such right, then, as between BKC and the Partnership, such termination
shall be of no force or effect and shall be deemed not to have occurred.
(v) In furtherance of the provisions of Section 8.3(a), in the
event the Partnership acquires any Restricted Restaurant Property after
the Effective Date, the rental, duration and other terms and conditions
in the lease for the BKC Franchisee for such property shall be
substantially the same as the rental, duration and other terms and
conditions as and upon which BKC is then entering into new leases with
BKC Franchisees for properties owned or leased, as the case may be, by
BKC, or in the event BKC at such time is no longer entering into new
leases with BKC Franchisees for properties owned or leased, as the case
may be, by BKC, then upon substantially the same rental, duration and
other terms and conditions as upon which BKC most recently was entering
into such leases with BKC Franchisees. Notwithstanding the foregoing,
the rental for such leases may be greater than that which BKC is then
setting (or, if appropriate, was setting) for BKC Franchisees.
(c) Notwithstanding anything to the contrary contained in any lease
of a Restricted Restaurant Property to which a BKC Franchisee is a party, (i)
BKC shall have the right at any time, without obtaining the consent of the
Partnership, to assume the obligations and liabilities of the lessee
thereafter accruing under such lease, and thereupon, at the request of BKC,
such lessee shall be released from all obligations and liabilities thereafter
accruing thereunder; provided, however, that a release in connection with
such an assumption shall be required pursuant to this Section 8.3 only if
BKC, as a matter of policy, is then granting such releases in connection with
the assumption by BKC of leases with BKC Franchisees for properties owned or
leased, as the case may be, by BKC; and (ii) at any time after any such
assumption by BKC, BKC shall have the right, without obtaining the consent of
the Partnership, to assign such lease
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to a Person that meets BKC's then existing franchisee financial capability
requirements, and upon such assignment and the assumption by such Person of
all obligations and liabilities of BKC thereafter accruing under such lease,
BKC shall be released from all obligations and liabilities thereafter
accruing thereunder.
(d) (i) In the event that BKC notifies the Partnership that BKC has
extended or renewed a BKC Franchise Agreement with respect to a Restricted
Restaurant Property that is subject to a Primary Lease for a term coterminous
with one or more permitted renewal terms available under such Primary Lease, or
(ii) in the event that BKC notifies the Partnership that either (A) BKC has
entered into a new BKC Franchise Agreement with a Person that meets BKC's then
existing financial capabilities requirements authorizing such Person to operate
a BK Restaurant on a Restricted Restaurant Property that is subject to Primary
Lease for a term coterminous with one or more permitted renewal terms available
under such Primary Lease, or (B) BKC has decided to operate a BK Restaurant on a
Restricted Restaurant Property that is subject to a Primary Lease for a term
coterminous with one or more permitted renewal terms available under such
Primary Lease, then in any such event, in addition to any other requirements of
this Section 8.3, the Partnership promptly shall renew the applicable Primary
Lease for a term no shorter than the term of the extended, renewed or new BKC
Franchise Agreement, as the case may be, or in the case of BKC's election to
operate a BK Restaurant at such Restricted Restaurant Property, for a term no
shorter than the term of BKC's lease with the Partnership with respect to such
Restricted Restaurant Property.
(e) Unless otherwise expressly waived by BKC in writing, the
restrictions and other provisions of this Section 8.3 shall remain in effect
and shall be enforceable with respect to each Restricted Restaurant Property
by BKC during the period commencing on the date of the Amended Agreement and
ending on the earliest of (i) a transfer by the Partnership of all of its
right, title and interest in and to all of such Restricted Restaurant
Property pursuant to Section 8.4(f) following the failure of BKC to elect to
acquire all of the Restricted Restaurant Property pursuant to an offer
thereof to BKC under Section 8.4(d) or the failure of BKC to close the
acquisition thereof on the date required by Section 8.4(e); (ii) a BKC
Franchise Agreement is terminated by BKC or by the mutual agreement of the
parties thereto prior to the expiration of the stated term thereof and BKC
does not, prior to the end of the Determination Period, enter into a new BKC
Franchise Agreement with respect to the Restricted Restaurant Property or
elect to operate itself a BK Restaurant on the Restricted Restaurant
Property; or (iii) a BKC Franchise Agreement with respect to a Restricted
Restaurant Property expires according to the terms thereof and BKC does not
either (A) renew or extend the same at or prior to the expiration thereof or
(B) prior to the end of the Determination Period, enter into a new BKC
Franchise Agreement with respect to the Restricted Restaurant Property or
elect to operate itself a BK Restaurant on the Restricted Restaurant
Property; provided, however, if the duration of such period would render the
restrictions or other provisions of this Section 8.3 invalid or unenforceable
under any law of the jurisdiction in which a Restricted Restaurant Property
is located limiting the period during which such restrictions or other
provisions may endure, then such period shall continue with respect to such
Restricted Restaurant Property only for such term as may be prescribed by the
laws of such jurisdiction. It is the express intent of BKC, the Partnership,
and the Partners
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that such restrictions and other provisions shall be valid and enforceable to
the fullest extent permitted by the laws of such jurisdiction.
(f) Notwithstanding anything to the contrary in this Section 8.3 or
elsewhere in this Agreement, nothing contained herein or elsewhere shall affect
the right of BKC, in its sole and absolute discretion, to terminate a BKC
Franchise Agreement, to renew or extend or fail to renew or extend a BKC
Franchise Agreement, to approve or disapprove any assignment of a BKC Franchise
Agreement, to elect to enter into a new BKC Franchise Agreement with respect to
a Restricted Restaurant Property or to operate itself a BK Restaurant on the
Restricted Restaurant Property, to amend or modify a BKC Franchise Agreement or
to take or fail to take any other action in connection with a BKC Franchise
Agreement.
(g) Notwithstanding any other provision of this Agreement, the
Partners hereby expressly agree that the Managing General Partner shall have
no duty, under any circumstances whatsoever, to seek to sell, or to consider
any offer to purchase, any Restricted Restaurant Property so long as such
Restricted Restaurant Property is subject to the restrictions and other
provisions of this Section 8.3, and the fact that a Restricted Restaurant
Property is subject to the restrictions and provisions of this Section 8.3
shall be a complete and absolute defense to any claim or action for damages
or other relief based upon a claim or action for damages or other relief
based upon a failure of the Managing General Partner to solicit or consider
offers to purchase such Restricted Restaurant Property, irrespective of the
terms of any such offer that may be received by the Managing General Partner.
8.4. RESTRICTIONS ON TRANSFER OF RESTRICTED RESTAURANT PROPERTIES.
(a) For purposes of this Section 8.4, the term "transfer," with
respect to a Restricted Restaurant Property, shall include a sale, lease,
sublease, gift, mortgage, deed of trust, exchange, assignment or other
disposition, including a disposition under judicial order, legal process,
execution, attachment or enforcement or foreclosure of an encumbrance, but
shall not include the following: (i) a mortgage, deed of trust, grant of
security interest or other encumbrance effected in a bona fide transaction
with an unrelated and unaffiliated secured party, or with BKC, the Managing
General Partner or any Affiliate thereof, to secure indebtedness of the
Partnership for money borrowed from such secured party, which mortgage, deed
of trust, grant of security interest or other encumbrance is made pursuant to
a written security agreement, mortgage, deed of trust or other agreement that
assures that, before any foreclosure may be had thereon or other transfer may
occur thereunder or in connection therewith, the secured party shall first
notify BKC in writing of its intent to foreclose or effect another transfer
and shall first offer the Restricted Restaurant 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 secured party) in connection with
such foreclosure or other transfer; (ii) a lease or sublease to BKC or a BKC
Franchisee in order to permit the operation of a BK Restaurant on a
Restricted Restaurant Property; (iii) a grant of easement, right-of-way or
other right with respect to a Restricted Restaurant Property to any public
utility or other governmental authority in connection with the provision of
utility or other public service (but such grant shall comply with the
provisions of Section 8.4(b)); or (iv) a
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transfer to a governmental authority pursuant to or in connection with a
condemnation or other exercise of the power of eminent domain.
(b) The Partnership shall not, without the prior written consent
of BKC, in BKC's sole and absolute discretion: (i) at any time that a
Restricted Restaurant Property is being leased to BKC or a BKC Franchisee in
order to permit BKC or such BKC Franchisee to operate a BK Restaurant on the
Restricted Restaurant Property or during any applicable Determination Period,
lease or sublease all or any part of a Restricted Restaurant Property to any
other Person, whether or not such other lease would be subject or subordinate
to the lease to BKC or the BKC Franchisee; or (ii) grant or convey any
easement, right-of-way or other right with respect to such Restricted
Restaurant Property if the grant or use thereof would have a material adverse
effect upon the operation of a BK Restaurant on the Restricted Restaurant
Property.
(c) Except as provided in Section 8.4(b), the Partnership shall
not transfer (as defined in Section 8.4(a)) any right, title or interest in
or to any Restricted Restaurant Property, or any part thereof, to any person
or entity without first offering it to BKC in accordance with the provisions
of this Section 8.4(c). Subject to the provisions of Section 8.4(b), if the
Partnership receives a bona fide written offer from an independent third
party to acquire in a transfer all or any part of any Restricted Restaurant
Property that the Partnership intends to accept, subject to this Section
8.4(c), then the Partnership shall offer such Restricted Restaurant Property
to BKC at the price and on the terms and conditions (including timing and
manner of payment) contained in such bona fide written offer. The offer of
such Restricted Restaurant Property to BKC (the "Offer") shall be made in
writing and shall be accompanied by a true and correct copy of the bona fide
written offer. The Partnership promptly shall provide or cause to be
provided to BKC such information relating to the Offer or the third-party
offeror as BKC reasonably may request.
(d) In order to accept the Offer, BKC shall, within thirty (30)
days after receipt of the Offer (or, if later, within five (5) business days
after receipt of all additional information reasonably requested by BKC
pursuant to Section 8.4(c) (such 30-day period and any extension under this
Section 8.4(d) to be referred to as the "Election Period")), notify the
Partnership in writing of its election to acquire such Restricted Restaurant
Property; provided, however, that BKC shall not be required to acquire such
Restricted Restaurant Property upon the terms and conditions of any
third-party offer the consideration for which is not practicably obtainable
by BKC (such as, by way of example and not of limitation, specific land,
stock in a closely held corporation or stock in a publicly held corporation
that cannot be acquired by BKC without an increase in the trading price
thereof or without registration or filing under any federal or state
securities law), but BKC shall have the right to acquire such Restricted
Restaurant Property upon terms and conditions (including consideration)
reasonably equivalent to those contained in such offer; and provided further,
that the failure of BKC to acquire such Restricted Restaurant Property upon
any such reasonably equivalent terms or conditions shall not permit the
Partnership to transfer such Restricted Restaurant Property pursuit to
Section 8.4(f). Failure of BKC to provide such written notice within the
Election Period shall constitute a refusal by BKC to purchase such Restricted
Restaurant Property pursuant to the Offer.
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(e) The closing date of any acquisition of such Restricted Restaurant
Property by BKC hereunder shall be on the date fixed in the third-party offer
unless such closing date would occur prior to the expiration of twenty (20)
business days after the last day of the Election Period, in which event the
closing date shall occur on such twentieth (20th) business day or on such other
date to which BKC and the Partnership may agree.
(f) If BKC shall fail to elect to acquire such Restricted Restaurant
Property pursuant to Section 8.4(d), or shall fail to close the acquisition on
the date required by Section 8.4(e), then the Partnership shall be free, for a
period of sixty (60) days after either such failure, to transfer such Restricted
Restaurant Property to the bona fide third-party offeror for a price and on
other terms and conditions contained in such third-party offer. If such
Restricted Restaurant Property is not so transferred by the Partnership within
such sixty (60) day period, all rights of the Partnership to transfer such
Restricted Restaurant Property free of the foregoing restrictions shall
terminate and such Restricted Restaurant Property again shall be subject to the
provisions of this Section 8.4.
(g) Unless otherwise expressly waived by BKC in writing, the
provisions of this Section 8.4 shall remain in effect and the rights granted
hereunder shall be exercisable and enforceable by BKC with respect to each
Restricted Restaurant Property during the period commencing on the date of
the Amended Agreement and ending on the earlier of (i) the date that the
Partnership first ceases to hold any right, title or interest (including an
interest as a creditor) in or to such Restricted Restaurant Property or (ii)
the date that the use restrictions set forth in Section 8.3 terminate or
would have terminated but for an early termination pursuant to the provisions
contained in Section 8.3(e); provided, however, that if the duration of such
period would render the provisions of this Section 8.4 or the rights of BKC
hereunder invalid or unenforceable under the rule against perpetuities as
applied in the jurisdiction in which a Restricted Restaurant Property is
located, then such period shall continue with respect to such Restricted
Restaurant Property only until the expiration of the longest of the following
periods which shall be valid under the rule against perpetuities as applied
in such jurisdiction: (i) the period ending twenty-one (21) years after the
death of the survivor of the legitimate natural or adopted children and
grandchildren of U.S. Presidents Kennedy, Johnson, Nixon, Ford, Carter and
Reagan alive on the date of the Amended Agreement; (ii) twenty-one (21) years
after the date of the Amended Agreement; or (iii) such other term as may be
statutorily prescribed in such jurisdiction. It is the express intent of
BKC, the Partnership and the Partners that the provisions hereof and rights
of BKC hereunder shall be exercisable and enforceable by BKC to the fullest
extent permitted by the laws of such jurisdiction.
8.5. RENT RELIEF.
(a) The Managing General Partner, in its sole and absolute
discretion, at the request of BKC or a BKC Franchisee, shall be permitted to
cause the Partnership to grant "rent relief" (as defined in Section 8.5(b))
to a BKC Franchisee with respect to any Restricted Restaurant Property upon
the condition that BKC agree to make a quarterly payment to the Partnership
for each fiscal quarter (with such payment to be due and payable thirty (30)
days after the end of
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each such fiscal quarter) during which such "rent relief" is in effect,
irrespective of whether or not the Partnership subsequently sells or
otherwise disposes of such Restricted Restaurant Property while such "rent
relief" is in effect in an amount equal to the product of (i) the total
dollar amount of the rent reduction with respect to such Restricted
Restaurant Property effective for such fiscal quarter pursuit to such "rent
relief" multiplied by (ii) a fraction, (A) the numerator of which is the
dollar amount of the franchise royalty fee payable to BKC with respect to
such Restricted Restaurant Property for such fiscal quarter (exclusive of any
amount required under the applicable BKC Franchise Agreement to be expended
by BKC for advertising and any other income to BKC) (the "Franchise Royalty
Fee") and (B) the denominator of which is the sum of the Franchise Royalty
Fee and the dollar amount of rent payable with respect to such Restricted
Restaurant Property for such fiscal quarter (determined without regard to any
"rent relief" applicable with respect to such Restricted Restaurant Property)
(the "Rental Amount"). By way of illustration, if the applicable Franchise
Royalty Fee for a Restricted Restaurant Property for a particular fiscal
quarter were $35,000 and the applicable Rental Amount for such Restricted
Restaurant Property for such fiscal quarter were $100,000, and if the
Partnership, at the request of BKC or at the request of a BKC Franchisee and
with the consent of BKC, were to grant "rent relief" with respect to such
Restricted Restaurant Property for such fiscal quarter in the amount of
$20,000, then BKC would be obligated to pay to the Partnership $5,185 (the
product of $35,000/$135,000 multiplied by $20,000) within thirty (30) days
after the end of such fiscal quarter. The obligation of BKC to make payments
to the Partnership in connection with "rent relief" granted hereunder shall
continue until the "rent relief" terminates (or, if sooner, the lease with
respect to which the "rent relief" is granted terminates or expires),
notwithstanding any intervening sale or other disposition by the Partnership
of the Restricted Restaurant Property with respect to which such "rent
relief" is granted.
(b) As used here the term "rent relief" shall mean (i) any permanent
reduction in rent payable with respect to a Restricted Restaurant Property, (ii)
any temporary reduction in rent payable with respect to a Restricted Restaurant
Property (A) if such temporary reduction is for a period in excess of either
ninety (90) consecutive days or ninety (90) days, whether or not consecutive, in
any Fiscal Year, or (B) if such temporary reduction is granted while a BK
Restaurant is being replaced, reconstructed, expanded, or otherwise improved
under the Successor Policy to take into account the fact that such BK Restaurant
is not operating or is operating on a limited basis during such period, or (C)
if such temporary reduction is for a period of ninety (90) consecutive days or
less and the Managing General Partner specifically designates such reduction as
"rent relief" subject to this Section 8.5; provided, however, that in no event
shall the term "rent relief" include any reduction in rent payable with respect
to a Restricted Restaurant Property granted in connection with the Successor
Policy if such reduction in rent payable is subject to Section 8.6(b).
Notwithstanding anything to the contrary herein, the Managing General Partner
shall not be considered to have caused the Partnership to grant "rent relief"
hereunder, and no payment from BKC to the Partnership shall be due hereunder, as
the result of or in connection with any failure of a BKC Franchisee, without the
express written consent of the Managing General Partner, to make any payment of
rent due the Partnership with respect to a Restricted Restaurant Property (1) if
such failure does not continue for a period in excess of ninety (90) consecutive
days, or (2) if either the lease with such BKC Franchisee shall have
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automatically terminated or the Managing General Partner shall have caused the
Partnership to seek to terminate the Partnership's lease with such BKC
Franchisee with respect to such Restricted Restaurant Property and in either
event, the Managing General Partner shall have caused the Partnership to
initiate and pursue such action (including litigation, if appropriate) against
such defaulting BKC Franchisee as the Managing General Partner, in its sole and
absolute discretion, shall determine to be appropriate under the circumstances
in order to obtain payment of rents (including lost rent) due the Partnership
under its lease with the defaulting BKC Franchisee. In the event that BKC makes
any payment to the Partnership pursuant to this Section 8.5 in connection with
"rent relief" deemed granted hereunder and the Partnership subsequently shall
collect such "rent relief" from the BKC Franchisee, then the Partnership shall
refund to BKC the amount paid by BKC in connection with such "rent relief."
8.6. SUCCESSOR POLICY.
BKC maintains the Successor Policy relating to the extension and/or
renewal of BKC Franchise Agreements with BKC Franchisees. In connection with
such extensions and/or renewals, the Successor Policy, in order to help
ensure that the BK Restaurant system remains competitive, makes provision for
the replacement, reconstruction, expansion and/or other improvement
(collectively, "rebuilding") of existing BK Restaurants owned or leased by
BKC and leased or subleased to BKC Franchisees if such BK Restaurants meet
certain criteria established by BKC. Under the Successor Policy as currently
in effect, BKC must determine whether or not a BK Restaurant should be
rebuilt. If BKC determines that a BK Restaurant should be rebuilt under the
Successor Policy and BKC elects to pay the cost of rebuilding, then the terms
of the lease with respect to such BK Restaurant is extended and the BKC
Franchisee's guaranteed "minimum rental" payable under such lease is
adjusted. In the event BKC does not elect to pay the cost of rebuilding a BK
Restaurant designated by BKC to be rebuilt under the Successor Policy, then,
with the consent of BKC, the BKC Franchisee can elect to pay such cost, in
which event the percentage rent payable with respect to such BK Restaurant is
reduced from 8.5 percent (8.5%) to 5.5 percent (5.5%) of annual gross sales
at such BK Restaurant, the term of the lease with respect to such BK
Restaurant is extended and the guaranteed minimum rent payable under such
lease is adjusted. The Managing General Partner shall cause the Partnership
to implement, with respect to the Restricted Restaurant Properties, those
aspects of the Successor Policy related to the rebuilding of BK Restaurants,
as such policy is currently in effect and as such policy may be modified,
amended, supplemented, superseded or replaced by BKC from time to time in its
sole and absolute discretion, in order to cause those Restricted Restaurant
Properties designated by BKC, in its sole and absolute discretion, to be
rebuilt under such Successor Policy to be rebuilt, subject to satisfaction by
BKC of the following conditions:
(a) In the event that the BKC Franchisee for a Restricted Restaurant
Property that is designated by BKC to be rebuilt under the Successor Policy does
not pay the cost of such rebuilding, then the Managing General Partner shall
cause the Partnership to rebuild such Restricted Restaurant Property upon the
condition that BKC pay to the Partnership, at the time such rebuilding is
commenced, an amount equal to the product of (i) the total dollar amount of
funds to be expended by the Partnership for purposes of rebuilding such
Restricted Restaurant
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Property multiplied by (ii) a fraction, (A) the numerator of which is the
weighted annual average of the percentage rates applicable for determining
the franchise royalty fees payable to BKC with respect to such Restricted
Restaurant Property over the remaining term of the lease under the BKC
Franchise Agreement in effect with respect to such Restricted Restaurant
Property (exclusive of any amounts required under the applicable BKC
Franchise Agreement to be expended by BKC for advertising and other income to
BKC) (the "Average Franchise Royalty Rate") and (B) the denominator of which
is the sum of the Average Franchise Royalty Rate and the weighted annual
average of the percentage rates applicable for determining the percentage
rent payable to the Partnership with respect to such Restricted Restaurant
Property on the basis of sales over the remaining term of the lease with the
BKC Franchisee in effect with respect to such Restricted Restaurant Property
(the "Average Percentage Rent Rate"). By way of illustration, if the
applicable Average Percentage Rent Rate for a particular Restricted
Restaurant Property were 8.5 percent (8.5%) and the applicable Average
Franchise Royalty Rate for such Restricted Restaurant Property were 3.5
percent (3.5%), and if the total cost to rebuild such Restricted Restaurant
Property pursuant to the "Successor Policy" were $500,000, then BKC would be
obligated to pay to the Partnership, at the time the rebuilding of such
Restricted Restaurant Property commenced, $145,833 (the product of 3.5/12
multiplied by $500,000). The Managing General Partner shall cause the
Partnership to pay the Partnership's share of the cost of rebuilding a
Restricted Restaurant Property to rebuilt under the Successor Policy, in its
sole and absolute discretion, (1) from current operating cash flow of the
Partnership or otherwise to the extent available or (2) with funds borrowed
from a lender (including, subject to Section 7.13, BKC or any Affiliate of
BKC) on such terms and conditions as the Managing General Partner shall, in
its sole and absolute discretion, determine advisable, with the payments of
principal and interest required with respect to any such loan to be paid from
operating cash flow to the extent available; and
(b) In the event that the BKC Franchisee for a Restricted Restaurant
Property that is designated by BKC to be rebuilt under the Successor Policy pays
the cost of such rebuilding and thus would be entitled to a reduction in rent
payable with respect to such Restricted Restaurant Property, then BKC would make
a quarterly payment to the Partnership for each fiscal quarter during the period
during which such rent reduction is in effect, irrespective of whether or not
the Partnership subsequently sells or otherwise disposes of such Restricted
Restaurant Property while such rent reduction is in effect (with such payment to
be due and payable thirty (30) days after the end of each such fiscal quarter)
in an amount equal to the product of (i) the total dollar amount of the rent
reduction effective with respect to such fiscal quarter pursuant to the
"Successor Policy" multiplied by (ii) a fraction, (A) the numerator of which is
the percentage rate for determining the franchise royalty fee payable to BKC
with respect to such Restricted Restaurant Property for such fiscal quarter
(exclusive of any amount required under the applicable BKC Franchise Agreement
to be expended by BKC for advertising and other income to BKC) (the "Franchise
Royalty Rate"), and (B) the denominator of which is the sum of the Franchise
Royalty Rate and the percentage rate for determining the rent payable to the
Partnership with respect to such Restricted Restaurant Property on the basis of
sales for such fiscal quarter (the "Percentage Rent Rate"). By way of
illustration, if the applicable Percentage Rent Rate for a Restricted Restaurant
Property for a particular fiscal quarter were 8.5 percent (8.5%) and the
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applicable Franchise Royalty Rate for such Restricted Restaurant Property for
such fiscal quarter were 3.5 percent (3.5%), and if the BKC Franchisee for such
Restricted Restaurant Property were to be entitled under the Successor Policy to
a reduction in the applicable Percentage Rent Rate to 5.5 percent (5.5%) if such
BKC Franchisee were to rebuild such Restricted Restaurant Property pursuant to
the Successor Policy, then, assuming that such BKC Franchisee's rent payable
following such rent reduction exceeds the minimum base rent payable to the
Partnership with respect to such fiscal quarter, BKC would be obligated to pay
to the Partnership an amount equal to the product of (i) 3.5/12 multiplied by
(ii) the product of (A) 3 percent (3%) multiplied by (B) the gross sales at such
Restricted Restaurant Property for such fiscal quarter. The obligation of BKC
to make payments to the Partnership under this Section 8.6(b) in connection with
a rent reduction granted hereunder shall continue until the lease under which
such rent reduction is granted terminates or expires, notwithstanding any
intervening sale or other disposition by the Partnership of the Restricted
Restaurant Property with respect to which such rent reduction is granted.
In the event the guaranteed minimum rent payable pursuant to any
lease with respect to a Restricted Restaurant Property is adjusted in
connection with the rebuilding of a BK Restaurant pursuant to the Successor
Policy, then notwithstanding any other provision of the Agreement or of the
Successor Policy, the "fair market value of the original property" for
purposes of determining the amount of such adjustment shall be equal to the
replacement cost of such property, as determined by the Appraiser.
Notwithstanding anything to the contrary herein, BKC, in its sole and
absolute discretion, may elect not to designate a particular Restricted
Restaurant Property to be rebuilt under the Successor Policy, in which event
the BKC Franchisee for such Restricted Restaurant Property shall be solely
responsible for the cost of rebuilding and shall not be entitled to any
reduction in rent payable with respect to such Restricted Restaurant
Property. BKC in no event shall be entitled to any fee or other payment from
the Partnership in connection with the rebuilding of a Restricted Restaurant
Property under the Successor Policy.
In addition to the foregoing, BKC, separate and apart from
implementation of the Successor Policy, from time to time may request that
the Partnership acquire property adjacent to a Restricted Restaurant Property
for purposes of permitting expansion of the BK Restaurant or related
facilities (such as parking) located on such Restricted Restaurant Property.
The Managing General Partner shall cause the Partnership to acquire any such
adjacent property upon the request of BKC upon the condition that BKC pay to
the Partnership, at the time such acquisition occurs an amount determined in
accordance with the formula set forth in Section 8.6(a).
8.7. COMPETITIVE FACILITIES.
Without in any way limiting the generality of Section 7.6, the Limited
Partner recognizes that BKC, TPC and Affiliates thereof are in the business of
establishing, own, leasing, operating, managing and franchising restaurants,
including, without limitation, BK Restaurants, and that in connection with such
businesses, BKC, TPC and/or Affiliates thereof may from time to time establish,
own, lease, operate, manage and/or franchise new restaurants, including, without
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limitation, BK Restaurants. Both such existing restaurants and any such new
restaurants may be competitive with one or more of the Partnership Properties
and may adversely affect the revenues of the Partnership with respect to one or
more of the Partnership Properties. The Limited Partners expressly consent to
all actions of BKC, TPC and any Affiliate of either in connection both with
existing restaurants and with any new restaurants and agrees that neither BKC,
TPC and the Managing General Partner, nor any Affiliate of any of them shall
incur any liability to the Partnership or the Limited Partners as the result of
or in connection with any such action.
8.8. ACQUISITION OF RESTRICTED RESTAURANT PROPERTIES BY GENERAL PARTNERS OR
AFFILIATES.
Notwithstanding any other provision of this Agreement, including,
without limitation, Sections 7.2(v) and 8.4(d), (e) and (f), no Person that
is a General Partner or an Affiliate of a General Partner shall acquire any
Restricted Restaurant Property from the Partnership, whether by purchase,
exchange, or substitution, unless (a) the consideration received by the
Partnership for such Restricted Restaurant Property is at least equal to the
"fair market value" (as hereinafter defined) of such Restricted Restaurant
Property, as determined by the Appraiser and (b) such acquisition would not
result in the REIT failing to qualify as a "real estate investment trust"
under Section 856 of the Code; provided, however, that this Section 8.8 shall
have no application to any acquisition of a Restricted Restaurant Property by
BKC pursuant to Section 8.4 if, at the time of such acquisition, neither BKC
nor any Affiliate of BKC is a General Partner. Any acquisition of a
Restricted Restaurant Property, whether by purchase, exchange or
substitution, by a Person who is a General Partner or an Affiliate of a
General Partner for consideration that is at least equal to the "fair market
value" (as hereinafter defined) of such Restricted Restaurant Property, as
determined by the Appraiser, conclusively shall be deemed to be fair and in
the best interests of the Partnership. As used herein, the term "fair market
value" shall mean the value that would be obtained in an arm's-length
transaction between an informed and willing purchaser under no compulsion to
buy and an informed and willing seller under no compulsion to sell, as
determined by the Appraiser, using such method or methods of valuation as the
Appraiser determines most accurately reflect the value of the particular
Restricted Restaurant Property in question under the circumstances, provided
that for a period of five (5) years from _______________, 199___, the
Appraiser shall use the "capitalization of income" method (applying such
capitalization rate and other assumptions and adjustments as the Appraiser
determines appropriate under the circumstances) unless the Appraiser
determines that the use of such method would result in an understatement of
the value of the Restricted Restaurant Property with respect to which such
appraisal is being performed. For purposes of this Section 8.8, in the event
that any consideration to be received by the Partnership in exchange or
substitution for any Restricted Restaurant Property is in any form other than
money, then the "fair market value" of such consideration, as determined by
the Appraiser (or if such other consideration is in the form of property
other than real estate, by an appraiser experienced in valuing such other
property designated by the Appraiser), shall be required to be at least equal
to the "fair market value" of the Restricted Restaurant Property or
Properties to be transferred.
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8.9. TERMINATION OF LEASE FOR RESTRICTED RESTAURANT PROPERTY FOLLOWING
TERMINATION OF BKC FRANCHISE AGREEMENT.
(a) In the event that (i) either (A) a BKC Franchise Agreement
authorizing the operation of a BK Restaurant is terminated by BKC or by the
mutual agreement of the parties thereto prior to the expiration of the stated
term thereof, or (B) a BKC Franchise Agreement expires according to the terms
thereof and is not renewed by BKC at or prior to the expiration of such BKC
Franchise Agreement, and (ii) BKC does not, prior to the end of the
Determination Period (as defined in Section 8.3), enter into a new BKC
Franchise Agreement with respect to the Restricted Restaurant Property or
elect to operate a BK Restaurant on the Restricted Restaurant Property, as
provided for in Section 8.3(b)(ii), then the Managing General Partner, in its
sole and absolute discretion, shall be permitted to cause the Partnership to
terminate any lease with a BKC Franchisee with respect to such Restricted
Restaurant Property if a default has occurred under such lease and either (1)
the Managing General Partner shall have caused the Partnership to initiate
and pursue such action (including, if appropriate, litigation) against such
defaulting lessee as the Managing General Partner, in its sole and absolute
discretion, shall determine to be reasonable under the circumstances in order
to obtain payment of amounts (including lost rent) due the Partnership under
such lease, or (2) the Managing General Partner or the defaulting lessee
shall have located a new lessee for the Restricted Restaurant Property for a
term at least as long as the remaining unexpired term under the lease to be
terminated and for a rent not lower than the minimum base rent payable under
such lease (or if the rent is lower than the minimum base rent payable under
the lease to be terminated, the defaulting lessee shall have agreed to be
contractually obligated to continue to pay to the Partnership an amount equal
to the difference between the rent payable under the new lease and the
minimum base rent payable under the lease to be terminated and shall have
provided adequate security, as determined by the Managing General Partner to
be reasonable under the circumstances, for such obligation).
(b) In addition to any termination in accordance with Section
8.9(a) and any termination in accordance with Section 8.3(b)(ii), the
Managing General Partner, in its sole and absolute discretion, shall be
permitted, without limitation, to cause the Partnership to terminate a lease
with a BKC Franchisee with respect to a Restricted Restaurant Property if the
BKC Franchise Agreement with respect to such Restricted Restaurant Property
is terminated in connection with or as a result of a condemnation involving
all or substantially all of a Restricted Restaurant Property or a casualty
materially adversely affecting the use of such Restricted Restaurant Property
for the purpose of operating a BK Restaurant for a period in excess of six
(6) months.
(c) The provisions of this Section 8.9 shall not limit or affect
in any way the termination of a lease with respect to a Restricted Restaurant
Property with a Person that is not and was not a BKC Franchisee. The
provisions of this Section 8.9 are for the benefit of the Partnership, the
Limited Partners, and the limited partners and stockholders of the Limited
Partners and their assignees, and shall not be deemed to create any rights
for the benefit of any other Persons, including, without limitation, any
lessees under leases with the Partnership.
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8.10. INDEPENDENT CONSULTANT.
(a) The Managing General Partner, in its sole and absolute discretion,
shall be entitled but not required, to consult with the Independent Consultant
with respect to any action or proposed action affecting or relating to the
Partnership or the Limited Partners or their business. In the event that the
Managing General Partner shall elect to consult with the Independent Consultant
with respect to any such action or proposed action, then the Independent
Consultant shall advise the Managing General Partner whether such action or
proposed action is contrary to the interests of the Partnership or the Limited
Partner, as the case may be, taking into account, with respect to the Restricted
Restaurant Properties, that the original purpose of the Partnership and the MLP
was to acquire and hold real estate that is leased to BKC Franchisees for the
purpose of operating BK Restaurants and to derive revenues therefrom. The
Limited Partners expressly agree that any actions taken by the Managing General
Partner in accordance with the advice of the Independent Consultant conclusively
shall be deemed to be fair to and in the best interests of the Partnership, the
Limited Partners and the limited partners and stockholders of the Limited
Partners and their assignees, and the fact that an action of the Managing
General Partner is undertaken in accordance with the advice of the Independent
Consultant shall be a complete and absolute defense to any claim or action
asserting the invalidity of such action or any claim or action for damages or
other relief based upon an assertion that such action resulted in a breach by
the Managing General Partner or any of its Affiliates of this Agreement or any
duty, fiduciary or otherwise, owed by the Managing General Partner or any
Affiliate to the Partnership, the Limited Partners or the limited partners or
stockholders of the Limited Partners or their assignees. The Limited Partners
further acknowledge that the purpose of this Section 8.10 is to provide an
arrangement to facilitate outside consultation by the Managing General Partner
with respect to potential problems arising in connection with the management of
the Partnership and the Limited Partners and expressly agree that, in order to
induce the Managing General Partner to consent to this Section 8.10 and to
undertake such consultation from time to time as it determines appropriate,
neither the failure of the Managing General Partner to consult with the
Independent Consultant on any particular action or proposed action, nor the
failure of the Managing General Partner to act in accordance with the advice of
the Independent Consultant on any action or proposed action with respect to
which the Managing General Partner shall elect to consult with the Independent
Consultant, shall create any inference or presumption or otherwise constitute
evidence with respect to the fairness of such action or proposed action to the
Partnership, the Limited Partners or the limited partners or stockholders of the
Limited Partners or their assignees, as the case may be.
(b) In the event that the Independent Consultant designated in this
Agreement at any time is unable or unwilling to advise the Managing General
Partner on a particular matter or should inform the Managing General Partner
that it no longer is willing to serve as Independent Consultant, then the
Managing General Partner shall designate a substitute Independent Consultant, as
provided for below. The Managing General Partner shall have the right at any
time, in its sole and absolute discretion, to terminate the Independent
Consultant and to designate a substitute Independent Consultant, as provided for
below; provided, however, that the Managing General Partner shall have no
obligation to the Partnership or the Limited Partners, as the case
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may be, to terminate the Independent Consultant under any circumstances, and
provided further that any termination of the Independent Consultant pursuant
to this Section 8.10(b) conclusively shall be deemed to be fair to and in the
best interests of the Partnership and the Limited Partners. Any substitute
Independent Consultant designated by the Managing General Partner pursuant to
this Section 8.10(b) shall have experience in advising or consulting about the
"fast food" business and shall be "financially independent" (as hereinafter
defined) of the Managing General Partner. A Person shall be deemed
"financially independent" of the Managing General Partner for purposes of this
Section 8.10 if such Person is not, and during the preceding four (4) years
has not been, a BKC Franchisee or Affiliate of the Managing General Partner,
of BKC, of TPC or of a BKC Franchisee; and (ii) such Person has not derived
more than fifteen percent (15%) of such Person's average annual gross revenues
over the preceding four (4) years from the Managing General Partner, BKC, TPC,
any BKC Franchisee and any Affiliate of any of the foregoing.
(c) The Managing General Partner, in its sole and absolute discretion,
either (i) may cause the Partnership to indemnify and hold harmless the
Independent Consultant upon such terms and conditions as the Managing General
Partner shall determine appropriate or (ii) may indemnify and hold harmless the
Independent Consultant upon such terms and conditions as the Managing General
Partner shall determine appropriate, in which event the Partnership shall
indemnify the Managing General Partner for any amounts required to be paid under
such indemnification; provided, however, that in either case, the terms and
conditions of such indemnification shall be no more favorable to the Independent
Consultant than the terms and conditions pursuant to which the General Partners,
their Affiliates and officers, directors, employees and agents of the General
Partners and their Affiliates are indemnified and held harmless pursuant to
Section 7.10.
8.11. CONSENT TO USE OF NAME AND TRADEMARKS.
BKC consents to the Partnership's use of the words "Burger King" in the
name of the Partnership and to the Partnership's use of the registered
trademarks and service marks Burger King-Registered Trademark-, Whopper-
Registered Trademark-, Whopper Junior-Registered Trademark- and the Burger King
bun halves logo in any registration statement filed by any Partner or any
Affiliate thereof, all sales materials and other documents prepared for use in
connection with any public offering by any Limited Partners, any reports to or
written communications with the Limited Partners and any reports filed by the
Partnership with any federal, state or local regulatory agency terminated upon
the withdrawal of BKC as the special general partner.
8.12. ACQUISITION OF FEE TITLE TO PROPERTIES SUBJECT TO PRIMARY LEASES.
The Managing General Partner shall have the right, in its sole and
absolute discretion, to cause the Partnership to acquire fee title to any
Restricted Restaurant Property that is subject to a Primary Lease, either
pursuant to a right of first refusal on behalf of the Partnership set forth in
such Primary Lease or otherwise. BKC shall have no obligation to the
Partnership in connection with any such acquisition.
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8.13. LOCATION OF OTHER RESTAURANT PROPERTIES.
The Partnership shall not acquire any Other Restaurant Properties
within a two-mile radius of any Restricted Restaurant Property held as of
March 17, 1995.
ARTICLE IX
COMPENSATION OF GENERAL PARTNERS;
PAYMENT OF PARTNERSHIP EXPENSES
9.1. COMPENSATION TO GENERAL PARTNERS.
Except as expressly provided in Section 9.3 or 9.4, no General Partner
shall receive any compensation from the Partnership for services rendered in its
capacity as a general partner of the Partnership or the MLP. Notwithstanding
anything herein to the contrary, at such time as QSV ceases to be the Managing
General Partner or the managing general partner of the MLP, whether as a result
of the transfer of QSV's Partnership Interest pursuant to Section 11.2 (or
Section 12.2 of the Investors Partnership Agreement) or the withdrawal or
removal of QSV pursuant to Section 13.1 (or Section 14.1 or 14.2 of the
Investors Partnership Agreement) (other than removal for "cause," as defined in
the Investors Partnership Agreement), then QSV shall have the option, in its
sole discretion, to convert its Partnership Interest and its partnership
interest in the MLP and to either assign to the MLP or convert its rights (the
"Rights") under the provisions of Section 9.3 (and Section 9.3 of the Investors
Partnership Agreement) (collectively, the "Conversion") for the Acquisition
Price (as defined below), effective as of the date of such transfer, withdrawal
or removal, and upon such Conversion the successor Managing General Partner
shall cause the Partnership to issue to QSV Partnership Units in the amounts
provided for below.
In exchange for the Conversion of the Rights, as provided for above, and
the conversion of the QSV's Partnership Interest, in the event QSV elects to
effect the Conversion, QSV will receive the "Acquisition Price," consisting of
(a) the Initial Unit Consideration and (b) the Contingent Unit Consideration.
The Initial Unit Consideration consists of 850,000 Partnership Units (which
number or classification shall be adjusted to give effect to any
reclassification or change of the shares of Common Stock or Units, including,
without limitation, a split, or any merger or consolidation of the REIT or the
MLP, except the merger of the MLP with the REIT or a subsidiary thereof, or sale
of assets to another entity, occurring after March 31, 1997), with the number of
Partnership Units issuable hereunder being reduced (on a one-for-one basis) by
the number of Units or shares of Common Stock otherwise received by QSV in
connection with the Conversion. The portion of the Initial Unit Consideration
consisting of Partnership Units shall be issued by the Partnership as soon as
practicable following the date of the Conversion, but in no event later than 30
days thereafter.
The Contingent Share Consideration consists of up to a maximum number of
550,000 Partnership Units (which number or classification shall be adjusted to
give effect to any
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reclassification or change of the Common Stock or Units, including, without
limitation, a split, or any merger or consolidation of the REIT or the MLP,
except the merger of the MLP with the REIT or any subsidiary thereof, or sale
of assets to another entity, occurring after March 31, 1997). The type and
number of securities issuable as the Contingent Share Consideration (subject
to the next sentence) shall be at the sole discretion of QSV. The exact
number of Partnership Units to be issued (which number shall be reduced on a
one-for-one basis by the number of Units otherwise received by QSV as part of
the Contingent Share Consideration) will be determined by dividing the (i)
amount by which the MGP Net Income (as defined below) for the 2000 Fiscal Year
exceeds $3,612,500 by (ii) $4.25, and rounding the resulting number up to the
nearest whole number. "MGP Net Income" means the dollar amount of fees and
distributions which would have been payable to QSV, as Managing General
Partner, by the Partnership for the 2000 Fiscal Year, pursuant to the
provisions of Section 9.3, had QSV operated the Partnership on a continuous
basis from the date of the Conversion through December 31, 2000 plus the
amounts that would have been payable to QSV pursuant to its aggregate 1.98%
general partnership interests in the Partnership and the MLP, less $775,000.
For example, if the MGP Net Income for the 2000 Fiscal Year would have
been $5,100,000 ($5,875,000 revenues less $775,000) then the Contingent Unit
Consideration would be an additional 350,000 Partnership Units.
The Contingent Unit Consideration, if any, shall be issued by the
Partnership as soon as practicable following the end of the 2000 Fiscal Year,
but in no event later than March 31, 2001.
9.2. EXPENSES IN CONNECTION WITH ORGANIZATION OF PARTNERSHIP AND INITIAL
PUBLIC OFFERING.
As set forth in the Real Estate Purchase Agreement, BKC as the then
special general partner of the Partnership at such time reimbursed the
Partnership for all fees, costs, and expenses actually incurred by the General
Partners and their Affiliates in connection with the organization of the
Partnership, the MLP and the Managing General Partner; the qualification of
the Partnership, the MLP and the Managing General Partner to do business in
any state in which the Managing General Partner determined that such
qualification was advisable; the registration of the Units under applicable
federal and state securities laws in connection with the Initial Public
Offering; the offering, sale, and distribution of the Units pursuant to the
Initial Public Offering; the listing of the Units evidenced by depositary
receipts on a National Securities Exchange; the purchase of certain
Partnership Properties by the Partnership; and planning and preparing for the
operation and management of the Partnership and the MLP following the Initial
Public Offering, including, without limitation, (i) printing, mailing, filing
and recordation expenses; (ii) charges of agents, depositories, appraisers and
the underwriters of the Initial Public Offering; (iii) expenses of
registration and qualification of the Units under applicable federal and state
securities laws; (iv) legal (including tax advice) and accounting fees and
disbursements; (v) remuneration paid to officers or employees of any General
Partner or any Affiliate that is allocable to time spent on such activities;
and (vi) other expenses of a similar nature incurred by any General Partner or
any Affiliate in connection with such activities.
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9.3. OPERATIONAL EXPENSES.
In addition to any reimbursement pursuant to the indemnification set
forth in Section 7.10, the Partnership, pursuant to this Section 9.3 and
Section 9.3 of the Investors Partnership Agreement, shall:
(a) With respect to (i) the Partnership Properties held as of March 17,
1995 and (ii) the Partnership Properties and Ancillary Property related thereto
acquired thereafter with respect to the Partnership Properties referred to in
clause (i) above whether pursuant to Section 8.12 or otherwise, the Partnership
shall cause to be paid to the Managing General Partner with respect to each
Fiscal Year an aggregate amount equal to Four Hundred Thousand Dollars
($400,000) adjusted annually as set forth in Section 9.3(c), which amount shall
be in lieu of any reimbursement for expenses related to the management of the
business affairs of the Partnership and the Limited Partner (other than expenses
described in Section 9.3 (c)) that are incurred by the Managing General Partner
or its Affiliates with respect to such Partnership Properties, which amount
shall be payable in equal quarterly installments within sixty (60) days after
the end of each fiscal quarter.
(b) With respect to any Partnership Property and Ancillary Property
related thereto acquired after March 17, 1995 (other than those referred to in
Section 9.3 (a)) and mortgage loans, if any, originated by the Partnership or
the MLP, (i) the Partnership shall pay to the Managing General Partner (A) an
acquisition fee equal to 1% of the purchase price paid by the Partnership or the
Limited Partner for such Partnership Property and Ancillary Property related
thereto, payable on the date of acquisition or origination, as applicable, and
(B) with respect to each Fiscal Year, an amount, adjusted annually as set forth
in Section 9.3(c), accruing while such property is held at the rate of 1% per
annum (applied using the simple interest method on the basis of a 365/366-day
year and the actual number of days elapsed) on the purchase price paid by the
Partnership or any of the Limited Partners for such Partnership Property and
Ancillary Property related thereto, and (ii) if the Rate of Return attributable
to all Partnership Properties and Ancillary Property related thereto acquired
after March 17, 1995 (other than those referred to in Section 9.3(a)) in respect
of any Fiscal Year shall exceed 12% per annum, the Partnership shall pay to the
Managing General Partner an amount equal to 25% of the amount of cash received
by the Partnership representing such excess, which amounts shall be in lieu of
any reimbursement of expenses related to the management of the business affairs
of the Partnership and the Limited Partners (other than expenses described in
Section 9.3(c)) that are incurred by the Managing General Partner or its
Affiliates with respect to such Partnership Properties and (except as provided
in clause (i)(A) of this Section 9.3(b)) shall be payable in quarterly
installments within sixty (60) days after the end of each fiscal quarter (which
may be estimated in the case of the first three fiscal quarters); provided that
there shall be credited against the amounts, if any, payable pursuant to clause
(ii) of this Section 9.3(b) in respect of any Fiscal Year amounts payable to the
Managing General Partner in respect of its First-Tier Residual Interest or
Second-Tier Residual Interest pursuant to Sections 6.5 and 6.6 of the Investors
Partnership Agreement in respect of such Fiscal Year. For purposes of the
calculations provided for in this Section 9.3 in the event of a mortgage loan
origination, the term "Partnership
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Properties" shall be deemed to include any originated mortgage loans and the
"purchase price" of such mortgage loans will be the principal balances thereof
at the beginning of any Fiscal Year.
(c) The Partnership shall either pay, or reimburse the Managing General
Partner on a monthly basis for the payment of, all amounts payable to any Person
for providing goods or performing services (including, without limitation,
legal, accounting, auditing, recordkeeping, reporting, depositary, transfer
agent, printing, appraisal, servicing and consulting services) for or on behalf
of the Partnership or the Limited Partners; provided, however, that the
Partnership shall not pay, or reimburse the Managing General Partner for, the
payment of any amount to an Affiliate or an officer, director or employee of an
Affiliate for legal, accounting, managerial or consulting services; and provided
further, that the Partnership shall pay, or shall reimburse the Managing General
Partner for, a payment to an Affiliate or an officer, director or employee of an
Affiliate for goods or other services only if the price and the terms upon which
such goods or services are provided to the Partnership or the Limited Partners
are fair to the Partnership or the Limited Partners, as the case may be, and are
not less favorable to the Partnership or the Limited Partners, as the case may
be, than would be incurred if the Partnership or the Limited Partners were to
obtain such goods or services from an unrelated third party or were to engage
employees to provide such goods or services directly.
For 1987 and for each Fiscal Year thereafter, the amount payable
pursuant to Section 9.3(a) shall be increased by an amount equal to the
product of Four Hundred Thousand Dollars ($400,000) multiplied by the
percentage increase in the Price Index from January 1, 1986, through the last
day of the immediately preceding Fiscal Year. For each year after the year in
which a Partnership Property is acquired, the amount otherwise payable
pursuant to Section 9.3 (b)(i)(B) (the "Section 9.3(b)(i)(B) Amount") shall be
increased by an amount equal to the product of the Section 9.3(b)(i)(B) Amount
multiplied by the percentage increase in the Price Index from the first day of
the immediately preceding Fiscal Year or, in the case of the first year after
the year in which the Partnership Property is acquired, the first day of the
month in which the acquisition occurred through the last day of the Fiscal
Year immediately preceding such year or, if earlier, the last day of the month
in which such Partnership Property was disposed of. The percentage increase
in the Price Index through the last day of a particular period shall be
determined by calculating the increase, if any, in the Price Index for the
last time period during such period (the "Price Index Determination Period")
with respect to which the Price Index is published (currently a monthly
period) over the Price Index for the time period immediately preceding the
first day of the Price Index Determination Period, and expressing the amount
of such increase as a percentage of the Price Index for said time period
immediately preceding the first day of the Price Index Determination Period.
"RATE OF RETURN" in respect of any period shall mean and refer to the
quotient obtained by dividing (1) the aggregate revenues (calculated in
accordance with generally accepted accounting principles and before amortization
of unearned income on direct financing leases) received by the Partnership or
the Limited Partners from the Partnership Properties and Ancillary Property
referred to in Section 9.3(b) for such period, whether through operations, sale
or other disposition, less (without duplication) (i) the aggregate fees payable
pursuant to Section
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9.3(b)(i)(B) for such period in respect of such properties, (ii) the aggregate
expenses of the Partnership (other than interest expense, depreciation,
amortization and other non-cash expenses and charges and expenses described in
Sections 9.3(b) and (c)) directly attributable to such property and interest
expense on any debt or distributions with respect to any interests (the
"Preferred Interests") of the Partnership issued to the REIT in exchange for
the proceeds from the issuance by the REIT of equity securities ranking senior
to the Common Stock with respect to the payment of dividends by the REIT
allocated thereto for such period, (iii) the general and administrative
expenses of the Partnership (other than non-cash expenses and charges and
expenses described in Sections 9.3 (a) and (b)) for such period allocated to
such properties (based on the ratio of Average Partnership Equity in such
properties to the aggregate Average Partnership Equity in all Partnership
Properties), and (iv) the principal amount of debt and dollar amount of
Preferred Interests allocated to any such properties repaid during such period
and, if applicable, the cash costs and expenses of any kind or nature incurred
in respect of the sale or other disposition thereof, by (2) the Average
Partnership Equity in such properties during such period. "AVERAGE
PARTNERSHIP EQUITY" shall mean and refer to (A) the average of the sums of the
aggregate purchase prices therefor, the aggregate fees paid pursuant to
Section 9.3(b)(i)(A) in respect thereof and all other cash costs and expenses
of any kind or nature incurred in connection with the acquisitions thereof
("Property Costs") as of the last day of each calendar month occurring during
the period of determination, less (B) the average outstanding principal amount
of debt of the Partnership and the aggregate dollar value of the Preferred
Interests outstanding as of the last day of each calendar month during such
period and allocated to such properties. The Rate of Return for any
outstanding mortgage loans will be evaluated separately with the mortgage
loans constituting a separate pool of "properties" for such calculation. The
general and administrative expenses allocable to such mortgage loans shall be
equal to the total amount of such expenses for any Fiscal Year multiplied by a
fraction, the numerator of which shall be the aggregate principal amount of
all mortgage loans outstanding at the beginning of such Fiscal Year and the
denominator of which shall be the total of all Property Costs and such
aggregate principal amount.
For the purposes of the foregoing, debt of the Partnership and the
Preferred Interests shall be allocated among the Partnership Properties as
follows: (1) non-recourse debt shall be allocated to the property secured
thereby and, if such debt is secured by more than one property, such debt shall
be allocated among the properties secured thereby based on the relative Property
Costs thereof; and (2) recourse debt and the Preferred Interests shall be
allocated to all of the Partnership Properties based on the relative Property
Costs thereof (reduced for this purpose by the amounts of non-recourse debt
allocated thereto in accordance with clause (1) above).
9.4. REIMBURSEMENT OF THE GENERAL PARTNERS.
In the event that the provisions of Section 9.3 are terminated in
accordance with the terms of Section 9.1, the following compensation provisions
shall apply, to be effective upon the date of such termination.
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(a) The General Partners shall not be compensated for their services as
general partner of the Partnership except as provided in elsewhere in this
Agreement (including the provisions of Article VI regarding distributions,
payments and allocations to which it may be entitled in its capacity as the
General Partner).
(b) Subject to Sections 9.4(c) and 16.9, the Partnership shall be
liable for, and shall reimburse the General Partners on a monthly basis, or
such other basis as the General Partners may determine in their sole and
absolute discretion, for all sums expended in connection with the
Partnership's business or for the benefit of the Partnership, including,
without limitation, (i) expenses relating to the ownership of interests in,
and management and operation of, or for the benefit of, the Partnership, (ii)
compensation of officers and employees, including, without limitation,
payments under future employee benefit plans of any General Partner, (iii)
director fees and expenses, and (iv) all costs and expenses of any General
Partner being a public company, including costs of filings with the
Commission, reports and other distributions to its stockholders.
(c) To the extent practicable, Partnership expenses shall be billed
directly to and paid by the Partnership, subject to Section 16.9, reimbursements
to the General Partner of any of their Affiliates by the Partnership pursuant to
this Section 9.4 shall be treated as "guaranteed payments" within the meaning of
Section 707(c) of the Code.
ARTICLE X
BANK ACCOUNTS; BOOKS AND RECORDS;
FISCAL YEAR; STATEMENTS; TAX MATTERS
10.1. BANK ACCOUNTS.
All funds of the Partnership shall be deposited in its name in such
checking and savings accounts, time deposits, certificates of deposit or other
accounts at such banks or other financial institutions as shall be designated by
the Managing General Partner from time to time, and the Managing General Partner
shall arrange for the appropriate conduct of any such account or accounts. The
Managing General Partner shall have fiduciary responsibility for the safekeeping
and use of the funds of the Partnership, whether or not in possession and
control of the Managing General Partner, and the Managing General Partner shall
not employ or permit any other Person to employ such funds except in accordance
with the terms of this Agreement. The Managing General Partner shall not permit
funds of the Partnership to be commingled with funds of the Managing General
Partner, any Affiliate or any other Person; provided, however, that nothing
herein shall preclude any investment of funds of the Partnership in a mutual
fund or similar entity for which a separate account is maintained on behalf of
each participant.
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10.2. BOOKS AND RECORDS.
(a) The Managing General Partner shall keep, or cause to be kept,
accurate, full, and complete books and accounts with respect to the Partnership,
showing assets, liabilities, income, operations, transactions and the financial
condition of the Partnership. Such books and accounts shall be prepared and
maintained on the accrual basis of accounting in accordance with generally
accepted accounting principles. The Managing General Partner shall maintain and
preserve all Partnership books and records for such period as the Managing
General Partner, in its reasonable discretion, shall determine necessary or
appropriate, subject to any requirements of state or federal law; provided,
however, that all appraisal reports obtained by the Partnership, whether in
connection with the acquisition of the Partnership Properties or otherwise,
shall be retained by the Partnership for at least five (5) years from the date
thereof.
(b) The Limited Partners shall have the right, at reasonable times
and at the Limited Partners' own expense, but only upon twenty (20) days prior
written notice to the Managing General Partner in accordance with Section
16.2, and only for a valid business purpose related to the conduct of the
Partnership's business, (i) to have true and full information regarding the
status of the business and financial condition of the Partnership; (ii) to
inspect and copy the books of the Partnership and other reasonably available
records and information concerning the operation of the Partnership, including
copies of any appraisal reports described in Section 10.2(a) and copies of the
federal, state and local income tax returns of the Partnership; (iii) to have
a current list of the name and last known business, residence or mailing
address of each Partner; (iv) to have true and full information regarding the
amount of cash and a description and statement of the Carrying Value of any
property or services contributed by any Partner to the Partnership and the
date upon which each Partner became a Partner; and (v) to have a copy of this
Agreement, the Certificate of Limited Partnership and all amendments or
certificates of amendment, as the case may be, thereto, together with copies
of any powers of attorney pursuant to which any such amendment or certificate
of amendment has been executed.
(c) Anything in this Section 10.2 to the contrary notwithstanding, the
Managing General Partner, in its sole and absolute discretion, may refuse the
Limited Partners access to any information, records, documents or data it
determines to be confidential, including, without limitation, any records
relating to the sales or revenues or projected sales or revenues of one or more
specific BK Restaurants, information related to the financial condition or
circumstances of any BKC Franchisee or BKC's relationship with any BKC
Franchisee and any other information provided to the Partnership by BKC and
specifically designated by BKC, in its reasonable discretion, to be confidential
and/or proprietary.
10.3. FISCAL YEAR.
The Fiscal Year of the Partnership for financial and federal, state and
local income tax purposes initially shall be the calendar year. The Managing
General Partner shall have authority to change the beginning and ending dates of
the Fiscal Year if the Managing General Partner, in its sole and absolute
discretion, subject to approval by the Internal Revenue Service, shall
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determine such change to be necessary or appropriate to the business of the
Partnership, and shall give written notice of any such change to the Limited
Partners within thirty (30) days after the occurrence thereof.
10.4. FINANCIAL STATEMENT AND INFORMATION.
(a) All financial statements shall be accurate and complete in all
material respects, shall present fairly the financial position and operating
results of the Partnership and shall be prepared on the accrual basis as
provided in Section 10.2 for each Fiscal Year of the Partnership during the term
of this Agreement.
(b) No later than forty-five (45) days after the end of each fiscal
quarter of each Fiscal Year (except the last fiscal quarter of each Fiscal
Year), commencing with the fiscal quarter ending June 30, 1986, the Managing
General Partner shall prepare and deliver to the Limited Partners an unaudited
statement of income for the Partnership for such fiscal quarter, an unaudited
statement of changes in cash flows for the period between the end of the most
recent Fiscal Year and the end of such fiscal quarter and an unaudited balance
sheet of the Partnership dated as of the end of such fiscal quarter, in each
case prepared in accordance with generally accepted accounting principles,
together with a statement setting forth any transactions between the Partnership
and any of the General Partners or any Affiliate thereof, the amount of any
fees, commissions, compensation and other remuneration paid or accrued to any of
the General Partners or any Affiliate thereof and a description of any services
rendered to the Partnership therefor, any other information required by Form
10-Q under the Exchange Act and such other information (financial or otherwise)
as the Managing General Partner, in its discretion, shall deem necessary or
appropriate.
(c) No later than ninety (90) days after the end of each Fiscal Year
during the term of this Agreement, the Managing General Partner shall prepare
and deliver to the Limited Partners: (i) a balance sheet, together with
statements of income, Partners' equity and changes in cash flows for the
Partnership during such Fiscal Year, which financial statements shall be audited
by the Auditing Firm (such financial statements to contain a report of the
Auditing Firm which shall include: (A) a statement that an audit of such
financial statements has been made in accordance with generally accepted
auditing standards and that such financial statements are in conformity with
generally accepted accounting principles; (B) a statement of the opinion of the
Auditing Firm with respect to the financial statements and the accounting
principles and practices reflected therein and in regard to the consistency of
the application of such accounting principles; and (C) an identification of any
matters reflected in such financial statements to which the Auditing Firm takes
exception); (ii) a report summarizing any transactions between the Partnership
and any of the General Partners or any Affiliate thereof, the amount of any
fees, commissions, compensation and other remuneration (including, without
limitation, reimbursements of expenses pursuant to Section 9.3) paid or accrued
by the Partnership for such Fiscal Year to the General Partners and any
Affiliates thereof, and the services rendered to the Partnership in connection
therewith; (iii) a report of the activities of the Partnership during the Fiscal
Year; and (iv) a statement (which statement need not be audited) showing any
Cash Flow
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and any Net Proceeds of a Capital Transaction distributed or to be distributed
to the Partners in respect of such Fiscal Year.
(d) The Managing General Partner shall provide to the Limited Partners
such other reports and information concerning the business and affairs of the
Partnership (i) as the Managing General Partner, in its sole and absolute
discretion, may deem necessary or appropriate, or (ii) to the extent not
provided for in Section 10.4(b) or (c) as may deem necessary or appropriate by
the Delaware RULPA or by any other law or any regulation of any regulatory body
applicable to the Partnership.
(e) The Managing General Partner shall provide any of the reports or
other information referred to in this Section 10.4 to such federal, state or
local governments, governmental agencies or other regulatory entities as the
Managing General Partner, in its sole and absolute discretion, may deem
necessary or appropriate.
10.5. ACCOUNTING DECISIONS.
All decisions as to accounting matters, except as specifically provided
to the contrary herein, shall be made by the Managing General Partner.
10.6. WHERE MAINTAINED.
The books, accounts and records of the Partnership at all times shall be
maintained at the Partnership's principal office or, at the option of the
Managing General Partner, at the principal place of business of the Managing
General Partner.
10.7. PREPARATION OF TAX RETURNS.
The Managing General Partner, at the expense of the Partnership, shall
arrange for the preparation and timely filing of all returns of the Partnership
showing all income, gains, deductions and losses necessary for federal and state
income tax and shall furnish to the Limited Partners within seventy-five (75)
days of the close of the Fiscal Year the tax information reasonably required for
federal and state income tax reporting purposes. The classification,
realization and recognition of income, gains, losses and deductions, and other
items of the Partnership shall be on the accrual method of accounting for
federal income tax purposes.
10.8. TAX ELECTIONS.
Except as otherwise specifically provided herein, the Managing General
Partner shall, in its sole and absolute discretion, determine whether to make
any available election (including, without limitation, the elections provided
for in Sections 48(q)(4), 168 and 754 of the Code) on behalf of the Partnership.
The Managing General Partner shall have the right to seek to revoke any such
election upon the Managing General Partner's determination that such revocation
is in the interests of limited partners and stockholders of the Limited
Partners; provided that the
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Managing General Partner shall not seek to revoke any such election unless the
Managing General Partner has received an Opinion of Independent Counsel to the
effect that such revocation would not cause (a) the loss of limited liability
of the Limited Partners under this Agreement or of the limited partners of the
MLP under the Investors Partnership Agreement, or (b) the Partnership or the
MLP to be treated as an association taxable as a corporation for federal
income tax purposes.
10.9. TAX CONTROVERSIES.
Subject to the provisions hereof, the Managing General Partner is
designated as the "tax matters partner" (as defined in the Code) of the
Partnership and is authorized to and required to represent the Partnership (at
the expense of the Partnership) in connection with all examinations of the
affairs of the Partnership by any federal, state or local tax authorities,
including any resulting administrative and judicial proceedings, and to expend
funds of the Partnership for professional services and costs associated
therewith. Each Partner agrees to cooperate with the Managing General Partner
and to do or refrain from doing any or all things reasonably required by the
Managing General Partner in connection with the conduct of all such proceeding.
10.10. ORGANIZATIONAL EXPENSES.
The Partnership shall elect to deduct expenses considered incurred in
organizing the Partnership ratably over a sixty-month period as provided in
Section 709 of the Code.
10.11. TAXATION AS A PARTNERSHIP.
No election shall be made by the Partnership, the General Partners or
the Limited Partners to be excluded from the application of any of the
provisions of Subchapter K, Chapter I of Subtitle A of the Code or from an
similar provisions of any state tax law.
10.12. QUALIFICATION AS A REIT.
In the event that the Managing General Partner at any time shall
determine that either the Partnership or the MLP does not qualify, or no
longer will qualify, as a partnership for federal income tax purpose, then the
Managing General Partner shall have the right, but not the obligation, to take
any such action as it, in its sole and absolute discretion, determines to be
in the interests of the MLP in connection therewith or as a result thereof,
including, without limitation to cause the Partnership and the MLP to be
reorganized so as to qualify as a "real estate investment trust" within the
meaning of Section 856 of the Code.
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ARTICLE XI
TRANSFER OF INTERESTS
11.1. TRANSFER.
(a) The term "transfer," when used in this Article XI with respect
to a Partnership Interest, shall include any sale, assignment, gift, pledge,
hypothecation, mortgage, exchange or other disposition.
(b) No Partnership Interest shall be transferred in whole or in
part except in accordance with the terms and conditions set forth in this
Article XI. Any transfer or purported transfer of any Partnership Interest
not made in accordance with this Article XI shall be null and void.
11.2. TRANSFERS OF INTERESTS OF GENERAL PARTNERS.
(a) If a General Partner desires to sell or transfer all or any
portion of such General Partner's Partnership Interest as a General Partner
to a Person who is not a General Partner, such transfer shall be permitted if
(and only if):
(i) such transfer and the admission of the transferee as a
general partner of the Partnership is approved by the Limited Partners,
unless the transferee is (A) an Affiliate of the transferring General
Partner or (B) a Limited Partner or an Affiliate of a Limited Partner,
in which case no such approval of the Limited Partners shall be
required; and
(ii) the Partnership receives an Opinion of Independent Counsel
that such transfer and admission (A) would not cause the loss of limited
liability of the Limited Partners under this Agreement or the limited
partners of the MLP under the Investors Partnership Agreement, and (B)
would not cause the Partnership to be treated as an association taxable
as a corporation for federal income tax purposes.
(b) Neither Section 11.2(a) nor any other provision of this Agreement
shall be construed to prevent:
(i) the transfer by any corporate General Partner of such
corporate General Partner's Partnership Interest as a General Partner
upon its merger or consolidation with another Person or the transfer by
such General Partner of all or substantially all of its assets to
another Person, and the assumption of the rights and duties of such a
corporate General Partner by such Person, provided such Person furnishes
to the Partnership an Opinion of Independent Counsel to the effect that
such merger, consolidation, transfer or assumption (A) would not cause
the loss of limited liability of the Limited Partners under this
Agreement or the limited partners of the MLP under the Investors
Partnership
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Agreement, and (B) would not cause the Partnership to be treated as
an association taxable as a corporation for federal income tax purposes;
(ii) the transfer by a General Partner of all or any part of its
interest in items of Partnership income, gains, losses, deduction,
credits, distributions or surplus; or
(iii) a General Partner's mortgaging, pledging, hypothecating or
granting a security interest in all or any part of its Partnership
Interest as a General Partner as collateral for a loan or loans.
11.3. TRANSFER OF INTEREST OF LIMITED PARTNERS.
(a) Except to the extent expressly permitted in Sections 11.3(b),
11.3(c), and 11.3(d) or in connection with the exercise of an Exchange Right
pursuant to Section 5.4, a Limited Partner may not transfer all or any
portion of its Partnership Interest, or any of such Limited Partner's
economic rights as a Limited Partner, without the prior written consent of
the Managing General Partner. Any transfer otherwise permitted under Section
11.3(b) or 11.3(c) shall be subject to the conditions set forth in Sections
11.3(d), 11.3(e), and 11.3(f), and all permitted transfers shall be subject
to Section 11.4.
(b) If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
(c) A Limited Partner (other than the REIT) may transfer, with or
without the consent of the Managing General Partner, all or a portion of his
Partnership Units (i) in the case of a Limited Partner who is an individual,
to a member of his Immediate Family, any trust formed for the benefit of
himself and/or members of his Immediate Family, or any partnership, limited
liability company, joint venture, corporation or other business entity
comprised only of himself and/or members of his Immediate Family and entities
the ownership interests in which are owned by or for the benefit of himself
and/or members of his Immediate Family, (ii) in the case of a Limited Partner
which is a trust, to the beneficiaries of such trust, (iii) in the case of a
Limited Partner which is a partnership, limited liability company, joint
venture, corporation or other business entity to which Partnership Units were
transferred pursuant to (i) above, to its partners, owners or stockholders,
as the case may be, who are members of the Immediate Family of or are
actually the Person(s) who transferred Partnership Units to it pursuant to
(i) above, (iv) in the case of a Limited Partner which is a partnership,
limited liability company, joint venture, corporation or other business
entity, to its partners, owners or stockholders, as the case may be, or the
Persons owning the beneficial interests in any of its partners, owners or
stockholders which are entities, (v) pursuant to a gift or other transfer
without consideration, (vi) pursuant to the applicable laws of descent or
distribution, (vii) to another Limited Partner, and (viii) pursuant to
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a grant of security interest or other encumbrance affected in a BONA FIDE
transaction or as a result of the exercise of remedies related thereto,
subject to the provisions of Section 11.3(f). A trust or other entity will
be considered formed "for the benefit" of a Partner's Immediate Family even
though some other Person has a remainder interest under or with respect to
such trust or other entity.
(d) The Managing General Partner may prohibit any transfer of
Partnership Units by a Limited Partner if, in the opinion of legal counsel to
the Partnership, such transfer would require filing of a registration
statement under the Securities Act or would otherwise violate any federal,
state or foreign securities laws or regulations applicable to the Partnership
or the Partnership Units.
(e) No transfer of Partnership Units by a Limited Partner may be
made to any Person if (i) in the opinion of legal counsel for the
Partnership, it would result in the Partnership being treated as an
association taxable as a corporation for federal income tax purposes or would
result in a termination of the Partnership for federal income tax purposes,
(ii) in the opinion of legal counsel for Partnership it would adversely
affect the ability of the REIT to continue to qualify as a REIT or subject to
the General Partner to any additional taxes under Section 857 or Section 4981
of the Code, or (iii) such transfer is effectuated through an "established
securities market" or a "secondary market (or the substantial equivalent
thereof)" within the meaning of Section 7704 of the Code.
(f) No pledge or transfer of any Partnership Units may be made to
a lender to the Partnership or any Person who is related (within the meaning
of Section 1.752-4(b) of the Treasury Regulations) to any lender to the
Partnership whose loan constitutes a nonrecourse liability, without the
consent of the General Partner, in its discretion, provided that as a
condition to such consent the lender will be required to enter into an
arrangement with the Partnership and the General Partner to exchange or
redeem for the REIT Stock Amount any Partnership Units in which a security
interest is held simultaneously with the time at which such lender would be
deemed to be a partner in the Partnership for purposes of allocating
liabilities to such lender under Section 752 of the Code.
11.4. SUBSTITUTED LIMITED PARTNERS.
(a) No Limited Partner shall have the right to substitute a
transferee as a Limited Partner in its place (whether or not the transfer of
the Limited Partner's Interest is permitted under Section 11.3). The
Managing General Partner shall, however, have the right to consent to the
admission of a transferee of the interest of a Limited Partner pursuant to
this Section 11.4 as a Substituted Limited Partner, which consent may be
given or withheld by the General Partner in its sole and absolute discretion
and for any reason or no reason. The Managing General Partner's failure or
refusal to permit a transferee of any such interests to become a Substituted
Limited Partner shall not give rise to any cause of action against the
Partnership or any Partner.
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(b) A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article 11 shall have all the rights and
powers and be subject to all the restrictions and liabilities of a Limited
Partner under this Agreement. The admission of any transferee as a
Substituted Limited Partner shall be subject to the transferee executing and
delivering to the Partnership an acceptance of all of the terms and
conditions of this Agreement (including without limitation, the provisions of
Section 2.5 and such other documents or instruments as may be required to
effect the admission).
(c) Upon the admission of a Substituted Limited Partner, the
General Partner shall amend EXHIBIT A to reflect the name, address, number of
Partnership Units, and Percentage Interest of such Substituted Limited
Partner and to eliminate or adjust, if necessary, the name, address and
interest of the predecessor of such Substituted Limited Partner.
11.5. ASSIGNEES.
If the General Partners in their sole and absolute discretion, do not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive
distributions from the Partnership and the share of net income, net losses and
any other items of gain, loss, deduction and credit of the Partnership
attributable to the Partnership Units assigned to such transferee, and shall
have the rights granted to the Limited Partners under Section 5.4, but shall not
be deemed to be a holder of Partnership Units for any other purpose under this
Agreement, and shall not be entitled to vote such Partnership Units in any
matter presented to the Limited Partners for a vote (such Partnership Units
being deemed to have been voted on such matter in the same proportion as all
other Partnership Units held by Limited Partners are voted). In the event any
such transferee desires to make a further assignment of any such Partnership
Units, such transferee shall be subject to all the provisions of this Article XI
to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of Partnership Units.
11.6. GENERAL PROVISIONS.
(a) No Limited Partner may withdraw from the Partnership other
than as a result of a permitted transfer of all of such Limited Partner's
Partnership Units in accordance with this Article XI or pursuant to the
exchange of all of its Partnership Units under Section 5.4.
(b) Any Limited Partner who shall transfer all of his Partnership
Units in a transfer permitted pursuant to this Article XI shall cease to be a
Limited Partner upon the admission of all Assignees of such Partnership Units
as Substitute Limited Partners. Similarly, any Limited Partner who shall
transfer all of his Partnership Units pursuant to an exchange of all of his
Partnership Units under Section 5.4 shall cease to be a Limited Partner.
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(c) Transfers pursuant to this Article XI may only be made on the
first day of a fiscal quarter of the Partnership, unless the General Partners
otherwise agree.
(d) If any Partnership Interest is transferred or assigned in
compliance with the provisions of this Article XI or exchanged pursuant to
Section 5.4, on any day other than the first day of a Fiscal Year, then net
income, net losses, each item thereof and all other items attributable to
such interest for such Fiscal Year shall be divided and allocated between the
transferor Partner and the transferee Partner by taking into account their
varying interests during the fiscal year in accordance with Section 706(d) of
the Code, using the interim closing of the books method (unless the Managing
General Partner, in its sole and absolute discretion, elects to adopt a
daily, weekly or monthly proration method, in which event net income, net
losses and each item thereof for such Fiscal Year shall be prorated based
upon the applicable period selected by the Managing General Partner). Solely
for purposes of making such allocations, each of such items for the calendar
month in which the transfer or assignment occurs shall be allocated to the
transferee Partner, and none of such items for the calendar month in which a
redemption occurs shall be allocated to the Exchanging Partner. All
distributions of Cash Flow attributable to such Partnership Unit with respect
to which the payment date (in accordance with Section 6.5(b)) is before the
date of such transfer, assignment or redemption shall be made to the
transferor Partner or the Exchanging Partner, as the case may be, and, in the
case of a transfer or assignment other than a redemption, all distributions
of Cash Flow thereafter attributable to such Partnership Unit shall be made
to the transferee Partner.
ARTICLE XII
ADMISSION OF SUCCESSOR GENERAL PARTNERS
12.1. ADMISSION OF SUCCESSOR GENERAL PARTNERS.
A successor General Partner selected or designated pursuant to
Section 13.1 or 13.2 or the transferee of all or any portion of the
Partnership Interest of a General Partner pursuant to Section 11.2 shall be
admitted to the Partnership as a General Partner (in the place, in whole or
in part, of the transferor or former General Partner), effective as of the
date that an amendment of the Certificate of Limited Partnership, adding the
name of such successor General Partner and other required information, is
recorded pursuant to Section 2.1 (which date, in the event the successor
General Partner is in the place in whole of the transferor or former General
Partner, shall be contemporaneous with the withdrawal of such transferor or
former General Partner), and upon receipt by the transferor or former General
Partner of all of the following:
(a) the successor General Partner's acceptance of, and agreement
to be bound by, all of the terms and provisions of this Agreement, in form
and substance satisfactory to the transferor or former General Partner;
(b) evidence of the authority of such successor General Partner to
become a General Partner and to be bound by all of the terms and conditions
of this Agreement;
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(c) the written agreement of the successor General Partner to
continue the business of the Partnership in accordance with the terms and
provisions of this Agreement; and
(d) such other documents or instruments as may be required in
order to effect the admission of the successor General Partner as a General
Partner under this agreement.
12.2. ADMISSION OF ADDITIONAL GENERAL PARTNERS.
At the consummation of any issuance of additional Partnership Units
pursuant to Section 5.4, the Persons acquiring such Partnership Units may, in
the sole and absolute discretion of the Managing General Partner, be admitted to
the Partnership as Additional Limited Partners upon furnishing to the Managing
General Partner an acceptance of, and an agreement to be bound by, all of the
terms and provisions of this Agreement, in form and substance satisfactory to
the Managing General Partner, and such other documents or instruments as may be
required in order to effect such admission, and such admission shall be
effective when the Managing General Partner determines in its sole and absolute
discretion and such admission is shown on the books and records of the
Partnership.
ARTICLE XIII
WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS
13.1. WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS.
A General Partner may withdraw from the Partnership or be removed as a
General Partner without withdrawing as, or being removed as, a general partner
of the MLP. A General Partner shall withdraw from the Partnership or be removed
as a General Partner if the General Partner withdraws as, or is removed as, a
general partner of the MLP. Such withdrawal or removal shall be effective at
the time the Departing General Partner notifies the other General Partners of
such withdrawal or the Departing General Partner is notified by the Partnership
of such removal or at the same time as is the General Partner's withdrawal or
removal as a general partner of the MLP, as applicable. Except as provided
below, the Managing General Partner shall not withdraw from the Partnership
unless (i) the Managing General Partner shall have transferred all of its
Partnership Interest as a General Partner in accordance with Section 11.2; or
(ii) such withdrawal shall have been approved by a Majority Vote of the Limited
Partners. In the event QSV withdraws or is removed as a General Partner or as a
general partner of the MLP, and, in either case, elects to convert its
Partnership Interest for the Acquisition Price as provided in Section 9.1, the
REIT or an Affiliate of the REIT, as designated by the REIT, shall automatically
succeed the Departing Managing General Partner, provided that if the REIT or any
Affiliate thereof shall decline to serve as a successor General Partner, then a
successor General Partner shall be selected upon the affirmative vote of all
Limited Partners. If no such successor General Partner is selected by the
Limited Partners and the Partnership has no remaining General Partner, then the
Partnership shall be dissolved pursuant to Section 14.2.
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13.2. AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP.
This Agreement and the Certificate of the Limited Partnership shall be
amended to reflect the withdrawal, removal or succession of a General Partner.
13.3. INTEREST OF DEPARTING PARTNER AND SUCCESSOR.
(a) Except as provided in Section 9.1 with respect to QSV, upon
the withdrawal (other than by reason of a transfer pursuant to Section 11.2)
or removal of a Departing Partner, such Departing Partner shall contribute
its Partnership Interest in the Partnership to the MLP and shall become a
limited partner in the MLP, receiving in connection therewith, the number of
Units determined by dividing (i) the "fair market value" of such General
Partner's Partnership Interest as a General Partner herein, determined as of
the effective date of its departure, by (ii) the Unit Price determined as of
the effective date of its departure.
(b) For purposes of this Section 13.3, the "fair market value" of
the Departing Partner's Partnership Interest as a General Partner shall be
the amount that would be distributed to the Departing Partner pursuant to
Section 6.7 if the Partnership Assets were sold for cash in orderly
liquidation of the Partnership Assets commencing on the effective date of the
Departing Partner's departure, with such liquidation being effected through
arm's-length sales between informed and willing purchasers under no
compulsion to buy and informed and willing sellers under no compulsion to
sell, with the proceeds from such hypothetical sales to be discounted (at a
rate equal to the interest rate on U.S. Treasury obligations with a term of
one (1) year issued on the date nearest the effective date of the Departing
Partner's departure) to the effective date of the Departing Partner's
departure to reflect the time period reasonably anticipated to be necessary
to consummate such sales, as such "fair market value" is agreed upon by the
Departing Partner and the Partnership within thirty (30) days after the
effective date of the Departing Partner's departure or, in the absence of
such an agreement, as determined by the Appraiser. The Appraiser shall use
such method or methods of valuation as the Appraiser determines most
accurately reflect the value of the Partnership Properties under the
circumstances provided that for a period of five (5) years from
_________________, 199___, the Appraiser shall use the "capitalization of
income" method (applying such capitalization rate and other assumptions and
adjustments as the Appraiser determines appropriate under the circumstances)
unless the Appraiser determines that use of such method would result in an
understatement of the value of the Partnership Properties. Any appraisal
pursuit to this Section 13.3(b) shall be completed as soon a practical after
the Appraiser is notified of the requirement for such appraisal, and in any
event within forty-five (45) days after such notice, and the report of the
Appraiser setting forth the appraised fair market value of Partnership Assets
as of such date shall be final and binding upon the Departing Partner and the
Partnership. The amount that would be distributed to the Departing Partner
pursuant to Section 6.7 if the Partnership Assets and the assets of the MLP
were so sold shall be determined by the Accounting Firm within fifteen (15)
days after the report of the Appraiser is received by the Partnership. The
closing of the conversion of the Departing Partner's Partnership Interest
into Units pursuant to Section 13.3(a) shall occur within ten (10) days after
the date on which the
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Accounting Firm shall have determined the amount distributable to the Departing
Partner pursuant to Section 6.7 for purposes of this Section 13.3(b).
(c) At any time after the departure of a Departing Partner, upon
the request of such Departing Partner, the MLP shall, so long as the Units
are still listed on the New York Stock Exchange, Inc., file with the
Commission as promptly as practicable after receiving such request, and shall
use its best efforts to cause to become effective, a registration statement
under the Securities Act registering the offering and sale of the Units owned
by the Departing Partner or any Affiliate at the time of such Departing
Partner's departure, including any Units that were received by the Departing
Partner pursuant to Section 13.3(a) and are included in such request,
provided that the MLP shall be required to file no more than two (2) such
registration statements at the request of any one Departing Partner. In
connection with any registration pursuant to the preceding sentence, the MLP
promptly shall prepare and file such documents as may be necessary to
register or qualify the Units subject to such registration under the
securities laws of such states as the Departing Partner shall reasonably
request and do any and all other acts and things that may reasonably be
necessary or advisable to enable such Departing Partner to consummate a
public sale of such Units in such states. The first registration effected
under this Section 13.3(c) shall be effected at the expense of the MLP,
except for underwriting discounts, fees and commissions and fees and expenses
of legal counsel for the Departing Partner or its affiliates, and any
subsequent registrations shall be at the expense of the Departing Partner.
Any registration statement filed pursuant hereto shall be continued in effect
for a period of not less ninety (90) days following its effective date. In
the event of any registration of any Units pursuant to this Section 13.3(c),
the MLP shall indemnify the Departing Partner and its Affiliates and any
underwriter engaged in connection with such registration and each other
person, if any, who controls any such underwriter within the meaning of the
Securities Act, in the manner and to the extent set forth in Section 7.14(d)
of the Investors Partnership Agreement.
(d) Any successor General Partner other than by reason of the
transfer of a Partnership Interest shall, at the effective date of its
admission to the Partnership as a General Partner, contribute to the capital
of the Partnership cash in an amount equal to (i) the product of the
aggregate number of shares of Common Stock and Units outstanding immediately
prior to the effective date of such successor General Partner's admission
(but after giving effect to the conversion described in Section 13.3(a)),
multiplied by the Share Price or Unit Price, as applicable, determined as of
the effective date of such successor General Partner's admission, multiplied
by (ii) a fraction, the numerator of which shall be the excess (the
"Percentage Interest Excess") of 1.00% over the Percentage Interest of any
remaining General Partners, and the denominator of which shall be 99.00%.
Thereafter, such successor General Partner shall, notwithstanding any other
provision of this Agreement, be entitled to the Percentage Interest Excess of
all Partnership allocations and distributions.
(e) If, at the time of the Departing Partner's departure, the
Partnership is indebted to the Departing Partner under this Agreement or any
other instrument or agreement for funds advanced, properties sold, services
rendered or costs and expenses incurred by the Departing Partner (including,
without limitation, any amounts advanced pursuant to the revolving line of
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credit described in Section 7.13), the Partnership shall, within sixty (60)
days after the effective date of such Departing Partner's departure, pay to
the Departing Partner the full amount of such indebtedness. The successor to
the Departing Partner shall assume all obligations theretofore incurred by
the Departing Partner, as General Partner of the Partnership, and the
Partnership and such successor shall take all such action as shall be
necessary to terminate any guarantees of the Departing Partner, and any of
its Affiliates, of any obligations of the Partnership. If, for whatever
reason, the creditors of the Partnership shall not consent to such
termination of any such guarantees, the successor to the Departing Partner
and the Partnership shall be required to indemnify the Departing Partner for
any liabilities and expenses incurred by the Departing Partner on account of
such guarantees.
ARTICLE XIV
DISSOLUTION AND LIQUIDATION
14.1. NO DISSOLUTION.
The Partnership shall not be dissolved by the admission of additional
Limited Partners or Substituted Limited Partners or by the admission of
additional General Partners or Substituted General Partners in accordance with
the terms of this Agreement.
14.2. EVENTS CAUSING DISSOLUTION.
The Partnership shall be dissolved and its affairs wound up upon the
occurrence of any of the following events:
(a) the expiration of the term of the Partnership, as provided in
Section 4.1;
(b) the withdrawal of the Managing General Partner or the
occurrence of any other event that results in the Managing General Partner
ceasing to be the Managing General Partner (other than by reason of a
transfer pursuant to Section 11.2 or a withdrawal occurring upon or after, or
a removal effective upon or after, selection of a successor pursuant to
Section 13.1);
(c) the "Bankruptcy" (as hereinafter defined) of the Managing General
Partner;
(d) a written determination by the Managing General Partner that
projected future revenues of the Partnership will be insufficient to enable
payment of projected Partnership costs and expenses or, if sufficient, will
be such that continued operation of the Partnership is not in the best
interests of the Partners;
(e) an election by the Limited Partners to terminate, dissolve or
liquidate the Partnership;
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(f) any attempted transfer, sale, assignment, gift, pledge,
hypothecation, mortgage, exchange or other disposition by the Limited
Partners of their Partnership Interests; or
(g) the occurrence of any other event that, under the Delaware
RULPA, would cause the dissolution of the Partnership or that would make it
unlawful for the business of the Partnership to be continued.
For purposes of this Agreement, the term "Bankruptcy" shall mean, and
the Managing General Partner shall be deemed "Bankrupt" upon, (i) the entry
of a decree or order for relief of the Managing General Partner by a court of
competent jurisdiction in any involuntary case involving the Managing General
Partner under any bankruptcy, insolvency or other similar law now or
hereafter in effect; (ii) the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or other similar agent for the
Managing General Partner or for any substantial part of the Managing General
Partner's assets or property; (iii) the ordering of the winding up or
liquidation of the Managing General Partner's affairs; (iv) the filing with
respect to the Managing General Partner of a petition in any such involuntary
bankruptcy case, which petition remains undismissed for a period of ninety
(90) days or which is dismissed or suspended pursuant to Section 305 of the
Federal Bankruptcy Code (or any corresponding provision of any future United
States bankruptcy law); (v) the commencement by the Managing General Partner
of a voluntary case under any bankruptcy, insolvency or other similar law now
or hereafter in effect; (vi) the consent by the Managing General Partner to
the entry of an order for relief in a involuntary case under any such law or
to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar agent for the
Managing General Partner or for any substantial part of the Managing General
Partner's assets or property; (vii) the making by the Managing General
Partner of any general assignment for the benefit of creditors; or (viii) the
failure by the Managing General Partner generally to pay its debts as such
debts become due.
14.3. RIGHT TO CONTINUE BUSINESS OF PARTNERSHIP.
Upon an event described in Section 14.2(b), 14.2(c) or 14.2(g) (but
not an event described in Section 14.2(g) that makes it unlawful for the
business of the Partnership to be continued), the Partnership thereafter
shall be dissolved and liquidated unless, within ninety (90) days after the
event described in any of such Sections, an election to reconstitute and
continue the business of the Partnership shall be made in writing by the
Limited Partners. If such an election to continue the Partnership is made,
then:
(a) the Limited Partners shall select a successor Managing General
Partner;
(b) the Partnership shall continue until another event causing
dissolution in accordance with this Article XIV shall occur;
(c) the Partnership Interest of the former General Partner shall
be subject to disposition, at the option of the former General Partner, in
the manner provided in Section 13.3(a)
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(which option shall be exercised contemporaneously with the selection of the
successor General Partner); and
(d) all necessary steps shall be taken to amend this Agreement and
the Certificate of Limited Partnership to reflect the reconstitution and
continuation of the business of the Partnership.
14.4. DISSOLUTION.
Except as otherwise provided in Section 14.3, upon the dissolution of
the Partnership, the Certificate of Limited Partnership shall be canceled in
accordance with the provisions of the Delaware RULPA, and the Managing
General Partner (or, if the dissolution is caused by the withdrawal,
bankruptcy, dissolution or removal of the Managing General Partner, then the
Person designated as Liquidating Trustee in Section 14.5 hereof) promptly
shall notify the Partners of such dissolution.
14.5. LIQUIDATION.
Upon dissolution of the Partnership, unless an election to continue the
business of the Partnership is made pursuant to Section 14.3, the Managing
General Partner, or, in the event the dissolution is caused by an event
described in Section 14.2(b) or 14.2(c), a Person or Persons selected by the
Limited Partners, shall be the Liquidating Trustee. The Liquidating Trustee
shall proceed without any unnecessary delay to sell or otherwise liquidate the
Partnership Assets and shall apply and distribute the proceeds of such sale or
liquidation in the following order of priority, unless otherwise required by
mandatory provisions of applicable law:
(a) to pay (or to make provision for the payment of) all creditors
of the Partnership, including current and former Partners, in the order of
priority provided by law other than obligations to make distributions to
current and former Partners;
(b) to pay, on a pro rata basis, all current and former Partners
with respect to obligations to make distributions thereto; and
(c) After the payment (or the provision for payment) of all debts,
liabilities and obligations of the Partnership, including, without
limitation, the payment of expenses of liquidation of the Partnership, and
the establishment of a reasonable reserve (including an amount estimated by
the Liquidating Trustee to be sufficient to pay an amount reasonably
anticipated to be required to be paid pursuant to Section 7.10 hereof), to
the Partners in accordance with Section 6.7.
The Liquidating Trustee, if other than the Managing General Partner,
shall be entitled to receive such compensation for its services as
Liquidating Trustee as may be approved by the Limited Partners. The
Liquidating Trustee shall agree not to resign at any time without sixty (60)
days prior written notice and, if other than the Managing General Partner,
may be removed at
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any time, with or without cause, by written notice of removal approved by the
Limited Partners. Upon dissolution, removal or resignation of the Liquidating
Trustee, a successor and substitute Liquidating Trustee (who shall have and
succeed to all rights, powers and duties of the original Liquidating Trustee)
shall be selected within ninety (90) days thereafter by the Limited Partners.
The right to appoint a successor or substitute Liquidating Trustee in the
manner provided herein shall be recurring and continuing for so long as the
functions and services of the Liquidating Trustee are authorized to continue
under the provisions hereof, and every reference herein to the Liquidating
Trustee will be deemed to refer also to any such successor or substitute
Liquidating Trustee appointed in the manner herein provided. Except as
expressly provided in this Article XIV, the Liquidating Trustee appointed in
the manner provided herein shall have and may exercise, without further
authorization or consent of any of the parties hereto, all of the powers
conferred upon the Managing General Partner under the terms of this Agreement
(but subject to all of the applicable limitations, contractual and otherwise,
upon the exercise of such powers) to the extent necessary or desirable in the
good faith judgment of the Liquidating Trustee to carry out the duties and
functions of the Liquidating Trustee hereunder (including the establishment
of reserves for liabilities that are contingent or uncertain in amount) for
and during such period of time as shall be reasonably required in the good
faith judgment of the Liquidating Trustee to complete the winding up and
liquidation of the Partnership as provided for herein. In the event that no
Person is selected to be the Liquidating Trustee as herein provided within
one hundred twenty (120) days following the event of dissolution, or in the
event the Limited Partner fails to select a successor or substitute
Liquidating Trustee within the time periods set forth above, any Partner may
make application to a Court of Chancery of the State of Delaware to wind up
the affairs of the Partnership and, if deemed appropriate, to appoint a
Liquidating Trustee.
14.6. REASONABLE TIME FOR WINDING UP.
A reasonable time shall be allowed for the orderly winding up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 14.5 in order to minimize any losses otherwise attendant
upon such a winding up.
14.7. TERMINATION OF PARTNERSHIP.
Except as otherwise provided in this Agreement, the Partnership shall
terminate when all of the assets of the Partnership shall have been converted
into cash, the net proceeds therefrom, as well as any other liquid assets of the
Partnership, after payment of or due provision for all debts, liabilities and
obligations of the Partnership, shall have been distributed to the Partners as
provided for in Sections 6.7 and 14.5 and the Certificate of Limited Partnership
shall have been canceled in the manner required by the Delaware RULPA.
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ARTICLE XV
AMENDMENTS
15.1. AMENDMENTS TO BE ADOPTED SOLELY BY THE MANAGING GENERAL PARTNER.
The Managing General Partner, without the consent or approval at the
time of the Limited Partners, may amend any provision of this Agreement, and
execute, swear to, acknowledge, deliver, file and record all documents required
or desirable in connection therewith, to reflect:
(a) a change in the name of the Partnership or the location of the
principal place of business of the Partnership;
(b) the admission, substitution, termination or withdrawal of Partners
in accordance with this Agreement;
(c) additions to the obligations of the General Partners or surrender
any right or power granted to the General Partners or any Affiliate of the
General Partners for the benefit of the Limited Partners;
(d) the designations, rights, powers, duties and preferences of the
holders of any additional Partnership Interests issued pursuant to Section
5.2(a);
(e) a change that is necessary to qualify the Partnership as a limited
partnership or a partnership in which the Limited Partners have limited
liability under the laws of any state or that is necessary or advisable in the
opinion of the Managing General Partner to ensure that the Partnership will not
be treated as an association taxable as a corporation for federal income tax
purposes;
(f) a change that is (i) of an inconsequential nature and does not
adversely affect the Limited Partners in any material respect; (ii) necessary or
desirable to cure any ambiguity, to correct or supplement any provision herein
that would be inconsistent with any other provision herein or to make any other
provision with respect to matters or questions arising under this Agreement that
will not be inconsistent with the provision of this Agreement; (iii) necessary
or desirable to satisfy any requirements, conditions or guidelines contained in
any opinion, directive, order, ruling or regulation of any federal or state
agency or contained in any federal or state statute; (iv) necessary or desirable
to facilitate the trading of the Units, as contemplated in the Investor
Partnership Agreement, or the shares of Common Stock, or comply with any rule,
regulation guideline or requirement of any securities exchange on which the
Units or the shares of Common Stock are or will be listed for trading,
compliance with any of which the Managing General Partner deems to be in the
interests of the Partnership and the Limited Partners; (v) necessary to conform
this Agreement to any amendments made in the Investors Partnership Agreement in
accordance with the terms thereof; or (vi) required or contemplated by this
Agreement;
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(g) a change in any provision of this Agreement which requires any
action to be taken by or on behalf of the Managing General Partner or the
pursuant to the requirements of applicable Delaware law if the provisions of
applicable Delaware law are amended, modified or revoked so that the taking of
such action is no longer required;
(h) to reflect such changes as are reasonably necessary for any
Partner to maintain its status as a "qualified REIT subsidiary" within the
meaning of Section 856(i)(2) of the Code; or
(i) any other amendments similar to the foregoing.
The authority set forth in this Section 15.1 shall specifically include
the authority to make such amendments to this Agreement and to the Certificate
of Limited Partnership as the Managing General Partner deems necessary or
desirable in the event the Delaware RULPA is amended to eliminate or change any
provision now in effect. Without limiting the foregoing, the Limited Partners
shall, upon the request of the Managing General Partner, execute, swear to or
acknowledge any document determined by the Managing General Partner to be
required or desirable in connection with the foregoing. The Managing General
Partner shall provide notice to the Limited Partners when any action under this
Section 15.1 is taken.
15.2. AMENDMENT PROCEDURES.
Except as specifically provided in Sections 15.1 and 15.3, all
amendments to this Agreement shall be made solely in accordance with the
following procedures:
(a) Any amendments of this Agreement must be proposed either:
(i) by the Managing General Partner, by submitting the text of
the proposed amendment to all Limited Partners in writing; or
(ii) by Limited Partners owning (as Limited Partners and not as
Assignees) at least twenty-five percent (25%) of the total
Partnership Units owned by Limited Partners (as Limited Partners and
not as Assignees), by submitting their proposed amendment in writing
to the Managing General Partner. The Managing General Partners
shall, within sixty (60) days after the receipt of any such proposed
amendment, or as soon thereafter as is reasonably practicable, submit
the text of the proposed amendment to all Limited Partners. The
Managing General Partner may include in such submission its
recommendation as to the proposed amendment.
(b) If an amendment is proposed pursuant to this Section 15.2, the
Managing General Partner shall seek the written consent of the Limited Partners
to such amendment or shall call a meeting of the Limited Partners to consider
and vote on the proposed amendment, unless, in the opinion of Independent
Counsel, such proposed amendment would be illegal under Delaware law if adopted,
in which case the Managing General Partner shall not be required to take any
further action with respect thereto. For purposes of obtaining a written vote,
the Managing
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General Partner may require a response within a reasonable period of time, but
not less than fifteen (15) days, and failure to respond in such time shall
constitute a vote which is consistent with the Managing General Partner's
recommendation with respect to the proposal. A proposed amendment shall be
effective only if approved by the General Partners in writing and by a Majority
Vote of the Limited Partners, unless a greater percentage vote of the Limited
Partners is required by law or any other provision of this Agreement. The
Managing General Partner shall keep all Partners advised of the status of any
proposed amendment and shall notify all Partners upon final adoption or
rejection of any proposed amendment.
15.3. AMENDMENT RESTRICTIONS.
Notwithstanding Sections 15.1 and 15.2, this Agreement shall not be
amended without the consent of each Partner adversely affected if such
amendment would (a) convert a Limited Partner Interest into a General Partner
Interest; (b) modify the limited liability of a Limited Partner in a manner
adverse to such Limited Partner; (c) alter rights of the Partner to receive
distributions pursuant to Article VI or Article XIV (except as permitted
pursuant to Section 5.2 or 15.1(e)); (d) alter or modify the Exchange Right and
REIT Stock Amount as set forth in 5.4, and the related definitions, in a manner
adverse to such Partner; (e) cause the termination of the Partnership prior to
the time set forth in Article IV or Section 14.2; or (f) amend this Section
15.3. Further, no amendment may alter the restrictions on the General
Partner's authority set forth in Section 7.3(b) without the consent specified
in that section. Notwithstanding any other provision hereof, the General
Partner shall not amend Section 5.2(a), 7.6, 7.7 or 15.4 unless approved by the
Majority Vote of the Limited Partners, excluding Partnership Units held by the
REIT.
15.4. MEETINGS OF THE PARTNERS.
(a) Meetings of the Partners may be called by the General Partners and
shall be called upon the receipt by the General Partners of a written request by
Limited Partners (other than the REIT) holding twenty percent (20%) or more of
the Partnership Units. The request shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than ten (10) days nor more than sixty (60) days prior to the date of such
meeting. Partners may vote in person or by proxy at such meeting. Whenever the
vote or consent of the Partners is permitted or required under this Agreement,
such vote or consent may be given at a meeting of the Partners or may be given
in accordance with the procedure prescribed in Section 15.2(b). Except as
otherwise expressly provided int his Agreement, the Majority Vote of the Limited
Partners (including Partnership Units held by the REIT) shall control.
(b) Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement).
Such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
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the Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.
(c) Each Limited Partner may authorize any Person or Persons to act
for it by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the Limited Partner executing it,
such revocation to be effective upon the Partnership's receipt of written
notice of such revocation from the Limited Partner executing such proxy.
(d) Each meeting of the Partners shall be conducted by the General
Partner or such other Person as the Managing General Partner may appoint
pursuant to such rules for the conduct of the meeting as the Managing General
Partner or such other Person deems appropriate. Without limitation, meetings
of Partners may be conducted in the same manner as meetings of the stockholders
of the REIT and may be held at the same time, and as part of, meetings of the
stockholders of REIT.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1. ADDITIONAL ACTIONS AND DOCUMENTS.
Each of the Partners hereby agrees to take or cause to be taken such
further actions, to execute, acknowledge, deliver and file or cause to be
executed, acknowledged, delivered and filed such further documents and
instruments, and to use best efforts to obtain such consents as may be necessary
or as may be reasonably requested in order to fully effectuate the purposes,
terms and conditions of this Agreement, whether before, at or after the closing
of the transactions contemplated by this Agreement.
16.2. NOTICES.
All notices, demands, requests or other communications which may be or
are required to be given, served or sent by a Partner or the Partnership
pursuant to this Agreement shall be in writing, and shall be personally
delivered, mailed by first-class mail, postage prepaid, or transmitted by
facsimile, telegram or telex, addressed as follows:
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(a) If to the Managing General Partner:
QSV Properties, Inc.
Attn: Chairman or President
5310 Harvest Hill Road
Suite 270
Dallas, Texas 75230
Facsimile No.: (972) 490-9119
(b) If to the MLP:
U.S. Restaurant Properties Master L.P.
Attn: Managing General Partner
5310 Harvest Hill Road
Suite 270
Dallas, Texas 75230
Facsimile No.: (972) 490-9119
(c) If to the REIT:
U.S. Restaurant Properties, Inc.
Attn: Chief Executive Officer
5310 Harvest Hill Road
Suite 270
Dallas, Texas 75270
Facsimile No.: (972) 490-9119
(d) If to the Partnership:
U.S. Restaurant Properties Operating L.P.
Attn: Managing General Partner
5310 Harvest Hill Road
Suite 270
Dallas, Texas 75230
Facsimile No.: (972) 490-9119
Each Partner and the Partnership may designate by notice in writing a
new address to which any notice, demand, request or communication may
thereafter be so given, served or sent. Each notice, demand, request or
communication which shall be delivered, mailed or transmitted in the manner
described above shall be deemed to have been duly given when delivered in
person, sent by first class mail or transmitted by facsimile, telegram or telex.
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16.3. SEVERABILITY.
The invalidity of any one or more provisions hereof or of any other
agreement or instrument given pursuant to or in connection with this Agreement
shall not affect the remaining portions of this Agreement or any such other
agreement or instrument or any part thereof, all of which are inserted
conditionally on their being held valid in law; and in the event that one or
more of the provisions contained herein or therein should be invalid, or should
operate to render this Agreement or any such other agreement or instrument
invalid, this Agreement and such other agreements and instruments shall be
construed as if such invalid provisions had not been inserted.
16.4. SURVIVAL.
It is the express intention and agreement of the Partners that all
covenants, agreements, statements, representations, warranties and indemnities
made in this Agreement shall survive the execution and delivery of this
Agreement.
16.5. WAIVERS.
Neither the waiver by a Partner of a breach of or a default under any of
the provisions of this Agreement, nor the failure of a Partner, on one or more
occasions, to enforce any of the provisions of this Agreement or to exercise any
right, remedy or privilege hereunder shall thereafter be construed as a waiver
of any subsequent breach or default of a similar nature, or as a waiver of any
such provisions, rights, remedies or privileges hereunder.
16.6. EXERCISE OF RIGHTS.
No failure or delay on the part of a Partner or the Partnership in
exercising any right, power or privilege hereunder and no course of dealing
between the Partners or between a Partner and the Partnership shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
expressly provided are cumulative and not exclusive of any other rights or
remedies which a Partner or the Partnership would otherwise have at law or in
equity or otherwise.
16.7. BINDING EFFECT.
Subject to any provisions hereof restricting assignment, this Agreement
shall be binding upon and shall inure to the benefit of the Partners (and BKC
and its successors and assigns for purposes of Article VIII and Section 15.3)
and their respective heirs, devisees, executors, administrators, legal
representatives, successors and assigns.
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16.8. LIMITATION ON BENEFITS OF THIS AGREEMENT.
It is the explicit intention of the Partners that, with the exception of
the rights of BKC, its successors and assigns, in connection with Article VIII
and Section 15.3, no person or entity other than the Partners and the
Partnership is or shall be entitled to bring any action to enforce any provision
of this Agreement against any Partner or the Partnership, and that, except as
set forth in Section 8.1(b), the covenants, undertakings and agreements set
forth in this Agreement shall be solely for the benefit of, and shall be
enforceable only by, the Partners (or their respective successors and assigns as
permitted hereunder) and the Partnership.
16.9. LIMITATION TO PRESERVE REIT STATUS.
Notwithstanding anything else in this Agreement, to the extent that the
amount paid, credited, distributed or reimbursed by the Partnership to any REIT
Partner or its officers, directors, employees or agents, whether as a
reimbursement, fee, expense or indemnity (a "REIT Payment"), would constitute
gross income to the REIT Partner for purposes of Section 856(c)(2) or 856(c)(3)
of the Code, then, notwithstanding any other provision of this Agreement, the
amount of such REIT Payments, as selected by the General Partners in their
discretion from among items of potential distribution, reimbursement, fees,
expenses and indemnities, shall be reduced for any fiscal year of the
Partnership so that the REIT Payments, as so reduced, for or with respect to
such REIT Partner shall not exceed the lesser of:
(a) an amount equal to the excess, if any, of (i) four and
nine-tenths percent (4.9%) of the REIT Partner's total gross income
(but excluding the amount of any REIT Payments) for the fiscal year of
the Partnership that is described in Section 856(c)(2) of the Code (or
any substitute or successor provision thereto) over (ii) the amount of
gross income (within the meaning of Section 856(c)(2) of the Code (or
any substitute or successor provision thereto)) derived by the REIT
Partner from sources other than those described in Section 856(c)(2)
of the Code (or any substitute or successor provision thereto) (but
not including the amount of any REIT Payments); or
(b) an amount equal to the excess, if any, of (i) twenty-four
percent (24%) of the REIT Partner's total gross income (but excluding
the amount of any REIT Payments) for the fiscal year of the
Partnership that is described in Section 856(c)(3) of the Code (or any
substitute or successor provision thereto) over (ii) the amount of
gross income (within the meaning of Section 856(c)(3) of the Code (or
any substitute or successor provision thereto)) derived by the REIT
Partner from sources other than those described in Section 856(c)(3)
of the Code (or any substitute or successor provision thereto) (but
not including the amount of any REIT Payments);
provided, however, that REIT Payments in excess of the amounts set forth in
clauses (a) and (b) above may be made if the General Partners, as a condition
precedent, obtain an opinion of tax
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counsel that the receipt of such excess amounts shall not adversely affect the
REIT Partner's ability to qualify as a real estate investment trust under the
Code. To the extent that REIT Payments may not be made in a fiscal year of the
Partnership as a consequence of the limitations set forth in this Section 16.9,
such REIT Payments shall carry over and shall be treated as arising in the
following fiscal year of the Partnership. The purpose of the limitations
contained in this Section 16.9 is to prevent any REIT Partner from failing to
qualify as a real estate investment trust under the Code by reason of such REIT
Partner's share of items, including distributions, reimbursements, fees,
expenses or indemnities, receivable directly or indirectly from the
Partnership, and this Section 16.9 shall be interpreted and applied to
effectuate such purpose.
16.10. FORCE MAJEURE.
If the Managing General Partner is rendered unable, wholly or in part,
by "force majeure" (as herein defined) to carry out any of its obligations
under this Agreement, other than the obligation hereunder to make money
payments, the obligations of the Managing General Partner, insofar as they are
affected by such force majeure, shall be suspended during, but no longer than,
the continuance of such force majeure. The term "force majeure" as used herein
shall mean an act of God, strike, lockout or other industrial disturbance, act
of public enemy, war, blockade, public riot, lightning, fire, storm, flood,
explosion, governmental restraint, unavailability of equipment and any other
cause, whether of the kind specifically enumerated above or otherwise, which is
not reasonably within the control of the Managing General Partner.
16.11. ENTIRE AGREEMENT.
This Agreement contains the entire agreement among the Partners with
respect to the transactions contemplated herein, and supersedes all prior oral
or written agreements, commitments or understandings with respect to the matters
provided for herein.
16.12. PRONOUNS.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural, as the identity of the person
or entity may require.
16.13. HEADINGS.
Article, Section and subsection headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
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16.14. GOVERNING LAW.
This Agreement, the rights and obligations of the parties hereto and any
claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of Delaware (but not including the choice of law rules
thereof).
16.15. EXECUTION IN COUNTERPARTS.
To facilitate execution, this Agreement may be executed in as many
counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
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ARTICLE XVII
EXECUTION
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed on their behalf, as of the
day and year first hereinabove set forth.
MANAGING GENERAL PARTNER:
ATTEST: QSV PROPERTIES INC.
By: By:
-------------------------------- ---------------------------------
Name: Fred H. Margolin Name: Robert J. Stetson
Title: Secretary Title: President and Chief
Executive Officer
LIMITED PARTNER:
U.S. RESTAURANT PROPERTIES
MASTER L.P.
By: U.S. RESTAURANT PROPERTIES INC.,
MANAGING GENERAL PARTNER
ATTEST:
By: By:
-------------------------------- ---------------------------------
Name: Fred H. Margolin Name: Robert J. Stetson
Title: Secretary Title: President and Chief
Executive Officer
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ATTEST: REIT:
U.S. RESTAURANT PROPERTIES, INC.
By: By:
-------------------------------- ---------------------------------
Name: Name:
-------------------------- ----------------------------
Title: Title:
------------------------- --------------------------
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EXHIBIT A
PARTNERS CONTRIBUTIONS AND PARTNERSHIP INTERESTS
<TABLE>
NAME AND ADDRESS CASH AGREED VALUE OF TOTAL PARTNERSHIP PERCENTAGE
OF PARTNER CONTRIBUTION CONTRIBUTED PROPERTY CONTRIBUTION UNITS INTEREST
- ---------------- ------------ -------------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
</TABLE>
A-1
<PAGE>
EXHIBIT B
NOTICE OF REDEMPTION
The undersigned Limited Partner hereby irrevocably (i) exchanges
____________ Partnership Units in U.S. Restaurant Properties Operating L.P. in
accordance with the terms of the Third Amended and Restated Agreement of Limited
Partnership of U.S. Restaurant Properties Operating L.P. and the Exchange Right
referred to therein; (ii) surrenders such Partnership Units and all right, title
and interest therein; and (iii) directs that the REIT Stock Amount deliverable
upon exercise of the Exchange Right be delivered to the address specified below,
and that the shares of Common Stock be registered or placed in the name(s)
specified below. The undersigned hereby represents, warrants and certifies that
the undersigned (a) has marketable and unencumbered title to such Partnership
Units, free and clear of the rights or interests of any other person or entity;
(b) has the full right, power and authority to redeem and surrender such
Partnership Units as provided herein; and (c) has obtained the consent or
approval of all person or entities, if any, having the right to consent or
approve such redemption and surrender.
Dated:
-----------------------------
Name of Limited Partner:
------------------------------
Please Print
----------------------------------
(Signature of Limited Partner)
----------------------------------
(Street Address)
----------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
----------------------------------
Issue shares of Common Stock to:
Name:
----------------------------
Please insert social security of identifying number:
-------------------------
B-1
<PAGE>
EXHIBIT 10.3
WITHDRAWAL AGREEMENT
This Withdrawal Agreement (this "Agreement") is dated as of
______________, 1997, by and among U.S. Restaurant Properties, Inc., a Maryland
corporation (the "Company"), U.S. Restaurant Properties Master L.P., a Delaware
limited partnership ("USRP"), U.S. Restaurant Properties Operating L.P., a
Delaware limited partnership (the "Operating Partnership" and, together with
USRP, the "Partnerships"), and QSV Properties, Inc., a Delaware corporation
("QSV").
RECITALS:
WHEREAS, QSV is the managing general partner of USRP and the Operating
Partnership;
WHEREAS, USRP is proposing to convert (the "Conversion") its structure
from being a limited partnership to being a corporation taxable as a real estate
investment trust for federal income tax purposes;
WHEREAS, the Conversion will be effected through one of two alternative
methods: (i) the merger (the "Merger") of a partnership subsidiary of the
Company into USRP with USRP being the surviving entity and pursuant to the
merger agreement (the "Merger Agreement") all outstanding units of beneficial
interest in USRP (the "Units") will be automatically converted into shares of
common stock of the Company (the "Common Stock") and USRP will become a
subsidiary of the Company or (ii) the amendment of the partnership agreement of
USRP (the "Master Partnership Agreement") to permit holders of Units to exchange
their Units for shares of Common Stock from time to time and to require holders
of Units to exchange such Units for shares of Common Stock prior to the transfer
of the Units to unaffiliated third parties (the "Exchange Alternative"), each as
more fully described in the Proxy Statement/Prospectus (as defined below);
WHEREAS, the Company has filed a registration statement with the
Securities and Exchange Commission containing a proxy statement/prospectus (the
"Proxy Statement/Prospectus") for delivery to the holders of the Units in
connection with the solicitation of their approval of the Conversion; and
WHEREAS, in connection with the Conversion, QSV will withdraw as
managing general partner of USRP and the Operating Partnership upon the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
Section 1. Withdrawal. QSV hereby agrees to withdraw (the "Withdrawal")
as managing general partner of the Partnerships effective as of August 31, 1997
(unless such date is extended by the special committee (the "Special Committee")
of the Board of Directors of QSV, in its sole discretion). The effectiveness of
QSV's withdrawal as managing general partner, however, is contingent upon
receipt of the Acquisition Price (as defined below). The date on which QSV
withdraws as managing general partner of the Partnerships is hereinafter
referred to as the "Withdrawal Date."
Section 2. EFFECT OF WITHDRAWAL.
(a) THE MERGER ALTERNATIVE. If the Conversion is effected by
the Merger, pursuant to the terms of the Merger Agreement, QSV's
general partner interest in USRP (the "USRP Interest") will be
converted into the right to receive 1% of the number of shares of
Common Stock issued pursuant to the Merger (after giving effect to such
additional 1% interest in USRP). All of QSV's interest in the Operating
Partnership, including, without limitation, (i) its allocable share of
income, profits, loss and distributions of the Operating Partnership
and (ii) its rights under Section 9.3 of the partnership agreement of
the Operating Partnership (the "Operating Partnership Agreement") and
Section 9.3 of the Master Partnership Agreement (collectively, the
"General Partner Interest") will be converted into units representing a
limited partnership interest in the Operating Partnership (the "OP
Units"), pursuant to the terms of the Operating Partnership Agreement
in such amount as is provided for in Section 3 hereof.
(b) THE EXCHANGE ALTERNATIVE. If the Conversion is effected
through the Exchange Alternative, QSV's general partner interest in
USRP will be converted into 1% of the outstanding Units (after giving
effect to such additional 1% of Units outstanding), pursuant to the
terms of the Master Partnership Agreement and the General Partner
Interest will be assigned to USRP in exchange for Units, in such amount
as is provided for in Section 3 hereof.
(c) MERGER OF QSV. Regardless of how the Conversion is
effected, QSV shall have the right, exercisable at any time prior to
the ______ anniversary hereof, to merge directly into the Company and
receive the Initial Share Consideration and/or the Contingent Share
Consideration in shares of Common Stock, provided that such merger will
not adversely affect the Company's ability to qualify as a "real estate
investment trust" under the provisions of the Internal Revenue Code of
1986, as amended. If QSV merges with the Company following receipt of
either the Initial Share Consideration or the Contingent Share
Consideration, QSV shall be entitled to receive, in exchange for its
outstanding capital stock, the number of shares of Common Stock for
which the Units and/or OP Units held by QSV at such time would be
exchangeable pursuant to the terms of the Master Partnership Agreement
or Operating Partnership Agreement, as applicable. At the time of such
merger, QSV shall also have the right to receive such additional number
of shares of Common Stock for which the Units or OP
-2-
<PAGE>
Units held by QSV as a result of the exercise at an option held by QSV
as of the date hereof would be exchangeable pursuant to the terms of
the Master Partnership Agreement or Operating Partnership Agreement, as
applicable.
Section 3. ACQUISITION PRICE.
(a) In consideration for the conversion or assignment of the
General Partner Interest, in either case as provided for above, and the
conversion of the USRP Interest, QSV will be paid the Acquisition
Price. The Acquisition Price consists of two components: (i) the
initial share consideration (the "Initial Share Consideration") and
(ii) the contingent share consideration (the "Contingent Share
Consideration"). The Initial Share Consideration is equal to 850,000
shares of Common Stock, and shall consist of shares of Common Stock,
Units and/or OP Units, depending on how the Conversion is effected, as
more fully described above (collectively, the "Initial Shares"). The
number of Initial Shares issuable upon the conversion or assignment of
the General Partner Interest shall consist of 850,000 Units or OP Units
minus the number of shares of Common Stock or Units (on a one-for-one
basis) received by QSV in connection with the conversion of the USRP
Interest upon its withdrawal as managing general partner of USRP. The
number of Initial Shares issuable to QSV, including the number of
shares of Common Stock or Units issuable to QSV upon its conversion of
the USRP Interest, shall be subject to adjustment to give effect to
certain dilutive events, as more fully described below. The Initial
Shares shall be issued by the Company, USRP or the Operating
Partnership, as applicable, as soon as practicable following the
Withdrawal Date, but in no event later than 30 days thereafter.
(b) The Contingent Share Consideration is equal to up to a
maximum of 550,000 of Units and/or OP Units, depending on how the
Conversion is effected (collectively, the "Contingent Shares" and,
together with the Initial Shares, the "Acquisition Shares"), which
number of Contingent Shares shall be adjusted to give effect to certain
dilutive events as more fully described below. The exact number of
Contingent Shares to be issued will be determined by dividing (i) the
amount by which the MGP Net Income (as defined below) for year ending
December 31, 2000 exceeds $3,612,500 by (ii) $4.25, and rounding a
resulting number up to the nearest whole number. "MGP Net Income" means
the dollar amount of fees and distributions which would otherwise have
been payable to QSV, as the managing general partner of the
Partnerships for the year ending December 31, 2000 by the Partnerships
pursuant to the General Partner Interest and the USRP Interest had QSV
operated the Operating Partnership on a continuous basis from the
Withdrawal Date through December 31, 2000 less $775,000. For example,
if the MGP Net Income for the year 2000 is $5,100,000 ($5,875,000 of
revenues less $775,000) then the Contingent Share Consideration will be
equal to 350,000 Contingent Shares. The Contingent Shares, if any,
shall be issued by USRP or the Operating Partnership, as applicable, as
soon as
-3-
<PAGE>
practicable following the end of fiscal year 2000 but in no event later
than March 31, 2001.
Section 4. REPRESENTATIONS AND WARRANTIES OF QSV. QSV hereby represents
and warrants to the Company, USRP and the Operating Partnership as of the date
hereof and as of the Withdrawal Date, as follows:
(a) ORGANIZATION AND AUTHORITY. QSV is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and has full corporate power, right and authority to
acquire the Acquisition Shares and to enter into a carry out its
obligations under this Agreement.
(b) AUTHORIZATION. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized and approved by QSV and no
further procedure or action of QSV is necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has
been duly executed and delivered by QSV and constitutes the valid and
binding agreement of QSV, enforceable against it in accordance with its
terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the application of general principles of equity
(regardless of whether such enforcement is considered in a proceeding
in equity or at law).
(c) TITLE TO CONVERTED INTERESTS. QSV owns, and upon the
conversion of the Operating Partnership General Partner Interest and
the USRP Interest, the Company, USRP and/or the Operating Partnership,
as applicable, will own, all right, title and interest (legal and
beneficial) in and to, the Operating Partnership General Partner
Interest and the USRP Interest free and clear of all mortgages,
pledges, liens, charges, security interests, restrictions, adverse
claims, demands and encumbrances whatsoever.
(d) CONSENTS AND APPROVALS; NO VIOLATION. Neither the
execution and delivery of this Agreement by QSV nor the consummation by
QSV of the transactions contemplated hereby (i) conflicts with or
results in any breach of any provision of the certificate of
incorporation or bylaws of QSV, (ii) violates, conflicts with,
constitutes a default (or an event which, with notice or lapse of time
or both, would constitute a default) under, or results in the
termination of, or accelerates the performance required by, or results
in the creation of any lien or other encumbrance upon any of the
properties or assets of QSV under the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which QSV is a party or
to which QSV or its properties or assets are subject, or (iii) requires
any consent, approval, authorization or permit or filing with or
notification of any court, governmental authority or other regulatory
or administrative agency or commission, or other third party.
-4-
<PAGE>
(e) LITIGATION. As of the date of this Agreement, there is no
action, suit or proceeding pending against or, to the best knowledge of
QSV, threatened against or affecting QSV before any court or arbitrator
or any governmental body, agency or official which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay any
of the transactions contemplated hereby.
(f) INVESTMENT PURPOSE. QSV is acquiring the Acquisition
Shares for investment and not with a view toward, or for sale in
connection with, any distribution thereof, nor with any present
intention of distributing or selling the Acquisition Shares within the
meaning of the Securities Act of 1933, as amended.
Section 5. REPRESENTATION AND WARRANTIES OF THE COMPANY, USRP AND THE
OPERATING PARTNERSHIP. The Company, USRP and the Operating Partnership represent
and warrant to QSV, as of the date hereof and as of the Withdrawal Date, as
follows:
(a) ORGANIZATION AND RELATED MATTERS. The Company is a
corporation and each of USRP and the Operating Partnership is a limited
partnership, in each case duly organized, validly existing and in good
standing under the laws of the applicable jurisdiction of its
organization, and each has full corporate or partnership power, as
applicable, right and authority to enter into and carry out its
obligations under this Agreement.
(b) AUTHORIZATION. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized and approved by each of the
Company, USRP and the Operating Partnership, and no further corporate
or partnership proceeding or action on the part of any of the Company,
USRP or the Operating Partnership is necessary to authorize this
Agreement and the transactions contemplated hereby other than the
approval of the Conversion by limited partners of USRP. This Agreement
has been duly executed and delivery by each of the Company, USRP and
the Operating Partnership and constitutes the valid and binding
agreement of each of the Company, USRP and the Operating Partnership,
enforceable against each of them in accordance with its terms, except
as such enforcement may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally or the
application of general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(c) CONSENTS AND APPROVALS; NO VIOLATION. Neither the
execution and delivery of this Agreement by any of the Company, USRP or
the Operating Partnership nor the consummation by the Company, USRP and
the Operating Partnership of the transactions contemplated hereby (i)
conflicts with or results in any breach of any provision of the
articles of incorporation, bylaws, partnership agreement or similar
documents, as applicable, of the Company, USRP or the Operating
Partnership, (ii) violates, conflicts with, constitutes a default (or
an event which, with notice or lapse of time or both, would constitute
a default)
-5-
<PAGE>
under, or results in the termination of, or accelerates the performance
required by, or results in the creation of any lien or other
encumbrance upon any of the properties, or assets of any of the
Company, USRP or the Operating Partnership under the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which
the Company, USRP or the Operating Partnership is a party or to which
any of the Company, USRP or the Operating Partnership or their
respective properties or assets are subject, or (iii) requires any
consent, approval, authorization or permit of or from, or filing with
or notification of, any court, governmental authority or other
regulatory or administrative agency or commission, domestic or foreign,
or other third party other than the approval of the Proxy
Statement/Prospectus by the Securities and Exchange Commission and the
authorization of the issuance of the shares of Common Stock pursuant to
Conversion under applicable state securities and "blue sky" laws.
(d) LITIGATION. As of the date of this Agreement, there is no
action, suit or proceeding pending against, or to the best knowledge of
any of the Company, USRP or the Operating Partnership, threatened
against or affecting any of the Company, USRP or the Operating
Partnership before any court or arbitrator or any governmental body,
agency or official which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated
hereby.
Section 6. ADJUSTMENTS OF NUMBER OF ACQUISITION SHARES. The number of
Acquisition Shares issuable pursuant to Section 3 hereof, shall, prior to the
date of their issuance, be subject to certain adjustments from time to time upon
the happening of certain events as follows:
In case the Company or USRP shall (a) declare a dividend or
make a distribution on its outstanding shares of Common Stock or Units,
as applicable, in shares of capital stock of the Company or units of
USRP, (b) subdivide or reclassify its outstanding shares of Common
Stock or Units, as applicable, into a greater number of shares or
units, or (c) combine or reclassify its outstanding shares of Common
Stock or Units, as applicable, into a smaller number of shares or
Units, the number of Acquisition Shares issuable hereunder, at the time
of the record date for such dividend or distribution or the effective
date of such subdivision, combination or reclassification shall be
proportionately adjusted so that QSV shall be entitled to receive the
number of shares of Common Stock (either directly or indirectly upon
the exchange of OP Units) or Units which it would have owned or been
entitled to receive had such Acquisition Shares been issued immediately
prior to such time. Such adjustments shall be made successively
whenever any events specified above shall occur.
-6-
<PAGE>
Section 7. EFFECT OF RECLASSIFICATION, CONSOLIDATION, SALE, MERGER,
LEASE OR CONVEYANCE.
(a) In case of any consolidation with or merger of the Company
or USRP, as applicable, into another entity (or than the Merger or any
merger or consolidation in which the Company or USRP, as applicable, is
the continuing entity) or in the case of any sale, lease or conveyance
of assets to another entity of the properties of the Company or USRP,
as applicable, as an entirety or substantially as an entirety, the
successor, leasing or purchasing entity, as the case may be, shall
execute with QSV an amendment to this Agreement providing that QSV
shall have the right thereafter to acquire the kind and amount of
shares of stock, other securities, property or cash, or any combination
thereof, receivable upon such consolidation, merger, sale, lease or
conveyance by a holder of the number of Acquisition Shares to which QSV
was then entitled pursuant to the terms of this Agreement.
(b) In case of any reclassification or change of the shares of
Common Stock, Units or OP Units, as applicable, issuable as part of the
Acquisition Shares, or in case of any consolidation or merger of
another entity into the Company or USRP, as applicable, in which the
Company or USRP, as applicable, is the continuing entity and in which
there is a reclassification or change (including a change in the right
to receive cash or other property) of the shares of Common Stock or
Units, as applicable, the Company or USRP shall execute with QSV an
amendment to this Agreement providing that QSV shall have the right
thereafter to acquire the kind and amount of shares of stock, other
securities, property or cash, or any combination thereof, receivable
upon such reclassification, change, consolidation or merger by a holder
of the number of Acquisition Shares which QSV was entitled to receive
pursuant to the terms of this Agreement immediately prior to such
reclassification, change, consolidation or merger.
Section 8. CHANGE IN CONTROL OF THE COMPANY.
(a) If a Change in Control (as hereinafter defined) of the
Company or USRP, as applicable, occurs prior to the earlier of the date
on which all of the Acquisition Shares issuable to QSV pursuant to the
terms hereof have been issued or December 31, 2000, (i) if the Company
or USRP is the surviving or resulting entity in any such Change in
Control, then within 30 days following the consummation of such Change
in Control, USRP or the Operating Partnership, as applicable, shall
issue to QSV all 550,000 Contingent Shares, and (ii) if the Company or
USRP, as applicable, is not the surviving or resulting entity in Change
in Control, then within five business days following the announcement
of any such Change in Control, but in no event later than the business
day immediately prior to the consummation of the Change in Control,
USRP or the Operating Partnership, as applicable, shall issue to QSV
all 550,000 Contingent Shares.
-7-
<PAGE>
(b) For purposes of this Agreement, "Change in Control"
shall have occurred if any of the following events occurs:
(i) the Company or USRP, as applicable, is merged,
consolidated or reorganized into or with another entity that
is not an affiliate of the Company or USRP and as a result of
such merger, consolidation or reorganization less than a
majority of the combined voting power of the then-outstanding
securities of such entity immediately after such transaction
are held in the aggregate by the holders of shares of Common
Stock or Units, as applicable, immediately prior to such
transaction; or
(ii) the Company or USRP, as applicable, sells all or
substantially all of its assets to another entity that is not
an affiliate of the Company or USRP, less than a majority of
the combined voting power of then-outstanding voting
securities of which are held, directly or indirectly, in the
aggregate by the holders of the Common Stock or Units, as
applicable, immediately prior to such sale.
Section 9. RESTRICTIONS ON TRANSFER.
(a) QSV hereby agrees for a period of two years from the
respective date of issuance not to offer, sell or contract to sell, or
otherwise dispose of, directly or indirectly, any of the Initial Shares
or the Contingent Shares without the prior consent of the Special
Committee (or any other committee of the Board of Directors of the
Company or QSV, as applicable, consisting exclusively of non-employee
directors who do not have an ownership interest in QSV), except for
distributions, from time to time, by QSV of Initial Shares and/or
Contingent Shares to its stockholders, provided such stockholders enter
into an agreement with the Company or USRP, as applicable, to be bound
by terms of this Section 9.
(b) QSV understands and acknowledges that the issuance of the
Initial Shares and the Contingent Shares has not and will not be
registered under the Securities Act of 1933, as amended (the
"Securities Act"), on the grounds that the offering and sale of the
Initial Shares and the Contingent Shares are exempt from registration
pursuant to Section 4(2) of the Securities Act and Regulation D
thereunder, and that accordingly each of the certificates representing
any of the Initial Shares or the Contingent Shares will bear the
following legend:
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED OR REGISTERED
UNDER APPLICABLE STATE BLUE SKY
-8-
<PAGE>
LAWS. THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT PURSUANT TO (1) A
REGISTRATION STATEMENT THAT IS EFFECTIVE
UNDER SUCH ACT, (2) RULE 144 UNDER SUCH
ACT (OR ANY OTHER EXEMPTION FROM
REGISTRATION UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES) OR (3)
AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER THAT SUCH AN
EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT IS AVAILABLE.
Section 10. MISCELLANEOUS.
(a) APPLICABLE LAW. THIS AGREEMENT AND THE AGREEMENTS,
INSTRUMENTS AND DOCUMENTS CONTEMPLATED HEREBY WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (EXCLUSIVE
OF CONFLICTS OF LAW PRINCIPLES) AND WILL, TO THE MAXIMUM EXTENT
PRACTICABLE, BE DEEMED TO CALL FOR PERFORMANCE IN DALLAS COUNTY, TEXAS.
COURTS WITHIN THE STATE OF TEXAS WILL HAVE JURISDICTION OVER ANY AND
ALL DISPUTES BETWEEN THE PARTIES HERETO, WHETHER IN LAW OR IN EQUITY,
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE AGREEMENTS,
INSTRUMENTS AND DOCUMENTS CONTEMPLATED HEREBY. THE PARTIES CONSENT TO
AND AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS. VENUE IN ANY
SUCH DISPUTE, WHETHER IN FEDERAL OR STATE COURT, WILL BE LAID IN DALLAS
COUNTY, TEXAS.
(b) NOTICES. All notices, demands, requests or other
communications that may be or are required to be given, served or sent
by either party to the other party pursuant to this Agreement will be
in writing and will be mailed by first-class, registered or certified
mail, return receipt requested, postage prepaid, or transmitted by hand
delivery, telegram or facsimile transmission addressed as follows:
-9-
<PAGE>
(i) If to the Company:
U.S. Restaurant Properties, Inc.
5310 Harvest Hill Road, Suite 270
Dallas, Texas 75230
Facsimile Transmission Number: (972) 490-9119
Attn:_______________________
(ii) If to USRP:
U.S. Restaurant Properties Master L.P.
5310 Harvest Hill Road, Suite 270
Dallas, Texas 75230
Facsimile Transmission Number: (972) 490-9119
Attn:_______________________
(iii) If to the Operating Partnership:
U.S. Restaurant Properties Operating L.P.
5310 Harvest Hill Road, Suite 270
Dallas, Texas 75230
Facsimile Transmission Number: (972) 490-9119
Attn:_______________________
(iv) If to QSV:
QSV Properties, Inc.
5310 Harvest Hill Road, Suite 270
Dallas, Texas 75230
Facsimile Transmission Number: (972) 490-9119
Attn:_______________________
Any party may designate by written notice a new address to which any
notice, demand, request or communication may thereafter be given,
served or sent. Each notice, demand, request or communication that is
mailed, delivered or transmitted in the manner described above will be
deemed sufficiently given, served, sent and received for all purposes
at such time as it is delivered to the addressee with the return
receipt, the delivery receipt, the affidavit of messenger or (with
respect to a facsimile transmission) the answer back being deemed
conclusive evidence of such delivery or at such time as delivery is
refused by the addressee upon presentation.
(c) COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be deemed to be an original
and all of which will be deemed to be a single agreement. This
Agreement will be considered fully
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<PAGE>
executed when all parties have executed an identical counterpart,
notwithstanding that all signatures may not appear on the same
counterpart.
(d) SEVERABILITY. If any of the provisions of this Agreement
are determined to be invalid or unenforceable, such invalidity or
unenforceability will not invalidate or render unenforceable the
remainder of this Agreement, but rather the entire Agreement will be
construed as if not containing the particular invalid or unenforceable
provision or provisions, and the rights and obligations of the parties
will be construed and enforced accordingly. The parties acknowledge
that if any provision of this Agreement is determined to be invalid or
unenforceable, it is their desire and intention that such provision be
reformed and construed in such manner that it will, to the maximum
extent practicable, be deemed to be valid and enforceable.
(e) THIRD PARTIES. Except as set forth or referred to in this
Agreement, nothing in this Agreement is intended or will be construed
to confer upon or give to any party other than the parties to this
Agreement and their successors and permitted assigns, if any, any
rights or remedies under or by reason of this Agreement.
(f) ASSIGNMENT. Neither this Agreement nor any rights or
obligations under this Agreement may be assigned or delegated without
the written consent of the other parties to this Agreement.
(g) SURVIVAL. The representations and warranties contained
in this Agreement will survive the consummation of the transactions
contemplated by this Agreement.
(h) FURTHER ASSURANCES. Each party to this Agreement agrees
to take such further action and execute and deliver such other
documents as may be reasonably necessary to effectuate the intent of
this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement
effective as of the date first above written.
U.S. RESTAURANT PROPERTIES, INC.
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
U.S. RESTAURANT PROPERTIES MASTER L.P.
By: QSV Properties, Inc.,
its managing general partner
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
U.S. RESTAURANT PROPERTIES OPERATING L.P.
By: QSV Properties, Inc.,
its managing general partner
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
QSV PROPERTIES, INC.
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
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<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of U.S. Restaurant
Properties, Inc. on Form S-4 of our report dated February 28, 1997,
appearing in and incorporated by reference in this Registration Statement,
related to U.S. Restaurant Properties Master L.P. and to the use in this
Registration Statement of our report dated February 4, 1997 related to U.S.
Restaurant Properties, Inc. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
DELOITTE & TOUCHE LLP
Dallas, Texas
April 3, 1997
<PAGE>
EXHIBIT 99.1
U.S. RESTAURANT PROPERTIES MASTER L.P.
5310 Harvest Hill Road, Suite 270, L.B. 168
Dallas, Texas 75230
PROXY FOR SPECIAL MEETING OF LIMITED PARTNERS
May 15, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE MANAGING GENERAL PARTNER
The undersigned Limited Partner hereby appoints __________ and __________,
or either of them, as proxies, each with full powers of substitution, and hereby
authorizes them to represent and to vote, as designated below, all units of
beneficial interest of U.S. Restaurant Properties Master L.P. ("USRP"), held of
record by the undersigned on the Record Date (as defined in the accompanying
Proxy Statement/Prospectus) at the Special Meeting (as defined in the
accompanying Proxy Statement/Prospectus), and at any adjournment or postponement
thereof and hereby revokes any prior proxy granted with respect thereto.
This proxy, when properly executed and returned in a timely manner,
will be voted at the Special Meeting and any adjournment or postponement
thereof in the manner described herein. IF NO CONTRARY INDICATION IS MADE,
THIS PROXY WILL BE VOTED FOR THE MERGER ALTERNATIVE (AS HEREINAFTER DEFINED),
FOR THE EXCHANGE ALTERNATIVE (AS HEREINAFTER DEFINED) AND IN ACCORDANCE WITH
THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE MANAGING
GENERAL PARTNER. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE MERGER ALTERNATIVE AND FOR THE EXCHANGE ALTERNATIVE.
1. With respect to the proposed merger (the "Merger Alternative") of
USRP Acquisition, L.P., a Delaware limited partnership that is an
indirectly wholly-owned subsidiary of U.S. Restaurant Properties,
Inc., a newly formed Maryland corporation (the "REIT Corporation"),
with and into USRP, as described in the accompanying Proxy
Statement/Prospectus:
FOR AGAINST ABSTAIN
2. With respect to the proposed amendment to the partnership agreement
of USRP to permit holders of units to exchange (the "Exchange
Alternative") their units for shares of the REIT Corporation's
common stock at any time and require such an exchange prior to the
transfer of the units to third parties, as described in the
accompanying Proxy Statement/Prospectus:
FOR AGAINST ABSTAIN
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<PAGE>
Each of the above named proxies present at the Special Meeting, either in
person or by substitute, shall have an exercise all the powers of said proxies
hereunder. This proxy will be voted in accordance with the choice specified by
the undersigned on this proxy. In their discretion, each of the above-named
proxies is authorized to vote upon such other business incident to the conduct
of the Special Meeting as may properly come before the Special Meeting or any
postponements or adjournments thereof.
The undersigned acknowledges receipt of a copy of the Notice of Special
Meeting of Limited Partners and the Proxy Statement/Prospectus relating to the
Special Meeting.
____________________________________
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