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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-34263
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 16, 1997)
363,000 SHARES
U.S. RESTAURANT PROPERTIES, INC.
COMMON STOCK
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All of the 363,000 shares of common stock, par value $.001 per share
(the "Common Stock"), of U.S. Restaurant Properties, Inc. (the "Company"),
offered hereby are being issued and sold by the Company (the "Offering") to
certain institutional investors at a negotiated purchase price equal to $25.25
per share (the closing sale price per share of Common Stock on the New York
Stock Exchange (the "NYSE") August 26, 1998, less a discount of approximately
3.0% (the "Purchase Price")), resulting in an aggregate purchase price of
$9,165,750. The net proceeds to the Company, after deducting estimated Offering
expenses of $82,000, will be approximately $9,083,750.
The Common Stock is listed on the NYSE under the symbol "USV." On
August 26, 1998, the last reported sale price of the Common Stock on the NYSE
was $26.00 per share.
SEE "RISK FACTORS," COMMENCING ON PAGE S-4 FOR CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus Supplement is August 26, 1998.
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THE COMPANY
U.S. Restaurant Properties, Inc., a fully integrated, self-administered
and self-managed real estate investment trust (a "REIT"), is one of the largest
publicly-traded entities in the United States dedicated to acquiring, owning,
managing and selectively developing restaurant properties. In addition, the
Company acquires strategically located service station properties and co-branded
facilities that combine fast food and convenience stores with retail energy
(filling station) operations in a single site. At August 15, 1998, the Company's
portfolio consisted of 731 restaurant properties (the "Properties") diversified
geographically in 48 states and operated by approximately 320 restaurant
operators. The Properties are leased by the Company on a triple net basis
primarily to operators of fast food and casual dining chain restaurants
affiliated with national brands such as Burger King(R), Arby's(R), Dairy
Queen(R), Hardee's(R), Chili's(R) and Pizza Hut(R) and regional franchises such
as Grandy's(R) and Taco Cabana's(R). Triple net leases typically require the
tenants to be responsible for property operating costs, including property
taxes, insurance and maintenance.
The Company has been engaged in the business of owning, managing and
leasing restaurant properties since 1986. Prior to 1994, the Company held a
static portfolio consisting of 123 Burger King(R) restaurant properties. In May
1994, existing management assumed control of the Company and began implementing
a number of new strategies intended to pursue Company growth. These strategies
have involved the Company in, among other things, acquiring new properties,
enhancing investment returns through merchant banking activities and developing
new co-branded service centers on a selective basis. In addition, the Company
provides acquisition financing to owner/operators of restaurant properties. At
June 30, 1998, the Company and its affiliates had $8.6 million of real
estate-backed notes and mortgage receivables.
The Company's operations are primarily conducted through U.S.
Restaurant Properties Operating, L.P., a Delaware limited partnership (the
"Operating Partnership"). The Company is a 91.98% limited partner of the
Operating Partnership, and a wholly-owned subsidiary of the Company is the
general partner of the Operating Partnership. QSV Properties, Inc. ("QSV
Properties"), a corporation owned by Robert J. Stetson, Chief Executive Officer
and President of the Company, Fred H. Margolin, Chairman of the Board, Treasurer
and Secretary of the Company, and two other directors of the Company, owns
1,148,418 units of beneficial interest ("OP Units") in the Operating
Partnership, which are exchangeable at any time for shares of Common Stock on a
one-for-one basis.
The Company is a Maryland corporation which has elected to be taxed as
a REIT for federal income tax purposes, commencing with its taxable year ended
December 31, 1997. The Common Stock is traded on the NYSE under the symbol
"USV." The principal executive offices of the Company are located at 5310
Harvest Hill Road, Suite 270, Dallas, Texas 75230. The telephone number is (972)
387-1487.
RECENT DEVELOPMENTS
Since January 1, 1998, the following developments relating to the
Company's business have occurred:
o Acquisitions. The Company has acquired 150 properties for an
aggregate purchase price of approximately $120 million, and
has sold four properties for an aggregate sales price of $4.0
million since January 1, 1998 through August 15, 1998. In the
ordinary course of its business, the Company is engaged in
discussions and negotiations with property owners regarding
the purchase of restaurant and service properties. The Company
or the Operating Partnership frequently enters into letters of
intent, which may be binding or nonbinding, and contracts with
respect to the purchase of real property, which are subject to
certain conditions and which permit the Company or the
Operating Partnership, as the case may be, to terminate the
contract in its sole and absolute discretion if it is not
satisfied with the results of its due diligence investigation
of the properties under contract. The Company believes that
such contracts essentially result in the creation of an option
on the property subject to the contract and give the Company
great flexibility in seeking to acquire properties. As of
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August 15, 1998, the Company and the Operating Partnership had
under letter of intent or contract an aggregate of 66
restaurant and/or service station properties with a maximum
aggregate purchase price of approximately $69 million, which,
in some cases, may be paid in the form of the assumption of
existing debt and/or OP Units. All such contracts are subject
to termination by the Company or the Operating Partnership as
described above. Due diligence with respect to these
properties is generally not completed and there is no
assurance that any of such transactions will occur or that
they will occur on the terms currently contemplated. On August
25, 1998, the Company entered into an agreement with Equilon
Enterprises LLC to purchase 27 Texaco branded service stations
and a supply terminal on the island of Oahu, Hawaii. The sale
by Equilon was required by consent agreements with the Federal
Trade Commission and the State of Hawaii in connection with
the formation of Equilon, a joint venture between Shell and
Texaco. The FTC and the state will have final approval of the
transaction, which is expected to be completed by mid-October.
o Financing Activities. On May 13, 1998, the Company completed
the private placement of $111 million of unsecured notes due
2005 with an interest rate of 7.15%. After the Offering, the
Company will have the ability to issue approximately $48
million of securities under its existing shelf registration
statement (of which the Prospectus and this Prospectus
Supplement constitute a part) and it is the Company's
intention to use this remaining capacity as needed.
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RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained or incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus before making a decision
to purchase Common Stock.
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS; ACQUISITION OF
ADDITIONAL PROPERTIES
The Company is currently experiencing a period of rapid growth. From
May 1994 through June 30, 1998, the Company acquired a total of 572 Properties
located in various states and sold 13 Properties during such time. As a result
of the rapid growth of the Company's portfolio, there can be no assurance that
the Company will be able to adapt its management, administrative, accounting and
operational systems to respond to any future acquisitions of additional
properties without certain operating disruptions or unanticipated costs. The
failure to successfully integrate any future acquisitions into the Company's
portfolio could have a material adverse effect on the results of operations and
financial condition of the Company and its ability to pay expected distributions
to stockholders. As it acquires additional properties, the Company will be
subject to risks associated with managing new properties, including tenant
retention and mortgage default. 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 may entail additional operating expenses that would be payable by the
Company. Such 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 and would cause the Company to recognize "bad income"
which may adversely impact the Company's qualification as a REIT. See "Federal
Income Tax Considerations" in the accompanying Prospectus.
DEVELOPMENT AND ACQUISITION RISKS; INCREASED PROJECT COSTS; FAILURE TO OBTAIN
FINANCING; INABILITY TO MEET OPERATING EXPENSES
General Development and Acquisition Risks. The Company intends to
continue selective build-to-suit and retrofit restaurant property development
and acquisition of restaurant properties where it expects to achieve investment
returns that are anticipated to equal or exceed returns on acquisitions. New
project development is subject to a number of risks, including risks of
construction delays and cost overruns that may increase project costs,
availability of acceptable financing, volatility in interest rates, the timing
of the commencement of rental payments and new project commencement risks such
as the receipt of zoning, occupancy and other required governmental
authorizations and permits and the incurrence of development costs in connection
with projects that are not pursued to completion. In addition, such activities,
regardless of whether they are ultimately successful, typically require a
substantial portion of management's time and attention. Further, development
involves the risk that developed properties will not produce desired revenue
levels once leased and the risk of competition for suitable development sites
from competitors which may have greater financial resources than the Company.
Acquisitions entail risks that investments will fail to perform in accordance
with expectations and that judgments with respect to the costs of improvements
to bring an acquired property up to standards established for the market
position intended for that property will prove inaccurate, as well as general
investment risks associated with any new real estate investment. There can be no
assurance that development and acquisition activities, if consummated, will
perform in accordance with the Company's expectations and distributions to
stockholders might be adversely affected.
Risks Relating to Financing; Distributions. The Company anticipates
that its development and acquisition activities will be largely financed through
externally generated funds from borrowings under credit facilities and other
secured and unsecured debt financing and from equity financing. In addition, new
development activities may be financed under lines of credit or other forms of
secured or unsecured construction financing that would result in a risk that
permanent financing for newly developed projects might not be available or would
be available only on disadvantageous terms. Because the Company must distribute
95% of its taxable income to maintain its qualification as a REIT, the Company's
ability to rely upon income from operations or cash flow from operations to
finance new development or acquisitions will be limited. Accordingly, were the
Company unable to obtain funds from borrowings
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or the capital markets to refinance new development or acquisitions undertaken
without permanent financing, the Company's ability to grow through additional
development and acquisition activities could be curtailed, cash available for
distribution could be adversely affected and the Company could be required to
reduce distributions.
LACK OF INDUSTRY DIVERSIFICATION
The Company's strategy is to continue to acquire interests in chain
restaurant properties, specifically fast food and casual dining restaurant
properties. Consequently, the Company is subject to the risks associated with an
investment in real estate in the chain restaurant industry, and is subject to
the risks generally associated with investment in a single industry. 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.
DEPENDENCE ON SUCCESS OF BRANDS
Substantially all of the Properties are occupied by operators of chain
restaurants with national and regional brand affiliations. Additionally, 208 of
the Properties are occupied by operators of Burger King(R) restaurant
properties. In the future, the Company also may acquire additional restaurant
properties which will be affiliated with the same national and regional brands.
As a result, the Company is subject to the risks inherent in investments
concentrated in specific national and regional brands, such as a reduction in
business following adverse publicity related to such brands or if the particular
restaurant chain (and its franchisees) were to suffer a system-wide decrease in
sales. In such circumstances, the ability of franchisees to pay rents (including
percentage rents) to the Company may be adversely affected.
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 June 30, 1998 and an
average remaining term in excess of ten 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. In
certain instances, the Company has attempted to extend the terms of certain of
its existing leases pursuant to a recently implemented program intended to
encourage early renewal of leases, but in connection therewith has had to commit
to paying for certain improvements on such Properties.
REAL ESTATE FINANCING RISKS
Existing Debt and Refinancing Risks. The Company is subject to the
risks normally associated with debt financing, including the risk that the
Company's cash flow will be insufficient to meet required payments of principal
and interest, the risk of violating loan covenants, the risk of rising interests
rates on the Company's variable rate debt and the risk that the Company will not
be able to repay or refinance indebtedness on its properties (which generally
will not have been fully amortized at maturity) or that the terms of such
refinancing will not be as favorable as the terms of its 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. There can be no assurance that
the Company will be able to refinance any indebtedness it may incur or otherwise
obtain funds by selling assets or raising equity to make required payments on
indebtedness.
Substantial Debt Obligations. As of June 30, 1998, the Company had $218
million of unsecured indebtedness. However, properties which the Company may
acquire in the future could be mortgaged to secure payment of indebtedness. If
the Company is unable to generate funds to cover required payments of principal
and interest on borrowings secured by these properties, the mortgage securing
such properties could be foreclosed upon by, or such properties could be
transferred to, the mortgagee with a consequent loss of income and asset value
to the Company.
No Limitation on Incurrence of Debt. As of June 30, 1998, the Company's
ratio of debt to total market capitalization was approximately 32%. Upon
completion of the Offering and the application of the net proceeds therefrom,
the Company's debt to total market capitalization will be approximately 30%. The
Company's Amended and
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Restated Articles of Incorporation (the "Charter") do not contain any limitation
on the amount or percentage of indebtedness the Company may incur. The Company
has adopted a policy of limiting its indebtedness to maintain a ratio of total
debt to total market capitalization of 50% or less. However, the Board of
Directors could alter or eliminate its current policy on borrowing and would do
so, for example, if it were necessary in order for the Company to continue to
qualify as a REIT. If the policy were changed, the Company could become more
highly leveraged, resulting in an increase in debt service that could adversely
affect the Company's financial condition and cash available for distribution to
stockholders and could increase the risk of default on the Company's
indebtedness.
IMPACT OF COMPETITION ON OPERATIONS
Acquisitions. Numerous entities and individuals compete with the
Company to acquire 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 suitable properties for inclusion in its portfolio of triple net leased
Properties or sale/leaseback transactions in the future.
Operations. The restaurants operated on the Properties are subject to
significant competition in the market areas in which they compete, including
competition from other national and regional fast food restaurant chains and
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.
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,
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 borrowings, the impact of compliance with
present or future environmental laws, the ongoing 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, therefore, 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 Environmental Liabilities. 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
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contaminated property properly, may adversely affect the ability of the owner of
the property to borrow using 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 conducted by a qualified independent environmental
engineer. Phase I environmental assessments have been performed on all of the
Company's acquisitions since May 1994 and it is expected that all future
acquisitions will be subject to a Phase I environmental assessment. No Phase I
environmental assessments were conducted with respect to the original 123 Burger
King(R) Properties at the time existing management assumed control of the
Company. 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 environmental assessment, which may include soil testing,
ground water monitoring or borings to locate underground storage tanks, is
ordered for further evaluation.
Certain of the Phase I environmental assessments obtained on the
Properties revealed potential environmental concerns and the Company has had
Phase II reports prepared with respect to such Properties. Specifically, the
soils and groundwater beneath certain of the Properties may have been impacted
by the presence of leaking underground storage tanks on, and the migration of
contaminants from, the subject Property and third-party offsite locations
adjacent to such Properties. While certain of the Phase I and Phase II
environmental assessments have recommended certain remedial action or further
analysis be undertaken, the Company has determined that such action or analysis
is unwarranted at this time based on the nature of the suggested action or
analysis. Based on the information provided by the Phase I and Phase II
environmental assessments, as well as the Company's knowledge of such Burger
King(R) Properties, the Company is not aware of 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.
It is possible that Phase I environmental assessments 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. The Company has not been notified by any governmental
authority, and has no other knowledge of, any material noncompliance, liability
or claim relating to hazardous or toxic substances or other environmental
substances in connection with any of its Properties. 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.
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 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 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 impractical 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.
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ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; OTHER TAX LIABILITIES
The Company intends to operate so as to qualify as a REIT for federal
income tax purposes. Although the Company believes it has been and will continue
to be organized and operated in such a manner, no assurance can be given that
the Company will qualify or remain qualified as a REIT. Qualification as a REIT
involves the application of highly technical and complex provisions under the
Internal Revenue Code of 1986, as amended (the "Code"), for which there are only
limited judicial or administrative interpretations. The determination of various
factual matters and circumstances not entirely within the Company's control may
affect the Company's ability to qualify as a REIT. For example, in order to
qualify as a REIT, at least 95% of the Company's gross income in any year must
be derived from qualifying sources and the Company 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 Company, however,
is not aware of any pending tax legislation that would adversely affect the
Company's ability to operate as a REIT.
If in any taxable year the Company were to fail to qualify as a REIT,
the Company 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 Company 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 Company's stockholders would
be reduced for each of the years involved. In addition, dividends would no
longer be required to be paid. To the extent that dividends to stockholders
would have been paid in anticipation of the Company's qualification as a REIT,
the Company might be required to borrow funds or to liquidate certain of its
investments to pay the applicable tax. Although the Company 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 Board to
revoke the REIT election. See "Federal Income Tax Considerations" in the
accompanying Prospectus.
LIMITS ON CHANGES IN CONTROL
Ownership Limit. In order to maintain its qualification as a REIT under
the Code, not more than 50.0% in the value of the outstanding shares of capital
stock of the Company may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain exempt organizations).
Therefore, ownership of more than 9.8% of the value of the outstanding shares of
Equity Stock (as defined in the Charter to mean Common Stock and Preferred
Stock) of the Company by any single stockholder, with certain exceptions, has
been restricted (the "Ownership Limit") by the Charter. The Board of Directors,
upon receipt of a ruling from the Internal Revenue Service, an opinion of
counsel or other evidence satisfactory to the Board of Directors and upon such
other conditions as the Board of Directors may direct, may exempt a proposed
transferee from this restriction. The Ownership Limit may discourage a change of
control of the Company and may also (i) deter tender offers for Common Stock,
which offers may be advantageous to stockholders, and (ii) limit the opportunity
for stockholders to receive a premium for their Common Stock that might
otherwise exist if an investor were attempting to assemble a block of Common
Stock in excess of 9.8% of the value of the Company's outstanding shares of
Equity Stock.
Additional Classes of Stock. The Charter authorizes the Board of
Directors to reclassify any authorized but unissued shares of capital stock into
one or more new classes or series of capital stock, including classes or series
of preferred stock, and to determine the preferences, rights and other terms of
such classes or series. The additional classes or series of securities, as well
as the Common Stock, will be available for issuance without further action by
the Company's stockholders, unless such action is required by applicable law or
the rules of any stock exchange or automated quotation system on which the
Company's securities may be listed or traded. Although the Board of Directors
has no intention at the present time of doing so, it could issue a class or
series of securities that could, depending on the terms of such class or series
of securities, impede a merger, tender offer, or other transaction that some, or
a majority, of the Company's stockholders might believe to be in their best
interest or in which the stockholders might receive a premium for their shares
over the then current market price of such shares.
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POSSIBLE ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK
No prediction can be made as to the effect, if any, of future sales of
shares of Common Stock, or the availability of shares of Common Stock for future
sale, on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of capital stock (including Common Stock issued
upon the exercise of stock options), or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock. QSV
Properties, the former managing general partner of USRP which is controlled by
Messrs. Stetson and Margolin, owns 1,148,418 OP Units in the Operating
Partnership which are exchangeable on a one-for-one basis for shares of Common
Stock, and has the right to receive an additional 825,000 OP Units based on the
Company's performance in the fiscal year ending December 31, 2000.
EFFECT OF CERTAIN ANTITAKEOVER PROVISIONS AND OWNERSHIP LIMITS ON CHANGE IN
CONTROL
Charter Provisions. Certain provisions of the Charter 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 Company could be substantially impeded by such antitakeover
provisions. Moreover, in order for the Company 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
Company's REIT qualification, the Charter prohibits ownership either directly or
under the applicable attribution rules of the Code of more than 9.8% 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 Board of Directors. See "Federal Income
Tax Considerations" in the accompanying Prospectus.
Preferred Stock. The Charter authorizes the Board of Directors to issue
up to 50 million shares of Preferred Stock and to establish the preferences and
rights, including the right to elect additional directors under terms specified
in the preferred stock preferences, of any such shares issued. 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 interests. The rights, if any, of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances 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 interests.
NO RESTRICTIONS ON CHANGES IN INVESTMENT, FINANCING AND OTHER POLICIES
The Company's policies with respect to all activities, including its
investment, growth, debt, capitalization, distribution and operating policies,
will be determined by the Board of Directors. Although the Board of Directors
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 Board of Directors
without a vote of the stockholders 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.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success is dependent upon the efforts and
abilities of its key executive officers. In particular, the loss of the services
of either Robert J. Stetson, Chief Executive Officer and President, or Fred H.
Margolin, Chairman of the Board, Treasurer and Secretary, 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. The Company has entered into employment contracts with each of Messrs.
Stetson and Margolin.
S-9
<PAGE> 10
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.
Americans With Disabilities Act. Under the American with Disabilities
Act (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 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.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Prospectus Supplement, the
accompanying Prospectus and other materials filed or to be filed by the Company
with the Securities and Exchange Commission under the Exchange Act and
incorporated by reference in the accompanying Prospectus contain or will contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such statements include information
relating to acquisitions and other business development activities, future
capital expenditures, financing sources and availability and the effects of
regulations (including environmental regulation) and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
contained in this Prospectus Supplement or the accompanying Prospectus or
incorporated by reference in such Prospectus. These risks and uncertainties
include, but are not limited to, uncertainties affecting real estate businesses
generally (such as entry into new leases, renewals of leases and dependence on
tenants' business operations), risks relating to acquisition and development
activities, mergers and acquisitions, possible environmental liabilities, risks
relating to leverage, debt service and obligations with respect to the payment
of dividends (including the availability of financing on terms acceptable to the
Company and sensitivity of the Company's operations to fluctuations in interest
rates), the potential for the need to use borrowings to make distributions
necessary for the Company to qualify as a REIT or to fund the payment of
dividends, dependence on the markets in which the Company's properties are
located, the existence of complex regulations relating to the Company's status
as a REIT and the adverse consequences of the failure of the Company to qualify
as a REIT and the potential adverse impact of market interest rates on the
market price for the Company's securities.
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<PAGE> 11
USE OF PROCEEDS
The net proceeds of the Company from the Offering, after all
anticipated issuance costs, are expected to be approximately $9,083,750 million.
The Company will use the net proceeds from the Offering to reduce borrowings
under the Company's credit facility, which were used to fund the acquisition and
development of additional chain restaurant properties. The credit facility bears
currently interest at LIBOR plus 1.05% per annum and matures in January 2001.
PLAN OF DISTRIBUTION
All of the shares of Common Stock offered hereby are being sold to
certain institutional investors at the negotiated Purchase Price. No
underwriting fees or commissions will be paid in connection with the Offering.
The Company has agreed to pay EVEREN Securities, Inc. a financial advisory fee
of $62,000. The Company may from time to time sell shares of Common Stock
directed to other persons and may engage in other financing transactions,
including public offerings and private placements of equity securities.
S-11
<PAGE> 12
PROSPECTUS
$150,000,000
U.S. RESTAURANT PROPERTIES, INC.
Common Stock, Common Stock Warrants, Preferred
Stock and Depositary Shares
U.S. Restaurant Properties, Inc. (together with its subsidiaries, the
"Company") may from time to time offer in one or more series (i) shares of its
common stock, par value $.001 per share (the "Common Stock"); (ii) warrants to
purchase Common Stock (the "Common Stock Warrants"); or (iii) shares or
fractional shares of its preferred stock, par value $.001 per share (the
"Preferred Stock"), which may be issued in the form of depositary shares (the
"Depositary Shares") evidenced by depositary receipts, with an aggregate public
offering price of up to $150,000,000. The Common Stock, Common Stock Warrants,
Preferred Stock and Depositary Shares (collectively, the "Offered Securities")
may be offered separately or together, in separate series, in amounts, at prices
and on terms to be determined at the time of offering and set forth in one or
more supplements to this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Common Stock,
any public offering price; (ii) in the case of Common Stock Warrants, the
duration, offering price, exercise price and detachability features; (iii) in
the case of Preferred Stock, the specific title, any distribution, liquidation,
redemption, conversion, voting and other rights and any initial public offering
price; and (iv) in the case of Depositary Shares, the fractional share of
Preferred Stock represented by each such Depositary Share. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Offered Securities, in each case as may be
appropriate to preserve the status of the Company as a real estate investment
trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information,
where applicable, concerning all material federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents
designated from time to time by the Company, or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Offered Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
The date of this Prospectus is October 16, 1997
<PAGE> 13
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITERS, AGENTS OR DEALERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AT ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
In connection with the conversion of U.S. Restaurant Properties Master
L.P. (the "Predecessor") into a real estate investment trust, the Company has
succeeded to the business, operations, assets and liabilities of the Predecessor
and is the successor registrant to the Predecessor for purposes of the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company is, and prior
to the conversion the Predecessor was, subject to the informational requirements
of the Exchange Act and, in accordance therewith, the Company files, and prior
to the conversion the Predecessor filed, reports, proxy statements and other
information, with the Securities and Exchange Commission (the "Commission"). The
Company's Registration Statement on Form S-3 (the "Registration Statement"), the
exhibits and schedules forming a part thereof and the reports, proxy statements
and other information filed by the Company and the Predecessor can be obtained
from the web site that the Commission maintains at http://www.sec.gov, or can be
inspected and copied, at the prescribed rates, at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Seven World Trade
Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60661. The Common Stock is listed on
the New York Stock Exchange (the "NYSE") and similar information concerning the
Company may be inspected at the offices of the NYSE at 20 Broad Street, New
York, New York 10005.
This Prospectus constitutes a part of the Registration Statement filed
by the Company with the Commission under the Securities Act. This Prospectus
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto, in accordance with the rules and regulations of
the Commission. For further information concerning the Company and the Offered
Securities, reference is hereby made to the Registration Statement and the
exhibits and schedules filed therewith, which may be inspected without charge at
the office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and copies of which may be obtained from the Commission at prescribed rates. Any
statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
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<PAGE> 14
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company or the
Predecessor (Commission File No. 1-9079) under the Exchange Act with the
Commission and are incorporated herein by reference:
(a) The Predecessor's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, as amended by the Form 10-K/A
filed May 2, 1997;
(b) The Predecessor's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997;
(c) The Predecessor's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997;
(d) The Predecessor's Current Report on Form 8-K dated April 14,
1997, as amended by the Form 8-K/A filed May 30, 1997;
(e) The Predecessor's Current Report on Form 8-K dated August 21,
1997;
(f) The Company's Current Report on Form 8-K dated August 22,
1997; and
(g) The Company's Registration Statement on Form 8-A filed
February 20, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Offered Securities shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
respective dates of filing such documents.
Any statement or information contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed modified or
superseded for the purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which 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 Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the documents incorporated by reference herein
(not including any exhibits to the information that is incorporated by reference
unless such exhibits are specifically incorporated by reference to the
information that this Prospectus incorporates). Requests should be directed to:
U.S. Restaurant Properties, Inc., 5310 Harvest Hill Road, Suite 270, Dallas,
Texas 75230, Attention: Michael D. Warren, telephone (972) 387-1487.
FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference herein
may contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, and as such may involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Forward-looking statements, which are based
on certain assumptions and describe future plans, strategies and expectations of
the Company, are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend" or "project"
or the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse effect on the operations and future
prospects of the Company include, but are not limited to, changes in: economic
conditions generally and the real estate market specifically,
legislative/regulatory changes
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<PAGE> 15
(including changes to laws governing the taxation of REITs), availability of
capital, interest rates, competition, supply and demand for properties in
current and proposed market areas of the Company and general accounting
principles, policies and guidelines applicable to REITs. These risks and
uncertainties should be considered in evaluating any forward-looking statements
contained herein.
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<PAGE> 16
THE COMPANY
U.S. Restaurant Properties, Inc. (together with its subsidiaries, the
"Company"), a fully integrated, self-administered and self-managed REIT,
acquires, owns, manages and selectively develops income-producing properties
that it leases on a triple net basis primarily to operators of national and
regional fast food and casual dining chain restaurants such as Burger King(R),
Arby's(R), Dairy Queen(R), Grandy's(R) and Pizza Hut(R). At July 31, 1997, the
Company's portfolio consisted of 494 restaurant properties located in 44 states
operated by approximately 200 operators and representing over 45 franchise
affiliations. Approximately 99.5% of the Company's portfolio is leased with an
average remaining lease term of over ten years.
The Company, together with its predecessors, has been engaged in the
business of leasing restaurant properties since 1986. Prior to 1994, the
Company's portfolio was limited to approximately 125 Burger King(R) restaurant
properties. In May 1994, existing management assumed control of the Company and
began restructuring operations in a manner that has allowed the Company to
implement a number of new strategies intended to encourage Company growth. These
strategies have involved the Company in new property acquisitions, merchant
banking activities in which the Company acquires entire restaurant chains but
retains only the real estate in order to enhance investment returns, new
property developments of co-branded service centers, securing a $95 million
revolving line of credit and the Merger.
The business and operations of the Company are conducted through U.S.
Restaurant Properties Operating L.P. (the "Operating Partnership"). The
Operating Partnership is a totally-owned Delaware limited partnership subsidiary
of the Company. The Operating Partnership does not conduct any operations that
are independent from those of the Company.
The Company is a Maryland corporation which has elected to be taxed as
a REIT for federal income tax purposes for the year ending December 31, 1997.
The Common Stock is traded on the NYSE under the symbol "USV." The principal
executive offices of the Company are located at 5310 Harvest Hill Road, Suite
270, Dallas, Texas 75230. The telephone number is (972) 387-1487.
USE OF PROCEEDS
Except as otherwise provided in the applicable Prospectus Supplement,
the Company intends to use the net proceeds from any sale of the Offered
Securities for working capital and for general corporate purposes, which may
include the repayment of indebtedness, the financing of capital commitments and
possible future acquisitions associated with the continued expansion of the
Company's business.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to combined fixed charges for the periods shown:
<TABLE>
<CAPTION>
Years ended December 31, Six Months ended
1992 1993 1994 1995 1996 6/30/96 6/30/97
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges 20.73x 42.60x 55.86x 20.77x 3.74x 4.02x 2.06x
</TABLE>
The ratios of earnings to fixed charges were computed by dividing the
Company's earnings by fixed charges. For this purpose, earnings have been
calculated by adding fixed charges (excluding capitalized interest) to pretax
income from continuing operations. Fixed charges consist of interest costs,
whether expensed or
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<PAGE> 17
capitalized, the interest component of rental expense, if any, and amortization
of deferred financing costs (including amounts capitalized). To date, the
Company has not issued any Preferred Stock; therefore, the ratios of earnings to
combined fixed charges and Preferred Stock distributions are the same as the
ratios of earnings to fixed charges.
Prior to 1995, the operations of, and the amount of indebtedness which
could be incurred by, the Predecessor were limited by its partnership agreement.
In connection with the restructuring of its operations in 1995, the
Predecessor's partnership agreement was amended to permit the expansion of its
portfolio. Since that time, the Predecessor's acquisitions have been funded
through a mixture of debt and equity, resulting in an increased fixed charge for
interest expense.
DESCRIPTION OF COMMON STOCK
GENERAL
Under the Company's Amended and Restated Articles of Incorporation (the
"Charter"), the Company has authority to issue 60 million shares of capital
stock, par value $.001 per share, with 45 million of such shares designated as
Common Stock. Upon completion of the Merger, the Company will have outstanding
8,354,354 shares of Common Stock. Under Maryland law, stockholders generally are
not responsible for a corporation's debts or obligations. The following
descriptions do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the more complete descriptions thereof set forth
in the following documents: (i) the Charter and (ii) the Company's By-Laws (the
"By-Laws"), which documents are exhibits to the Registration Statement of which
this Prospectus is a part.
TERMS
Subject to the preferential rights of any other shares or series of
capital stock and to the provisions of the Charter regarding excess stock
("Excess Stock"), holders of shares of Common Stock will be entitled to receive
distributions on shares of Common Stock if, as and when authorized and declared
by the Board of Directors out of assets legally available therefor and to share
ratably in the assets of the Company legally available for distribution to its
stockholders in the event of its liquidation, dissolution or winding up after
payment of, or adequate provision for, all known debts and liabilities of the
Company.
Subject to the provisions of the Charter regarding Excess Stock, each
outstanding share of Common Stock entitles the holder 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 such shares 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, together with any other voting stock of the Company, 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 Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company,
except that Common Stock is convertible into Excess Stock as provided in the
Charter.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
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<PAGE> 18
Subject to the provisions of the Charter regarding Excess Stock, shares
of Common Stock will have equal distribution, liquidation and other rights, and
will have no preference, appraisal or exchange rights.
Pursuant to the Maryland General Corporation Law ("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 outside the ordinary course of business unless approved by the
affirmative vote of stockholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter) is set forth in
the corporation's charter. The Charter provides that in such situations the
approval of a majority of the total number of the shares entitled to vote on the
matter is required.
Provisions of the Charter described below under "Restrictions on
Transfers of Capital Stock," together with other provisions of the Charter and
of the MGCL, may discourage a takeover or other transaction which holders of
some, or a majority, of the shares of Common Stock might believe to be in their
best interests or 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 of such shares of Common Stock.
RESTRICTIONS ON TRANSFER AND OWNERSHIP
Following the Merger, the Company will elect to be treated as a REIT
for federal income tax purposes. For the Company to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in
value of its outstanding shares of capital stock 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. To assist the Company
in meeting this requirement, the Charter contains certain provisions restricting
certain transfers and limiting the beneficial ownership, directly or indirectly,
of the Company's Common Stock. See "Restrictions on Transfers of Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with any
other Offered Securities offered by any Prospectus Supplement and may be
attached to or separate from such Offered Securities. Each series of Common
Stock Warrants will be issued under a separate warrant agreement (each, a
"Warrant Agreement") to be entered into between the Company and a warrant agent
specified in the applicable Prospectus Supplement (the "Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Common Stock Warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
Common Stock Warrants. The following description of the Common Stock Warrants
sets forth certain general terms and provisions of the Common Stock Warrants to
which any Prospectus Supplement may relate. The statements below describing the
Common Stock Warrants and the applicable Warrant Agreements are in all respects
subject to and qualified in their entirety by any further terms and provisions
that may be set forth in any applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Common Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (i) the title of such
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<PAGE> 19
Common Stock Warrants; (ii) the aggregate number of such Common Stock Warrants;
(iii) the price or prices at which such Common Stock Warrants will be issued;
(iv) the designation, number and terms of the shares of Common Stock purchasable
upon exercise of such Common Stock Warrants; (v) the designation and terms of
the other Offered Securities with which such Common Stock Warrants are issued
and the number of such Common Stock Warrants issued with each such Offered
Security; (vi) the date, if any, on and after which such Common Stock Warrants
and the related Common Stock will be separately transferable; (vii) the price at
which each share of Common Stock purchasable upon exercise of such Common Stock
Warrants may be purchased; (viii) the date on which the right to exercise such
Common Stock Warrants shall commence and the date on which such right shall
expire; (ix) the minimum or maximum amount of such Common Stock Warrants which
may be exercised at any one time; (x) information with respect to book-entry
procedures, if any; (xi) a discussion of all material federal income tax
considerations; and (xii) any other terms of such Common Stock Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Common Stock Warrants.
Each Common Stock Warrant will entitle the holder thereof to purchase
such number of shares of Common Stock, as the case may be, at such exercise
price as shall, in each case, be set forth in, or calculable from, the
applicable Prospectus Supplement relating to the offered Common Stock Warrants.
Prior to the exercise of any Common Stock Warrants, holders of such Common Stock
Warrants will not have any rights of holders of Common Stock, including the
right to receive payments of distributions, if any, on such Common Stock, or to
exercise any applicable right to vote. After the close of business on the
expiration date of any series of Common Stock Warrants (or such later date to
which such expiration date may be extended by the Company), unexercised Common
Stock Warrants will become void.
Common Stock Warrants may be exercised by delivering to the Warrant
Agent payment, as provided in the applicable Prospectus Supplement, of the
amount required to purchase the Common Stock purchasable upon such exercise and
otherwise by following the procedures specified in such Prospectus Supplement.
The Warrant Agreements may be amended or supplemented without the
consent of the holders of the Common Stock Warrants issued thereunder to effect
changes that are not inconsistent with the provisions of the Common Stock
Warrants and that do not adversely affect the interests of the holders of the
Common Stock Warrants.
Reference is made to the section captioned "Description of Common
Stock" for a general description of the Common Stock to be acquired upon the
exercise of the Common Stock Warrants, including a description of certain
restrictions on the ownership or transfer of Common Stock.
DESCRIPTION OF PREFERRED STOCK
GENERAL
Under the Charter, the Company has authority to issue 10 million shares
of Preferred Stock, none of which is outstanding as of the date of this
Prospectus. Prior to issuance of shares of each series, the Board of Directors
is required by the MGCL and the Charter to fix for each series, subject to the
provisions of the Charter regarding Excess Stock, the number of shares to be
included in each series and the preferences, conversion or other rights, voting
powers, restrictions (including restrictions on transfers of shares),
limitations as to dividends, qualifications and terms or conditions of
redemption, and to file articles supplementary to the Charter (the "Articles
Supplementary") reflecting such terms, preferences and other rights. Except as
may be expressly provided with respect to any class or series of Preferred
Stock, no holder of the Preferred Stock will have any preemptive rights. The
Board of Directors could authorize the issuance of shares of Preferred Stock
with terms and conditions that
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<PAGE> 20
could have the effect of discouraging a takeover or other transaction which
holders of some, or a majority, of the shares of Common Stock might believe to
be in their best interests or 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 of such shares of Common Stock.
TERMS
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Charter and the By-Laws and any Articles
Supplementary designating the terms of a series of Preferred Stock.
Reference is made to the Prospectus Supplement relating to the
Preferred Stock offered thereby for the specific terms thereof, including, where
applicable, the following:
(1) The title of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of
such Preferred Stock;
(3) The distribution rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred
Stock;
(4) The date from which distributions on such Preferred Stock
shall accumulate, if applicable;
(5) The provision for a sinking fund, if any, for such Preferred
Stock;
(6) The provision for redemption, if applicable, of such Preferred
Stock;
(7) Any listing of such Preferred Stock on any securities
exchange;
(8) The terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Common Stock,
including the conversion price or rate (or manner of
calculation thereof);
(9) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(10) A discussion of all material federal income tax considerations
applicable to such Preferred Stock;
(11) The relative ranking and preference of such Preferred Stock as
to distribution rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
(12) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred
Stock as to distribution rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company; and
(13) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate
to preserve the status of the Company as a REIT.
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RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Stock will, with respect to distribution rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to the
Common Stock and to all equity securities ranking junior to such Preferred Stock
with respect to distribution rights or rights upon liquidation, dissolution or
winding up of the Company; (ii) on a parity with all equity securities issued by
the Company, the terms of which specifically provide that such equity securities
rank on a parity with the Preferred Stock with respect to distribution rights or
rights upon liquidation, dissolution or winding up of the Company; and (iii)
junior to all equity securities issued by the Company, the terms of which
specifically provide that such equity securities rank senior to the Preferred
Stock with respect to distribution rights or rights upon liquidation,
dissolution or winding up of the Company.
DISTRIBUTIONS
Holders of the Preferred Stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors, out of assets of
the Company legally available for payment, cash distributions at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Each
such distribution shall be payable to holders of record as they appear on the
stock transfer books of the Company on such record dates as shall be fixed by
the Board of Directors.
Distributions on any series of the Preferred Stock may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement.
Distributions, if cumulative, will be cumulative from and after the date set
forth in the applicable Prospectus Supplement. If the Board of Directors fails
to declare a distribution payable on a distribution payment date on any series
of the Preferred Stock for which distributions are noncumulative, then the
holders of such series of the Preferred Stock will have no right to receive a
distribution in respect of the distribution period ending on such distribution
payment date, and the Company will have no obligation to pay the distribution
accrued for such period, whether or not distributions on such series are
declared payable on any future distribution payment date.
If Preferred Stock of any series is outstanding, no distributions will
be declared or paid or set apart for payment on any capital stock of the Company
of any other series ranking, as to distributions, on a parity with or junior to
the Preferred Stock of such series for any period, unless (i) if such series of
Preferred Stock has a cumulative distribution, full cumulative distributions
have been or contemporaneously are declared and paid, or declared and a sum
sufficient for the payment thereof is set apart for such payment on the
Preferred Stock of such series for all past distribution periods and the then
current distribution period, or (ii) if such series of Preferred Stock does not
have a cumulative distribution, full distributions for the then current
distribution period have been or contemporaneously are declared and paid, or
declared and a sum sufficient for the payment thereof is set apart for such
payment on the Preferred Stock of such series. When distributions are not paid
in full (or a sum sufficient for such full payment is not so set apart) upon
Preferred Stock of any series and the shares of any other series of Preferred
Stock ranking on a parity as to distributions with the Preferred Stock of such
series, all distributions declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to distributions with
such Preferred Stock shall be declared pro rata so that the amount of
distributions declared per share of Preferred Stock of such series and such
other series of Preferred Stock shall in all cases bear to each other the same
ratio that accrued distributions per share on the Preferred Stock of such series
(which shall include any accumulation in respect of unpaid distributions for
prior distribution periods if such Preferred Stock provides for a cumulative
distribution) and such other series of Preferred Stock bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on Preferred Stock of such series that may
be in arrears.
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Except as provided in the immediately preceding paragraph, unless (i)
if such series of Preferred Stock has a cumulative distribution, full cumulative
distributions on the Preferred Stock of such series have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof is set apart for payment for all past distribution periods
and the then current distribution period, or (ii) if such series of Preferred
Stock does not have a cumulative distribution, full distributions on the
Preferred Stock of such series have been or contemporaneously are declared and
paid, or declared and a sum sufficient for the payment thereof is set apart for
payment for the then current distribution period, no distributions (other than
in shares of Common Stock or other shares of capital stock ranking junior to the
Preferred Stock of such series as to distributions and upon liquidation) shall
be declared or paid or set aside for payment nor shall any other distribution be
declared or made upon the Common Stock or any other capital stock of the Company
ranking junior to or on a parity with the Preferred Stock of such series as to
distributions or upon liquidation, nor shall any shares of Common Stock or any
other shares of capital stock of the Company ranking junior to or on a parity
with the Preferred Stock of such series as to distributions or upon liquidation,
be redeemed, purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption of any
such shares) by the Company (except by conversion into or exchange for other
capital stock of the Company ranking junior to the Preferred Stock of such
series as to distributions and upon liquidation).
Any distribution payment made on shares of a series of Preferred Stock
shall first be credited against the earliest accrued but unpaid distribution due
with respect to shares of such series that remain payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Stock will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The applicable Prospectus Supplement relating to a series of Preferred
Stock that is subject to mandatory redemption will specify the number of shares
of such Preferred Stock that shall be redeemed by the Company in each year
commencing after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to all accrued and unpaid distributions
thereon (which shall not, if such Preferred Stock does not have a cumulative
distribution, include any accumulation in respect of unpaid distributions for
prior distribution periods) to the date of redemption. The redemption price may
be payable in cash or other property, as specified in the applicable Prospectus
Supplement. If the redemption price for Preferred Stock of any series is payable
only from the net proceeds of the issuance of shares of capital stock of the
Company, the terms of such Preferred Stock may provide that if no such shares of
capital stock shall have been issued, or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such Preferred Stock shall automatically and mandatorily be converted into
the applicable shares of capital stock of the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred
Stock has a cumulative distribution, full cumulative distributions on all
outstanding shares of such series of Preferred Stock shall have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for payment for all past distribution periods and
the then current distribution period, or (ii) if a series of Preferred Stock
does not have a cumulative distribution, full distributions on all shares of the
Preferred Stock of such series have been or contemporaneously are declared and
paid, or declared and a sum sufficient for the payment thereof set apart for
payment for the then current distribution period, no shares of such series of
Preferred Stock shall be redeemed unless all outstanding shares of Preferred
Stock of such series are simultaneously redeemed; provided, however, that the
foregoing shall not prevent the purchase or acquisition of Preferred Stock of
such series to preserve the REIT status of the Company or pursuant to a purchase
or exchange offer made on the same terms to
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<PAGE> 23
holders of all outstanding shares of Preferred Stock of such series. In
addition, unless (i) if such series of Preferred Stock has a cumulative
distribution, full cumulative distributions on all outstanding shares of such
series of Preferred Stock have been or contemporaneously are declared and paid,
or declared and a sum sufficient for the payment thereof set apart for payment
for all past distribution periods and the then current distribution period, or
(ii) if such series of Preferred Stock does not have a cumulative distribution,
full distributions on the Preferred Stock of such series have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for payment for the then current distribution
period, the Company shall not purchase or otherwise acquire directly or
indirectly any shares of such series of Preferred Stock (except by conversion
into or exchange for capital shares of the Company ranking junior to the
Preferred Stock of such series as to distributions and upon liquidation);
provided, however, that the foregoing shall not prevent the purchase or
acquisition of shares of Preferred Stock of such series to preserve the REIT
status of the Company or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding shares of Preferred Stock of such
series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by any other equitable manner determined by
the Company.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Preferred Stock
of any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that distributions on
the shares to be redeemed will cease to accrue on such redemption date; and (vi)
the date upon which the holder's conversion rights, if any, as to such shares
shall terminate. If fewer than all the shares of Preferred Stock of any series
are to be redeemed, the notice mailed to each such holder thereof shall also
specify the number of shares of Preferred Stock to be redeemed from each such
holder. If notice of redemption of any Preferred Stock has been given and if the
funds necessary for such redemption have been set aside by the Company in trust
for the benefit of the holders of any Preferred Stock so called for redemption,
then from and after the redemption date distributions will cease to accrue on
such Preferred Stock, and all rights of the holders of such shares will
terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Common Stock or any other class or series of
capital stock of the Company ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company, the holders of each series of Preferred Stock shall be entitled to
receive out of assets of the Company legally available for distribution to
stockholders liquidating distributions in the amount of the liquidation
preference per share, if any, set forth in the applicable Prospectus Supplement,
plus an amount equal to all distributions accrued and unpaid thereon (which
shall include any accumulation in respect of unpaid cumulative distributions for
prior distribution periods). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding shares of Preferred
Stock and the corresponding amounts payable on all shares of other classes or
series of capital stock of the Company ranking on a parity with the
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<PAGE> 24
Preferred Stock in the distribution of assets, then the holders of the Preferred
Stock and all other such classes or series of capital stock ranking on parity
with the Preferred Stock shall share ratably in any such distribution of assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all
holders of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except
as set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock of a series remain outstanding, the Company will
not, (i) without the affirmative vote or consent of the holders of at least a
majority of the shares of such series of Preferred Stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
senior to such series of Preferred Stock with respect to payment of
distributions or the distribution of assets upon liquidation, dissolution or
winding up of the Company or reclassify any authorized capital stock of the
Company into such shares, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such shares,
or (ii) without the affirmative vote or consent of the holders of at least a
majority of the shares of such series of Preferred Stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), amend, alter or repeal the provisions of
the Charter or the Articles Supplementary for such series of Preferred Stock,
whether by merger, consolidation or otherwise (an "Event"), so as to materially
and adversely affect any right, preference, privilege or voting power of such
series of Preferred Stock or the holders thereof; provided, however, with
respect to the occurrence of any Event set forth in (ii) above, so long as the
Preferred Stock remains outstanding with the terms thereof materially unchanged,
taking into account that upon the occurrence of an Event the Company may not be
the surviving entity, the occurrence of any such Event shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
power of holders of Preferred Stock, and provided further that (i) any increase
in the amount of the authorized Preferred Stock or the creation or issuance of
any other series of Preferred Stock or (ii) any increase in the amount of
authorized shares of such series or any other series of Preferred Stock, in each
case ranking on a parity with or junior to the Preferred Stock of such series
with respect to payment of distributions or the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series of Preferred Stock
shall have been redeemed or called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.
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<PAGE> 25
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred
Stock is convertible into Common Stock will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
shares of Common Stock into which the shares of Preferred Stock are convertible,
the conversion price or rate (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the holders
of the Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and the provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
RESTRICTIONS ON TRANSFER AND OWNERSHIP
The provisions contained in the Charter restricting certain transfers
and limiting the beneficial ownership, directly or indirectly, of the Company's
outstanding capital stock will effect any shares of Preferred Stock that may
from time to time be issued by the Company. See "Restrictions on Transfers of
Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for the Preferred Stock will be set
forth in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (a "Preferred Stock
Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the applicable Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipt, to all the rights and preferences
of the Preferred Stock represented by such Depositary Shares (including
distribution, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to Deposit Agreements and
the Depositary Receipts to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
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<PAGE> 26
DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
distributions received in respect of the applicable Preferred Stock to the
record holders of Depositary Receipts evidencing the related Depositary Shares
in proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to such Preferred Stock
Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which has been converted or
exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office
of the applicable Preferred Stock Depositary (unless the related Depositary
Shares have previously been called for redemption or converted), the holders
thereof will be entitled to delivery at such office, to or upon each such
holder's order, of the number of whole or fractional shares of the applicable
Preferred Stock and any money or other property represented by the Depositary
Shares evidenced by such Depositary Receipts. Holders of Depositary Receipts
will be entitled to receive whole or fractional shares of the related Preferred
Stock on the basis of the proportion of Preferred Stock represented by each
Depositary Share as specified in the applicable Prospectus Supplement, but
holders of such shares of Preferred Stock will not thereafter be entitled to
receive Depositary Shares therefor. If the Depositary Receipts delivered by the
holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of Preferred Stock to be
withdrawn, the applicable Preferred Stock Depositary will be required to deliver
to such holder at the same time a new Depositary Receipt evidencing such excess
number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by a
Preferred Stock Depositary, such Preferred Stock Depositary will be required to
redeem as of the same redemption date the number of Depositary Shares
representing shares of the Preferred Stock so redeemed, provided the Company
shall have paid in full to such Preferred Stock Depositary the redemption price
of the Preferred Stock to be redeemed plus an amount equal to any accrued and
unpaid distributions thereon to the date fixed for redemption. The redemption
price per Depositary Share will be equal to the redemption price and any other
amounts per share payable with respect to the Preferred Stock. If fewer than all
the Depositary Shares are to be redeemed, the Depositary Shares to be redeemed
will be selected pro rata (as nearly as may be practicable without creating
fractional Depositary Shares) or by any other equitable method determined by the
Company that preserves the REIT status of the Company.
From and after the date fixed for redemption, all distributions in
respect of the shares of Preferred Stock so called for redemption will cease to
accrue, the Depositary Shares so called for redemption will no longer be deemed
to be outstanding and all rights of the holders of the Depositary Receipts
evidencing the Depositary Shares so called for redemption will cease, except the
right to receive any moneys payable upon such redemption and any
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<PAGE> 27
money or other property to which the holders of such Depositary Receipts were
entitled upon such redemption upon surrender thereof to the applicable Preferred
Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of each Depositary
Receipt will be entitled to the fraction of the liquidation preference accorded
each share of Preferred Stock represented by the Depositary Share evidenced by
such Depositary Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common
Stock or any other securities or property of the Company. Nevertheless, if so
specified in the applicable Prospectus Supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders thereof
to the applicable Preferred Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct the Company to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of Preferred
Stock of the Company or other shares of stock, and the Company will agree that
upon receipt of such instructions and any amounts payable in respect thereof, it
will cause the conversion thereof utilizing the same procedures as those
provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a new Depositary Receipt or Depositary Receipts will be issued for any
Depositary Shares not to be converted. No fractional shares of Common Stock will
be issued upon conversion, and if such conversion will result in a fractional
share being issued, an amount will be paid in cash by the Company equal to the
value of the fractional interest based upon the closing price of the Common
Stock on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the
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<PAGE> 28
Company and the applicable Preferred Stock Depositary. However, any amendment
that materially and adversely alters the rights of the holders of Depositary
Receipts or that would be materially and adversely inconsistent with the rights
granted to the holders of the related Preferred Stock will not be effective
unless such amendment has been approved by the existing holders of at least
two-thirds of the applicable Depositary Shares evidenced by the applicable
Depositary Receipts then outstanding. No amendment shall impair the right,
subject to certain anticipated exceptions in the Deposit Agreements, of any
holders of Depositary Receipts to surrender any Depositary Receipt with
instructions to deliver to the holder the related Preferred Stock and all money
and other property, if any, represented thereby, except in order to comply with
any applicable law. Every holder of an outstanding Depositary Receipt at the
time any such amendment becomes effective shall be deemed, by continuing to hold
such Depositary Receipt, to consent and agree to such amendment and to be bound
by the applicable Deposit Agreement as amended thereby.
A Deposit Agreement will be permitted to be terminated by the Company
upon not less than 30 days' prior written notice to the applicable Preferred
Stock Depositary if (i) such termination is necessary to preserve the Company's
status as a REIT or (ii) a majority of each series of Preferred Stock affected
by such termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
receipts to such Depositary Receipts. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list the Preferred Stock issued upon
surrender of the related Depositary Shares on a national securities exchange. In
addition, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares thereunder shall have been redeemed; (ii) there
shall have been a final distribution in respect of the related Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Stock; or
(iii) each share of the related Preferred Stock shall have been converted into
stock of the Company not so represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental
charges arising solely from the existence of a Deposit Agreement. In addition,
the Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of a
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the applicable
Deposit Agreement.
RESIGNATION AND REMOVAL OF A PREFERRED STOCK DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50 million.
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<PAGE> 29
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor the Company will be liable if
it is prevented from or delayed in, by law or any circumstances beyond its
control, performing its obligations under a Deposit Agreement. The obligations
of the Company and a Preferred Stock Depositary under a Deposit Agreement will
be limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither the Company nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and any Preferred Stock Depositary will be permitted to rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, such Preferred Stock Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
For the Company to maintain its status as a REIT under the Code, shares
of Common Stock must be beneficially owned by 100 or more persons during at
least 335 days of the taxable year of 12 months (other than the first year) or
during a proportionate part of a shorter taxable year. Also, not more than 50%
of the value of the 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) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year.
Because the Board of Directors believes it is essential for the Company
to qualify as a REIT, the Charter, subject to certain exceptions, provides that
no holder may own, or be deemed to own by virtue of the attribution provisions
of the Code, more than (i) 9.8% of the number of issued and outstanding shares
of Common Stock of the Company, except for QSV Properties, Inc. ("QSV") which
may own initially no more than 12% 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 Limit").
Any purported transfer of shares of Common Stock that would (i) result
in a person (other than QSV with respect to shares of Common Stock) owning,
directly or indirectly, shares of Common Stock or Preferred Stock in excess of
the Ownership Limit, (ii) result in QSV owning, directly or indirectly, in
excess of 12% 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 Company being
"closely held" within the meaning of Section 856(h) of the Code, or (v) cause
the Company to own, directly or constructively, 10% or more of the ownership
interests in a tenant of the Company'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
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Stock or Preferred Stock. Such Common Stock or Preferred stock will be
designated as Excess Stock and will be 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 Company for registration in the name of the Trust. The Trustee of the Trust
will be designated by the Company, but will not be affiliated with the Company
or any Prohibited Owner. The beneficiary of the Trust (the "Beneficiary") will
be one or more not-for-profit organizations that are named by the Company.
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 (a) 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 (b) 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
Company, 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 Company, or
its designee, accepts such offer. The Company 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 means the last 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 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 Board in its discretion.
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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 Company of
such event and (ii) to provide to the Company such other information as the
Company may request in order to determine the effect, if any, of such transfer
on the Company's status as a REIT.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution
provisions of the Code, more than 5% (or such other percentage between 0.5% and
5%, as provided in the rules and regulations promulgated under the Code) of the
number or value of the outstanding shares of Common Stock of the Company must
give a written notice to the Company by January 31 of each year stating the name
and address of such person, the number of shares of each class or series so
owned and a description of how such shares are owned. In addition, each
stockholder shall upon demand be required to disclose to the Company in writing
such information with respect to the direct, indirect and constructive ownership
of shares of Common Stock as the Board of Directors deems reasonably necessary
to comply with the provisions of the Code applicable to a REIT, to comply with
the requirements of any taxing authority or governmental agency or to determine
any such compliance.
These ownership limitations 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 believe to be in their best interests or in which holders
of some, or a majority, of the shares of Common Stock might receive a premium
for their shares over the then-prevailing market price of such shares of Common
Stock or which such holders might believe to be otherwise in their best
interest.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities through underwriters or
dealers, directly to one or more purchasers (including executive officers of the
Company or other persons that may be deemed affiliates of the Company), through
agents or through a combination of any such methods of sale. Any underwriter
involved in the offer and sale of the Offered Securities will be named in the
applicable Prospectus Supplement.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of the sale, at prices related
to such prevailing market prices or at negotiated prices. Further, the
distribution of any Common Stock in one or more special offerings pursuant to a
dividend reinvestment plan or other similar plan of the Company may be effected
from time to time at a fixed price or prices, which may be changed, at market
prices prevailing at the time of the sale, at prices related to such prevailing
market prices or at negotiated prices.
In connection with the sale of the Offered Securities, underwriters or
agents may receive compensation from the Company or from purchasers of the
Offered Securities, for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters may sell the Offered Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Underwriters, dealers and
agents that participate in the distribution of the Offered Securities may be
deemed to be underwriters under the Securities Act, and any discounts or
commissions they receive from the Company and any profit on the resale of the
Offered Securities they realize may be deemed to be underwriting discounts and
commissions under the
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Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from the Company will be described, in the applicable
Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
each series of the Offered Securities will be a new issue with no established
trading market, other than the Common Stock which is listed on the NYSE. Any
shares of Common Stock sold pursuant to a Prospectus Supplement will be listed
on the NYSE, subject to official notice of issuance. The Company may elect to
list any series of Common Stock Warrants, Preferred Stock or Depositary Shares
on an exchange, but is not obligated to do so. It is possible that one or more
underwriters may make a market in a series of the Offered Securities, but will
not be obligated to do so and may discontinue any market making at any time
without notice. Therefore, no assurance can be given as to the liquidity of, or
the trading market for, the Offered Securities.
Under agreements into which the Company may enter, underwriters,
dealers and agents who participate in the distribution of the Offered Securities
may be entitled to indemnification by the Company, as the case may be, against
certain liabilities, including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company in the ordinary course of
business.
FEDERAL INCOME TAX CONSIDERATIONS
The Company will elect to be treated as a REIT for federal income tax
commencing with its taxable year ending December 31, 1997. Based on certain
assumptions and representations that are summarized below, Winstead Sechrest &
Minick P.C., counsel to the Company, is of the opinion that beginning with its
taxable year ending December 31, 1997, the Company has been organized in
conformity with the requirements for qualification as a REIT and that its
proposed method of operations described in this Prospectus will enable it to
satisfy the requirements for such qualification. 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. Winstead Sechrest &
Minick P.C. will not monitor the Company's compliance with these requirements.
While the Company expects to satisfy these tests, and will use its best efforts
to do so, no assurance can be given that the Company will qualify as a REIT for
any particular year, or that the applicable law will not change and adversely
affect the Company and its stockholders. See "--Failure to Qualify as a REIT."
The Taxpayer Relief Act of 1997 (the "Tax Act") contained several provisions
affecting REIT's and is generally effective January 1, 1998. The following is a
summary of the material federal income tax considerations affecting the Company
as a REIT and its stockholders:
REIT QUALIFICATION. Entities like the Company 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 Company qualifies for taxation as a REIT, it
generally will not be subject to corporate income tax to the extent the Company
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
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 Company as a
REIT." In addition, if the Company fails to qualify as a REIT in any taxable
year, it will be subject to federal income tax at regular corporate rates on all
of its taxable income.
General Qualification Requirements. The Company 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
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company. The Company must be managed by one or more directors. The Company's
taxable year must be the calendar year. The Company expects to meet each of
these requirements. The Company also expects to satisfy the requirements that
are separately described below concerning share ownership and reporting, the
nature and amounts of the Company's income and assets and the levels of required
annual distributions.
Share Ownership; Reporting. Beneficial ownership of the Company must be
and is evidenced by transferable shares. The Company's capital stock must be
held by at least 100 persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a taxable year of less than 12 months.
Not more than 50% of the value of the shares of capital stock of the Company 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
Company's taxable years. The Company is not required to satisfy the 100 person
and 50% tests until its second taxable year for which an election is made to be
taxed as a REIT. The Company believes that its shares of Common Stock will be
owned by a sufficient number of investors and in appropriate proportions to
permit it to satisfy 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 Company's
REIT status.
To monitor the Company's compliance with the share ownership
requirements, the Company is required to and will maintain records disclosing
the actual ownership of common shares. To do so, the Company will demand written
statements each year from the record holders of certain percentages of shares in
which the record holders are to disclose the 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 will be maintained
as part of the Company'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 Company 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 Company 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
Company 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 Company'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 Company's compliance with the 75%
income test (as well as the 95% income test described below), gross income does
not include gross
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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 Company for at least four years.
The Company 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 Company 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 Company 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 Company will have leases where rent is based on a
percentage of gross income. Also excluded from "rents from real property" is
rent received from a person or corporation in which the Company (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
("Related Party Tenant Rent"). The Company, 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 Company furnishes services to the tenants or manages or operates
the property, other than through an "independent contractor" from whom the
Company does not derive any income. The obligation to operate through an
independent contractor generally does not apply, however, if the services
provided by the Company 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 Tax Act provides a de
minimis rule for non-customary services which is effective for taxable years
beginning after August 5, 1997. If the value of the non-customary service income
with respect to a property (valued at no less than 150% of the Company's direct
cost of performing such services is 1% or less of the total income derived from
the property, then all rental income except the non-customary service income
will qualify as "rents from real property." This provision will be effective for
the Company's taxable year ending December 31, 1998.
The Company will, in most instances, directly operate and manage its
assets without using an "independent contractor." The Company 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 Company 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 Company believes
that substantially all of its rental income will be qualifying income under the
75% income test, and that the Company's provision of services will not cause the
rental income to fail to be included under that test.
Upon the Company'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 Company'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.
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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) the Company may receive certain types of such income.
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
(including Related Party Tenant Rent, as discussed above) are expected to be at
all times less than 5% of the Company's annual gross income. While the Company
does not anticipate that it will earn substantial amounts of nonqualifying
income, if nonqualifying income exceeds 5% of the Company's gross income, the
Company could lose its status as a REIT. The Company may establish subsidiaries
of which the Company will hold less than 10% of the Voting Stock to hold assets
generating non-qualifying income. The gross income generated by these
subsidiaries would not be included in the Company's gross income. However,
dividends from such subsidiaries to the Company would be included in the
Company's gross income and qualify for the 95% income test.
If the Company 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 Company 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 Company as a REIT."
30% Income Test. The Company 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
Company 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 Company's status as a REIT. Because the Company expects to hold
its assets for long-term investment and does not anticipate selling them within
four years, the Company expects to comply with this requirement. The Tax Act
repeals the 30% gross income test for taxable years beginning after its
enactment on August 5, 1997. Thus, the 30% gross income test will apply only to
the Company's taxable year ending December 31, 1997.
Character of Assets Owned. On the last day of each calendar quarter,
the Company also must meet two tests concerning the nature of its investments.
First, at least 75% of the value of the total assets of the Company 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 Company receives the new
capital. Second, although the balance of the Company's assets generally may be
invested without restriction, the Company will not be permitted to own (i)
securities of any one non-governmental issuer that represent more than 5% of the
value of the Company'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 assets, if the REIT invests in a partnership,
it is deemed to own its proportionate share of the assets of the partnership.
The Company 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 Company's investments will
be in properties which should represent qualifying real estate assets.
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Annual Distributions to Stockholders. To maintain REIT status, the
Company 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 Company 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" (including as a result of the Tax Act, inter alia,
cancellation of indebtedness and original issue discount 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 Company and its stockholders). Other
dividends declared before the due date of the Company's tax return for the
taxable year (including extensions) also will be treated as paid in the prior
year for the Company if they are paid (i) within 12 months of the end of such
taxable year and (ii) no later than the Company'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 Company for a prior year. A nondeductible excise
tax equal to 4% will be imposed on the Company 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 Company's "ordinary income"
plus (b) 95% of the Company's capital gain net income plus (c) any undistributed
income from prior periods.
The Company will be taxed at regular corporate rates to the extent that
it retains any portion of its taxable income (e.g., if the Company distributes
only the required 95% of its taxable income, it would be taxed on the retained
5%). Under certain circumstances the Company may not have sufficient cash or
other liquid assets to meet the distribution requirement. This could arise
because of competing demands for the Company's funds, 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 Company does not anticipate
any difficulty in meeting this requirement, no assurance can be given that
necessary funds will be available. In the event that such circumstances do
occur, then in order to meet the 95% distribution requirement, the Company may
cause the Operating Partnership to arrange for short-term, or possibly
long-term, borrowings to permit the payment of required dividends.
If the Company fails to meet the 95% distribution requirement because
of an adjustment to the Company's taxable income by the IRS, the Company 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 COMPANY AS A REIT. The Company 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 Company qualifies as a REIT, it
generally will be taxed only on the portion of its taxable income that it
retains (which will include any undistributed net capital gain), because the
Company will be entitled to a deduction for 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 Company does not anticipate that it will pay any such
preferential dividends. The Articles provide for the automatic exchange of
outstanding shares for Excess Stock in circumstances in which the
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Company'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
Company 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 Company's
ability to deduct its dividend payments.
Even if it qualifies as a REIT, the Company will be subject to tax in
certain circumstances. The Company 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 Company 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 Company's REIT Taxable Income to the Company's gross income (excluding
capital gain and certain other items). The Company also will be subject to the
alternative minimum tax on items of tax preference (excluding items specifically
allocable to the Company's stockholders). Finally, under regulations that are to
be promulgated, the Company 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 Company acquires in certain tax-free
corporate transactions, to the extent the gain is recognized during the first
ten years after the Company acquires such assets.
FAILURE TO QUALIFY AS A REIT. For any taxable year in which the Company
fails to qualify as a REIT and certain relief provisions do not apply, it would
be taxed at regular 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 to be made. Any corporate level
taxes generally would reduce the amount of cash available to the Company 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 Company likely would be reduced
substantially. As a result, the Company's failure to qualify as a REIT during
any taxable year could have a material adverse effect upon the Company and its
stockholders. If the Company loses its REIT status, unless certain relief
provisions apply, the Company will not be eligible to elect REIT status again
until the fifth taxable year which begins after the first year for which the
Company's election was terminated.
TAXATION OF STOCKHOLDERS. Distributions generally will be taxable to
stockholders as ordinary income to the extent of the Company'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
Company 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
Company'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. The Tax Act provides that beginning with the taxable year ended
December 31, 1998, if the Company elects to retain and pay income tax on any net
long-term capital gain, stockholders of the Company would include in their
income as long-term capital gain their proportionate share of such net long-term
capital gain. Such stockholders would receive a credit for such stockholder's
proportionate share of the tax paid by the Company on such retained capital
gains and an increase in basis in the stock of the Company in an amount equal to
the difference between the undistributed long-term capital gains and the amount
of tax paid by the Company. Distributions by the Company, whether characterized
as ordinary income or as capital gains, are not eligible for the dividends
received deduction for corporations. Stockholders are not permitted to deduct
losses or loss carry-forwards of the Company. Future
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regulations may require that the stockholders take into account, for purposes of
computing their individual alternative minimum tax liability, certain tax
preference items of the Company.
The Company may generate cash in excess of its net earnings. If the
Company distributes cash to stockholders in excess of the Company'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 Company 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 Stock will be reportable as capital gain or loss. If a stockholder
receives a long-term capital gain dividend from the Company 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 Company fails to qualify as a REIT, the
stockholders generally will continue to be treated in the same fashion described
above, except that none of the Company 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 Company's tax preference items.
BACKUP WITHHOLDING. The Company 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 Company
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 stockholder fails to
supply a correct taxpayer identification number, (ii) when the IRS notifies the
Company 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 stockholder 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 stockholder's
federal income tax liability. The Company 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 Company.
TAXATION OF TAX EXEMPT ENTITIES. In general, a tax exempt entity that
is a stockholder of the Company will not be subject to tax on distributions from
the Company 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
("UBTI"). A tax exempt entity may be subject to UBTI, however, to the extent
that 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.
A qualified trust owning more than 10% of a REIT may be required to
treat a percentage of dividends from the REIT as UBTI. The percentage is
determined by dividing the REIT's gross income (less direct expenses
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<PAGE> 39
related thereto) derived from an unrelated trade or business for the year
(determined as if the REIT were a qualified trust) 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 UBTI. These UBTI 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 each owning more
than 10% of the value of the REIT collectively own more than 50% of the value of
the REIT. The Company does not expect to meet either of the requirements.
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 Company will constitute
UBTI 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 Company. 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 shares of Common Stock,
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 Company of United States real property interests and not designated by the
Company 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 Company. 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 Stock 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 Company 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 Company claiming that the
dividend is effectively connected income. Dividends in excess of current and
accumulated earnings and profits of the Company 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 Company does not intend to make quarterly estimates of
that portion of 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 Company qualifies as a REIT, dividends that
are attributable to gain from sales or exchanges by the Company 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
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<PAGE> 40
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 corporate Non-U.S. Stockholder not entitled
to treaty exemption. The Company is required by the Code and applicable Treasury
Regulations to withhold 35% of any dividend that could be designated by the
Company 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 Company 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 the Company
will be a "domestically controlled REIT," and therefore the sale of shares will
not be subject to taxation under FIRPTA. Because the shares of Common Stock will
be publicly traded, however, no assurance can be given that the Company 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
Common 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 corporate
Non-U.S. Stockholder, 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 Company were not a domestically controlled REIT, whether
or not a Non-U.S. Stockholder's sale of shares of Common Stock would be subject
to tax under FIRPTA would depend on whether or not the shares of Common Stock
were regularly traded on an established securities market (such as the NYSE) and
on the size of selling Non-U.S. Stockholder's interest in the Company. 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 the purchaser of such shares of Common Stock may be required to withhold 10%
of the gross purchase price.
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 Company 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 Company.
LEGAL MATTERS
The validity of the Offered Securities issued hereunder, as well as
legal matters described under "Federal Income Tax Considerations," will be
passed upon for the Company by Winstead Sechrest & Minick P.C., Dallas, Texas,
and certain legal matters will be passed upon for any underwriters, dealers or
agents by the counsel named in the applicable Prospectus Supplement. Winstead
Sechrest & Minick P.C. will rely as to certain matters of Maryland law on the
opinion of Piper & Marbury L.L.P., Baltimore, Maryland.
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<PAGE> 41
EXPERTS
The consolidated financial statements of the Predecessor 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 which are incorporated herein by reference from the Predecessor's
Annual Report on Form 10-K and the balance sheet of the Company as of February
4, 1997, which is incorporated herein by reference from the Company's Current
Report on Form 8-K dated August 22, 1997, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports which are incorporated by
reference herein, and have been so incorporated in reliance upon the reports of
such firm given upon their authority as experts in accounting auditing.
The financial statements listed below of the following entities which
are incorporated herein by reference from the Predecessor's Current Report on
Form 8-K dated August 21, 1997 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated by
reference herein, and have been so incorporated in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing: (i)
Charleston's of Norman, Inc. Statement of Revenues and Certain Expenses for the
fifty-two week period ended March 23, 1997; (ii) Statement of Revenues and
Certain Expenses of the Property Sold to U.S. Restaurant Properties Master L.P.
by David E. Rodgers - Trustee for the year ended December 31, 1996; (iii)
Statement of Revenues and Certain Expenses of Magazine Company Property Sold to
U.S. Restaurant Properties Master L.P. for the year ended December 31, 1996;
(iv) Statement of Revenues and Certain Expenses of Ribbit Holdings, Inc.
Property Sold to U.S. Restaurant Properties Master L.P. for the nine months
ended June 30, 1997; (v) Combined Statement of Revenues and Certain Expenses of
Selected Properties Sold to U.S. Restaurant Properties Master L.P. (Taco Cabana
Acquisition) for the year ended December 31, 1996; (vi) Combined Statement of
Revenues and Certain Expenses of BCL II, L.P. Properties Sold to U.S. Restaurant
Properties Master L.P. for the year ended December 31, 1996; and (vii) Combined
Statement of Revenues and Certain Expenses of Selected Properties Sold to U.S.
Restaurant Properties Master L.P. (Midon Acquisition) for the year ended
December 31, 1996.
The financial statements listed below of the following entities which
are incorporated herein by reference from the Predecessor's Current Report on
Form 8-K dated April 14, 1997 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated by
reference herein and have been so incorporated in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing: (i)
Combined Statement of Revenues and Certain Expenses of RR Restaurant 1986-1
Properties Sold to U.S. Restaurant Properties Master L.P. for the year ended
December 31, 1996; (ii) Selected Properties Sold to U.S. Restaurant Properties
Master L.P. (Bruegger's Acquisition) for the year ended December 31, 1996; and
(iii) Statement of Revenues and Certain Expenses of Tulip Properties Limited
Property Sold to U.S. Restaurant Properties Master L.P. for the year ended
December 31, 1996.
The audit of the Statement of Revenues and Direct Operating Expenses
Applicable to Seventy-Five Arby's Restaurant Properties Acquired by U.S.
Restaurant Properties Master L.P. for the year ended December 28, 1996 which has
been incorporated herein by reference from the Predecessor's Current Report on
Form 8-K dated April 14, 1997, has been audited by Coopers & Lybrand L.L.P.,
independent auditors, as stated in their reports and included and incorporated
herein by reference, and have been so included and incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
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<PAGE> 42
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No person has been authorized to give any information or to make any
representations in connection with the offering of securities made hereby other
than those contained in this Prospectus Supplement or the accompanying
Prospectus and, if given or made, such other information and representations
must not be relied upon as having been authorized by the Company or the
Underwriters. Neither the delivery of this Prospectus Supplement or the
accompanying Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date. This Prospectus
Supplement and the accompanying Prospectus do not constitute an offer to sell or
a solicitation of an offer to buy any securities other than the registered
securities to which they relate. The Prospectus Supplement and the accompanying
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy such securities in any circumstances in which such offer or solicitation is
unlawful.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PROSPECTUS SUPPLEMENT
The Company..................................................S-2
Recent Developments..........................................S-2
Risk Factors.................................................S-4
Use of Proceeds.............................................S-11
Plan of Distribution........................................S-11
PROSPECTUS
Available Information........................................ 2
Incorporation of Certain Documents by Reference.............. 3
Forward-Looking Information.................................. 3
The Company.................................................. 5
Use of Proceeds.............................................. 5
Ratio of Earnings to Fixed Charges........................... 5
Description of Common Stock.................................. 6
Description of Common Stock Warrants......................... 7
Description of Preferred Stock............................... 8
Description of Depositary Shares............................. 14
Restrictions on Transfers of Capital Stock................... 18
Plan of Distribution......................................... 20
Federal Income Tax Considerations............................ 21
Legal Matters................................................ 29
Experts...................................................... 30
</TABLE>
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363,000 SHARES
U.S. Restaurant
Properties, Inc.
Common Stock
__________________
PROSPECTUS SUPPLEMENT
__________________
AUGUST 26, 1998
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