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As filed with the Securities and Exchange Commission on October 30, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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U.S. RESTAURANT PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 75-2687420
(State or other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)
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5310 HARVEST HILL ROAD
SUITE 270, L.B. 168
DALLAS, TEXAS 75230
(972) 387-1487
(Address, including zip code, and telephone number, including area code, of
Registrants' principal executive offices)
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ROBERT J. STETSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5310 HARVEST HILL ROAD
SUITE 270, L.B. 168
DALLAS, TEXAS 75230
(972) 387-1487
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
KENNETH L. BETTS, ESQ.
WINSTEAD SECHREST & MINICK P.C.
1201 ELM STREET, SUITE 5400
DALLAS, TEXAS 75270
(214) 745-5400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time
to time or at one time after the effective date of the Registration Statement as
determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. |_| ________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| ________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED(1) PROPOSED MAXIMUM OFFERING PRICE(2) AMOUNT OF REGISTRATION FEE(3)
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Common Stock, par value $.001 per share(4).....
Preferred Stock, par value $.001 per share(5)..
Total.................................. $175,000,000 $48,650
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(1) The Common Stock and Preferred Stock (collectively, the "Offered
Securities") registered hereunder may be sold separately or together.
(2) The aggregate maximum public offering price of all Offered Securities
issued pursuant to this Registration Statement, including any of such
securities issued upon exchange for or conversion into any other of such
securities, will not exceed $175,000,000.
(3) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
(4) Such indeterminate number of shares of Common Stock as may from time to
time be issued at indeterminate prices or issuable upon conversion of
Preferred Stock registered hereunder.
(5) Such indeterminate number of shares of Preferred Stock as may from time to
time be issued at indeterminate prices.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PROSPECTUS
Subject to Completion
Dated October 30, 1998
U.S. RESTAURANT PROPERTIES, INC.
$175,000,000
Common Stock and Preferred Stock
We are a real estate investment trust dedicated to acquiring, owning,
managing and selectively developing restaurant properties and service stations.
By this prospectus, we may offer, from time to time, shares of our:
o Common Stock
o Preferred Stock
We will provide specific terms of these securities in supplements to
this prospectus. You should read this prospectus and any supplement carefully
before you decide to invest.
This prospectus may not be used to consummate sales of these securities
unless it is accompanied by a prospectus supplement.
The New York Stock Exchange lists our securities under the following
symbols:
o Common Stock (symbol: USV)
o Series A Cumulative Convertible Preferred Stock (symbol:
USVpfA)
To ensure we qualify as a real estate investment trust, no person may
own more than 9.8% of the outstanding shares of either our common stock or any
series of our preferred stock, unless our Board of Directors waives this
limitation.
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These securities have not been approved by the Securities and Exchange
Commission or any state securities commission. None of these organizations has
determined that this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
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The date of this Prospectus is November ___, 1998
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the SEC utilizing a "shelf" registration process. Under this shelf process, we
may, from time to time, sell any combination of the securities described in this
prospectus in one or more offerings up to a total dollar amount of $175,000,000.
This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and any prospectus supplement together with additional information described
under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms.
The SEC allows us to "incorporate by reference" the information we file
with them, which means we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until we have sold all of the securities.
o Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
o Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1998;
o Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1998;
o Current Report on Form 8-K filed February 4, 1998, as amended by the
Form 8-K/A filed March 20, 1998;
o Current Report on Form 8-K filed July 7, 1998, as amended by the Form
8-K/A filed August 21, 1998;
o Current Report on Form 8-K filed on August 21, 1998, as amended by the
Form 8-K/A filed October 6, 1998;
o Current Report on Form 8-K filed on September 25, 1998;
o Registration Statement on Form 8-A dated February 20, 1997, relating to
our Common Stock; and
o Registration Statement on Form 8-A dated November 7, 1997, relating
to our Series A Preferred Stock.
You may request a copy of these filings at no cost by writing or
telephoning us at the following address: U.S. Restaurant Properties, Inc., 5310
Harvest Hill Road, Suite 270, Dallas, Texas 75230, Attention:
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Michael D. Warren, telephone (972) 387-1487.
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are making offers of
these securities only in states where the offer is permitted. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of those documents.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. This prospectus and other
materials filed or to be filed by us with the SEC and incorporated by reference
in this prospectus contain or will contain forward-looking statements within the
meaning of the federal securities laws. These statements include information
relating to:
o acquisitions and other business development activities;
o future capital expenditures;
o financing sources and availability;
o the effects of regulations (including
environmental regulation); and
o the effects of competition.
This forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results and, accordingly, such results
may differ from those expressed in any forward-looking statements made by us.
These risks and uncertainties include, but are not limited to:
o uncertainties affecting real estate businesses generally (such as entry
into new leases, renewals of leases and dependence on tenants' business
operations);
o risks relating to acquisition and development activities, mergers and
acquisitions and possible environmental liabilities;
o risks relating to leverage, debt service and obligations with respect
to the payment of dividends (including the availability of financing on
terms acceptable to us and the sensitivity of our operations to
fluctuations in interest rates);
o the potential need for borrowings to make distributions necessary for
the company to qualify as a real estate investment trust or to fund the
payment of dividends;
o dependence on the markets in which our properties are located; and
o the existence of complex regulations relating to our status as a real
estate investment trust and the adverse consequences of the failure to
qualify as a real estate investment trust and the potential adverse
impact of market interest rates on the market price for our securities.
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THE COMPANY
We are a fully integrated, self-administered and self-managed real
estate investment trust (or REIT). We are one of the largest publicly-traded
entities in the United States dedicated to acquiring, owning, managing and
selectively developing restaurant properties. In addition to our restaurant
properties, we acquire strategically located service stations and develop
co-branded facilities combining fast food and convenience stores with service
station operations in a single site.
At September 30, 1998, we owned 747 properties in 48 states. We
generally lease these properties to fast food and casual dining chain
restaurants affiliated with national or regional brands. These brands include:
o Burger King(R)
o Arby's(R)
o Dairy Queen(R)
o Hardee's(R)
o Chili's(R)
o Pizza Hut(R)
o Grandy's(R)
o Taco Cabana(R)
Our service stations are affiliated with major oil companies such as Mobil and
Texaco. Our leases are generally "triple net leases" which typically require the
tenant to be responsible for property operating costs, including property taxes,
insurance and maintenance.
In addition to our ownership of restaurant and service station
properties, we have selectively provided debt financing to certain
owner/operators of restaurant properties since August 1997.
We conduct our operations primarily through U.S. Restaurant Properties
Operating, L.P., a Delaware limited partnership. At September 30, 1998, we owned
a 91.3% limited partnership interest in this operating partnership. The sole
general partner of this operating partnership is one of our wholly-owned
subsidiaries.
We are a Maryland corporation which has elected to be taxed as a real
estate investment trust for federal income tax purposes. Our common stock is
traded on the New York Stock Exchange under the symbol "USV."
Our principal executive offices are located at 5310 Harvest Hill Road,
Suite 270 L.B. 168, Dallas, Texas 75230. Our telephone number is (972) 387-1487.
USE OF PROCEEDS
Unless otherwise described in a prospectus supplement, we will use the
net proceeds from any of the offered securities for working capital and general
business purposes. These purposes may include repaying debt, financing capital
commitments and possible future acquisitions.
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RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Our consolidated ratio of earnings to combined fixed charges and
preferred stock dividends for each of the periods shown is set forth in the
table below. We computed the ratios of earnings to combined fixed charges and
preferred stock dividends by dividing our earnings by fixed charges and
dividends payable on our Series A Cumulative Convertible Preferred Stock. For
this purpose, earnings have been calculated by adding fixed charges (excluding
capitalized interest) to pretax income from continuing operations. Fixed charges
consist of the following:
o interest costs, whether expensed or capitalized;
o the interest component of rental expense, if any; and
o amortization of deferred financing costs (including amounts
capitalized).
Prior to 1995, the partnership agreement of our predecessor limited its
operations and the amount of indebtedness it could incur. In connection with the
restructuring of its operations in 1995, our predecessor's partnership agreement
was amended to permit the expansion of its portfolio. Since that time, we (and
our predecessor) have funded acquisitions through a mixture of debt and equity,
resulting in an increased fixed charge for interest expense.
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Years ended December 31, Six Months ended
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1993 1994 1995 1996 1997 6/30/97 6/30/98
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Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends 42.5x 55.8x 20.8x 3.7x 0.1(1) 2.1% 1.5%
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(1) During 1997, we recorded a non-cash, unusual charge of $19,220,000
related to the termination of the management contract between our
predecessor and the managing general partner of our predecessor.
Excluding the effects of this unusual charge, the ratio of earnings to
combined fixed charges and preferred stock would have been 1.80 for
1997.
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DESCRIPTION OF COMMON STOCK
The summary of the terms of the shares of capital stock of U.S.
Restaurant Properties, Inc. (the "Company") set forth below does not purport to
be complete and is subject to and qualified in its entirety by reference to the
Company's Amended and Restated Articles of Incorporation (the "Charter") and the
Company's By-laws (the "By-Laws"), both of which may be amended from time to
time and both of which documents are exhibits to the Registration Statement of
which this prospectus is a part. References to the "MGCL" are to the Maryland
General Corporation Law.
GENERAL
Under the Charter, the Company has authority to issue 165 million
shares of capital stock, par value $.001 per share, with 100 million of such
shares designated as Common Stock.
COMMON STOCK
As of September 30, 1998, the Company had outstanding 13,645,196 shares
of Common Stock. Under Maryland law, stockholders generally are not responsible
for a corporation's debts or obligations.
Terms. Subject to the preferential rights of the Company's $1.93 Series
A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") and
preferential rights as may be granted by the Company's Board of Directors (the
"Board of Directors") in connection with future issuances 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. In
addition, except as otherwise required by law or except as provided with respect
to any other class or series of stock, the holders of Common Stock will possess
the exclusive voting power. There is no cumulative voting in the election of
directors. As a result, 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.
Holders of Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
Common Stock may, under certain circumstances, be automatically converted into
Excess Stock as provided in the Charter.
The Company furnishes its stockholders with annual reports containing
audited consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm and a semi-annual report for the first six
months of
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each fiscal year containing unaudited financial information.
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.
The Charter provides that the approval of a majority of the total
number of shares entitled to be cast is required for the Company to 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.
Certain 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. See "Restrictions on Transfers of Capital Stock"
for a description of some of these Charter provisions.
Restrictions on Transfer and Ownership. The Company has elected to be
treated as a REIT for federal income tax purposes commencing with its taxable
year ended December 31, 1997. 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 shares of Common Stock. See "Restrictions on Transfers of Capital Stock."
Transfer Agent. The transfer agent and registrar for the Common Stock
is American Stock Transfer & Trust Company.
DESCRIPTION OF PREFERRED STOCK
General. Under the Charter, the Company has authority to issue 50
million shares of Preferred Stock, 3,680,000 shares of which, constituting the
Series A Preferred Stock, are issued and 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 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
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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 which may be issued
pursuant to a Prospectus Supplement. 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 (a)
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; (b) equal to 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 (c) junior to all equity securities issued by the Company, the
terms of which specifically provide that such equity securities rank senior to
the Preferred Stock with respect to 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 any series of Preferred Stock is outstanding, 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) will be declared or paid or set apart for payment on the Common
Stock or any other capital stock of the Company of any other series ranking, as
to distributions or upon liquidation, equal or junior to the Preferred Stock of
such series for any period, unless (a) 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 (b) 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
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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.
Except as provided in the immediately preceding paragraph, unless (a)
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 (b) 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 shares of Common Stock or
any other shares of capital stock of the Company ranking junior or equal to the
Preferred Stock of such series as to distributions or upon liquidation, shall 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
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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 (a) 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 (b) 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) or purchased or acquired,
directly or indirectly by the Company (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). These restrictions, however,
will 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 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 set forth in a notice mailed to each holder of
record of such Preferred Stock. In the case of a partial redemption, 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.
A notice of any 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:
o the redemption date;
o the number of shares and series of the Preferred Stock to be
redeemed;
o the redemption price;
o the place or places where certificates for such Preferred
Stock are to be surrendered for payment of the redemption
price;
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o that distributions on the shares to be redeemed will cease to
accrue on such redemption date; and
o the date upon which the holder's conversion rights, if any,
as to such shares shall terminate.
If a 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 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.
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<PAGE> 15
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.
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
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<PAGE> 16
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. Certain 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" for a description of
some of these Charter provisions.
Transfer Agent. The transfer agent and registrar for the Preferred
Stock will be set forth in the applicable Prospectus Supplement.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
In order 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., a Delaware
corporation ("QSV Properties"), 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 Properties 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 Properties 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 Stock or Preferred Stock. Such Common Stock or Preferred stock will be
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<PAGE> 17
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
(the "Trustee") 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
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<PAGE> 18
New York Stock Exchange ("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.
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.
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<PAGE> 19
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 or in
connection with pledge arrangements of the Company and its subsidiaries),
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 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.
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<PAGE> 20
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
GENERAL
The following summary of material federal income tax considerations
that may be relevant to a holder of Common Stock or Preferred Stock is based on
current law and is not intended as tax advice. The following discussion, which
is not exhaustive of all possible tax considerations, does not include a
detailed discussion of any state, local or foreign tax considerations. Nor does
it discuss all of the aspects of federal income taxation that may be relevant to
a prospective stockholder in light of his or her particular circumstances or to
certain types of stockholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) who are subject
to special treatment under the federal income tax laws.
The statements in this discussion are based on current provisions of
the Code, existing, temporary and currently proposed Treasury Regulations under
the Code, the legislative history of the Code, existing administrative rulings
and practices of the IRS and judicial decisions. No assurance can be given that
legislative, judicial or administrative changes will not affect the accuracy of
any statements in this Prospectus with respect to transactions entered into or
contemplated prior to the effective date of such changes.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING. EACH PROSPECTIVE PURCHASER OF COMMON STOCK OR PREFERRED STOCK IS
ADVISED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF COMMON
STOCK OR PREFERRED STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING
THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, DISPOSITION AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
The Company has elected to be treated as a REIT for federal income tax
purposes commencing with its taxable year ended 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 ended December 31, 1997, the Company has been organized
and has operated in conformity with the requirements for qualification and
taxation as a REIT under the Code and that its proposed method of operations
described in this Prospectus will enable it to continue to satisfy the
requirements for qualification as a REIT. 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
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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
following is a summary of the material federal income tax considerations
affecting the Company as a REIT and its stockholders:
REIT QUALIFICATION
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 company. The Company must be managed by
one or more directors. The Company's taxable year must be the calendar year.
Beneficial ownership of the Company must be 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
outstanding Common Stock is 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 Charter provides that no person is
permitted to own (applying certain constructive ownership tests) more than 9.8%
of the outstanding Common Stock (except for QSV Properties which can initially
own up to 12% of the outstanding Common Stock, subject to reduction under
certain circumstances) or 9.8% of the outstanding Preferred Stock. In addition,
the Charter contains restrictions on transfers of capital stock, as well as
provisions that automatically convert shares of stock into 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 maintains 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.
The Company currently satisfies, and expects to continue to satisfy,
each of these requirements discussed above. The Company also currently
satisfies, and expects to continue to satisfy, the requirements that are
separately described below concerning the nature and amounts of the Company's
income and assets and the levels of required annual distributions.
Sources of Gross Income. In order to qualify as a REIT for a particular
year, the Company also must meet two tests governing the sources of its income.
These
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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 holds an interest as a partner, 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%
gross income test (as well as the 95% gross income test described below), gross
income does not include gross income from "prohibited transactions." In general,
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 gross income tests 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
not more than 15% of the total rent received or accrued under the lease for the
taxable year. 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 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 and Section 856(d)(5) 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)
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<PAGE> 23
Burger King restaurant properties from the Operating Partnership. However, such
non-qualifying income is less than 1.0% 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). Further, 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."
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 does not intend to 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 gross income tests, 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.
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, together with
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<PAGE> 24
other nonqualifying income (including Related Party Tenant Rent, as discussed
above), is 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."
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 excluding 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 currently complies with, and expects to continue to satisfy, these
asset tests.
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
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<PAGE> 25
foreclosure property less the tax on such income, minus (ii) certain limited
categories of "excess noncash income" (including, 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 20 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 that do not
qualify under the rule governing payments made in January (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.
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<PAGE> 26
TAXATION OF THE COMPANY AS A REIT
As a REIT, the Company 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. The Company 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 stockholders 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. 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 as a REIT, the Company will be subject to tax in certain
circumstances as follows:
(i) the Company would be subject to tax on any income or gain
from foreclosure property at the highest corporate rate (currently
35%);
(ii) a confiscatory tax of 100% applies to any net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the
ordinary course of business);
(iii) 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 (a) the
greater of the amount, if any, by which it failed either the 75% income
test or the 95% income test, times (b) the ratio of the Company's REIT
Taxable Income to the Company's gross income (excluding capital gain
and certain other items);
(iv) the Company will be subject to the alternative minimum
tax on items of tax preference (excluding items specifically allocable
to the Company's stockholders);
(v) if the Company should fail to distribute with respect to
each calendar year at least the sum of (a) 85% of its REIT ordinary
income for such year, (b) 95% of its REIT capital gain net income for
such year, and (c) any undistributed taxable income from prior years,
the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed; and
(vi) under regulations that are to be promulgated, the Company
also may be taxed at the highest regular corporate tax rate on any
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<PAGE> 27
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 stockholders 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 taxable year during 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. 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 regulations may require that the stockholders take into account,
for purposes of computing their individual alternative minimum tax
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<PAGE> 28
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 stockholder'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 or Preferred 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.
The United States Treasury has recently issued final regulations (the
"Final Regulations") regarding the withholding and information reporting rules
discussed above. In general, the Final Regulations do not alter the substantive
withholding and information reporting requirements but unify current
certification procedures and clarify reliance standards. The Final Regulations
are generally effective for payments made on or
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<PAGE> 29
after January 1, 2000, subject to certain transition rules. Prospective
investors should consult their own tax advisors concerning the adoption of the
Final Regulations and the potential effect on their ownership of Common Stock or
Preferred Stock.
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 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. In determining the
number of stockholders a REIT has for purposes of the "50% test" described above
under "--REIT Qualification--," 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 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 currently meet either of these 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,
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<PAGE> 30
"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 or Preferred 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 or Preferred 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). For withholding tax
purposes, the Company is currently required to treat all distributions as if
made out of its current and accumulated earnings and profits and thus intends to
withhold at the rate of 30% (or a reduced treaty rate if applicable) on the
amount of any distribution (other than distributions designated as capital gain
dividends) made 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. Under the Final Regulations, generally
effective for distributions on or after January 1, 2000, the Company would not
be required to withhold at the 30% rate on distributions it reasonably estimates
to be in excess of the Company's current and accumulated earnings and profits.
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, distributions
that are attributable to gain from sales or exchanges by the Company of United
States real property interests will be taxed to a
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<PAGE> 31
Non-U.S. Stockholder under the provisions of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, those dividends are taxed to
a Non-U.S. Stockholder as if such gain were effectively connected with a United
States business. Non-U.S. Stockholders would thus be taxed at the normal capital
gain rates applicable to U.S. stockholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Also, dividends subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a 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 or Preferred 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%
withholding 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 or Preferred Stock would be subject to tax under FIRPTA
would depend on whether or not the shares of Common Stock or Preferred 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 or Preferred Stock may be
required to withhold 10% of the gross purchase price.
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
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<PAGE> 32
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.
EXPERTS
The consolidated financial statements and the related financial
statement schedule of the Company and its predecessor, U.S. Restaurant
Properties Master L.P., incorporated in this Prospectus by reference from the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated by reference herein, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The combined statement of revenues of Selected Properties Sold to U.S.
Restaurant Properties, Inc. (Wendy's Acquisition) for the year ended December
31, 1997 which is incorporated herein by reference from the Company's Current
Report on Form 8-K dated March 20, 1998 has been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report which is incorporated by
reference herein, and has been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The financial statements listed below of the following entities which
are incorporated herein by reference from the Company's Current Report on Form
8-K dated August 21, 1998 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 Selected Properties Sold
to U.S. Restaurant Properties, Inc. (Ale House Acquisition) for the year ended
December 31, 1997; (ii) Statement of Revenues and Certain Expenses of the
Property Sold to U.S. Restaurant Properties, Inc. by Austin Partners for the
year ended December 31, 1997; (iii) Combined Statement of Revenues of Selected
Properties Sold to U.S. Restaurant Properties, Inc. (Minneapolis Teachers'
Retirement Fund Association Acquisition) for the year ended June 30, 1997; (iv)
Statement of Revenues and Certain Expenses of the Property Sold to U.S.
Restaurant Properties, Inc. by Frances M. Fisher for the year ended December 31,
1997; (v) Combined Statement of Revenues and Certain Expenses of the Selected
Properties Sold to U.S. Restaurant Properties, Inc. by Brulon Properties for the
year ended December 31, 1997; and (vi) Combined Statement of Revenues and
Certain Expenses of the Selected Properties Sold to U.S. Restaurant Properties,
Inc. by Shoney's, Inc. for the year ended December 31, 1997.
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<PAGE> 33
The financial statements listed below of the following entities which
are incorporated herein by reference from the Company's Current Report on Form
8-K dated October 6, 1998 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 upon their authority as experts in accounting and auditing: (i)
Statement of Revenues of the Property Sold to U.S. Restaurant Properties, Inc.
by Hub Hill, Inc. for the year ended December 31, 1997; (ii) Statement of
Revenues and Certain Expenses of the Property Sold to U.S. Restaurant
Properties, Inc. by Inwood Plaza Joint Venture for the year ended December 31,
1997; (iii) Combined Statement of Revenues and Certain Expenses of the Selected
Properties Sold to U.S. Restaurant Properties, Inc. (Shoney's Acquisition) for
the year ended December 31, 1997; (iv) Statement of Revenues of the Property
Sold to U.S. Restaurant Properties, Inc. by Ralph L. Mason Trust, Mack V. Colt
Trust and Mack C. Colt Trust FBO Ann V. Colt for the year ended June 30, 1998;
and (v) Statement of Revenues and Certain Expenses of BUCA, Inc., Wheeling,
Illinois for the period from May 31, 1997 (inception) through June 28, 1998.
The Statement of Revenues and Direct Operating Expenses Applicable to
the Acquisition of Eleven Applebee's Neighborhood Bar and Grill Properties by
U.S. Restaurant Properties Operating L.P. (a majority owned subsidiary of U.S.
Restaurant Properties, Inc.) for the year ended December 28, 1997 which is
incorporated herein by reference from the Company's Current Report on Form 8-K
dated October 6, 1998 has been audited by KPMG Peat Marwick LLP, independent
auditors, as stated in their report which is incorporated by reference herein,
and has been so incorporated upon the report of such firm given their authority
as experts in accounting and auditing.
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<PAGE> 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses (not including
underwriting commissions and fees) in connection with the issuance and
distribution of the securities being registered hereunder. Except for the
Securities and Exchange Commission registration fee and the NASD filing fee, all
amounts are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission
registration fee............................................... $ 48,650
NASD filing fee.................................................. _______*
NYSE filing fees................................................. _______*
Accounting fees and expenses..................................... _______*
Attorneys' fees and expenses..................................... _______*
Blue sky fees and expenses....................................... _______*
Miscellaneous expenses........................................... _______*
Total................................................... $_______*
</TABLE>
---------------------
* To be filed by amendment or by a current report on Form 8-K
pursuant to the Securities Exchange Act of 1934, as
appropriate.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Charter obligates the Company to indemnify and advance
expenses to present and former directors and officers to the maximum extent
permitted by Maryland law. The Maryland General Corporation Law (the "MGCL")
permits a corporation, subject to certain limitations, to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities, unless it is established that (i)
the act or omission of the director or officer was material to the matter giving
rise to the proceeding and (a) was committed in bad faith or (b) was the result
of active and deliberate dishonesty, (ii) the director or officer actually
received an improper personal benefit in money, property or services or (iii) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. The Company's Board of
Directors may make further provision for indemnification of directors and
officers as may be permitted by law.
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<PAGE> 35
The MGCL permits the Charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, except to the extent that
(i) it is proved that the person actually received an improper benefit or profit
in money, property or services or (ii) a judgment or other final adjudication is
entered in a proceeding based on a finding that the person's action, or failure
to act, was the result of active and deliberate dishonesty and was material to
the cause of action adjudicated in the proceeding. The Charter contains a
provision providing for elimination of the liability of its directors or
officers to the Company or its stockholders for money damages to the maximum
extent permitted by Maryland law from time to time.
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement (for Common Stock)*
1.2 Form of Underwriting Agreement (for Preferred Stock)*
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-3 (File No. 333-34263))
3.2 By-Laws of the Company (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-4 (File
No. 333-21403))
3.3 Form of Articles Supplementary of the Company (for Preferred
Stock)*
4.1 Specimen of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (File No. 333-21403))
4.2 Form of Preferred Stock Certificate*
5.1 Opinion of Winstead Sechrest & Minick P.C.
8.1 Opinion of Winstead Sechrest & Minick P.C. re: tax matters
12 Calculation of Ratios of Earnings to Fixed Charges
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Winstead Sechrest & Minick P.C. (contained in its
opinions filed as Exhibits 5.1 and 8.1)
24 Powers of Attorney (Included on page II-5 of the Registration
Statement)
-----------------------------
* To be filed by amendment or by a current report on Form 8-K
pursuant to the Securities Exchange Act of 1934, as
appropriate.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
II-2
<PAGE> 36
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
provided, however, that subparagraphs (i) and (ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrants pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to the
II-3
<PAGE> 37
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrants' annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrants of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes that none of the
securities being registered hereby will be issued unless and until the merger of
USRP Acquisition L.P., a wholly owned subsidiary of the registrant, with and
into U.S. Restaurant Properties, Inc., the registrant's predecessor, has been
completed.
II-4
<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on October 28, 1998.
U.S. RESTAURANT PROPERTIES, INC.
By: /s/ Robert J. Stetson
--------------------------------------
Robert J. Stetson
President and Chief Executive Officer
Each of the undersigned directors and officers of U.S. Restaurant
Properties, Inc. hereby appoints each of Robert J. Stetson and Fred H. Margolin
to sign on his behalf all pre-effective and post-effective amendments to this
Registration Statement and to carry out any other acts and sign any other
documents that such individual considers necessary or advisable in connection
with this Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert J. Stetson President and Chief Executive October 28, 1998
- --------------------------------------------- Officer and Director
Robert J. Stetson (Principal Executive Officer)
/s/ Fred H. Margolin Chairman of the Board of October 28, 1998
- --------------------------------------------
Fred H. Margolin Directors, Secretary
and Treasurer
/s/ Michael D. Warren Director of Finance October 28, 1998
- --------------------------------------------
Michael D. Warren (Principal Financial Officer)
/s/ Gerald H. Graham Director October 28, 1998
- --------------------------------------------
Gerald H. Graham
/s/ David K. Rolph Director October 28, 1998
- --------------------------------------------
David K. Rolph
/s/ Darrel L. Rolph Director October 28, 1998
- --------------------------------------------
Darrel L. Rolph
/s/ Eugene G. Taper Director October 28, 1998
- --------------------------------------------
Eugene G. Taper
</TABLE>
II-5
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ------- ----------- -------
<S> <C>
1.1 Form of Underwriting Agreement (for Common Stock)*
1.2 Form of Underwriting Agreement (for Preferred Stock)*
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-3 (File No. 333-34263))
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-4 (File No. 333-21403))
3.3 Form of Articles Supplementary of the Company (for Preferred Stock)*
4.1 Specimen of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-4
(File No. 333-21403))
4.2 Form of Preferred Stock Certificate*
5.1 Opinion of Winstead Sechrest & Minick P.C.
8.1 Opinion of Winstead Sechrest & Minick P.C. re: tax matters
12 Calculation of Ratios of Earnings to Fixed Charges
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Winstead Sechrest & Minick P.C. (contained in its opinions
filed as Exhibits 5.1 and 8.1)
24 Powers of Attorney (Included on page II-5 of the Registration Statement)
</TABLE>
- --------------------
* To be filed by amendment or by a current report on Form 8-K pursuant to
the Securities Exchange Act of 1934, as appropriate.
<PAGE> 1
EXHIBIT 5.1
[WINSTEAD SECHREST & MINICK P.C. LETTERHEAD]
October 29, 1998
U.S. Restaurant Properties, Inc.
5310 Harvest Hill Road
Suite 270
Dallas, Texas 75230
Dear Ladies and Gentlemen:
We have acted as counsel to U.S. Restaurant Properties, Inc., a
Maryland corporation (the "Company"), in connection with the Company's
registration statement on Form S-3 (as the same may be amended or supplemented
from time to time, the "Registration Statement"), including the prospectus
included therein at the time the Registration Statement is declared effective
(the "Prospectus"), filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), for
offering by the Company from time to time of up to $175,000,000 aggregate
initial offering price of (i) shares of common stock, par value $0.001 per share
(the "Common Stock") and (ii) shares of preferred stock, par value $0.001 per
share (the "Preferred Stock"). The Common Stock and the Preferred Stock are
collectively referred to as the "Securities." The Registration Statement
provides that the Securities may be offered separately or together, in separate
series, in amounts, at prices and on terms to be set forth in one or more
supplements to the Prospectus (each, a "Prospectus Supplement"). This opinion is
being provided at your request in connection with the filing of the Registration
Statement.
In rendering the opinions expressed herein, we have examined the
Registration Statement, the Indenture, the Company's Amended and Restated
Articles of Incorporation (the "Charter") and Bylaws and certain minutes of
corporate proceedings and/or written consents of the Company's Board of
Directors. We have also examined and relied as to factual matters upon the
representations, warranties and other statements contained in originals or
copies, certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinions expressed below.
<PAGE> 2
U.S. Restaurant Properties, Inc.
October 29, 1998
Page 2
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the authenticity of all documents, certificates
and instruments submitted to us as originals and the conformity with originals
of all documents submitted to us as copies.
We assume that (i) prior to the issuance of any shares of Common Stock
or Preferred Stock (or Securities convertible into shares of Common Stock),
there will exist, under the Charter, the requisite number of authorized but
unissued shares of Common Stock or Preferred Stock, as the case may be, and (ii)
appropriate certificates representing shares of Common Stock or Preferred Stock,
as the case may be, will be executed and delivered upon issuance and sale of any
such shares, and will comply with all applicable requirements of Maryland law.
We assume that the issuance, sale, amount and terms of the Securities
to be offered from time to time will be authorized and determined by proper
action of the Board of Directors of the Company in accordance with the
parameters described in the Registration Statement (each, a "Board Action") and
in accordance with the Charter and applicable Maryland law.
Based on the foregoing, and such examination of law as we have deemed
necessary, we are of the opinion that:
(1) When the Registration Statement has become effective under the
Act and a series of the Preferred Stock has been duly
authorized and established in accordance with the applicable
Board Action, the terms of the Charter and applicable Maryland
law, and upon payment for such shares in the manner
contemplated by the applicable Board Action, the Registration
Statement, the Prospectus or the applicable Prospectus
Supplement and, if applicable, an underwriting agreement
relating to the issuance of such Preferred Stock, such shares
of Preferred Stock issued thereby will be duly authorized,
validly issued, fully paid and non-assessable.
(2) When the Registration Statement has become effective under the
Act and payment for such shares of Common Stock has been made
(a) in the manner contemplated by the applicable Board Action,
the Registration Statement, the Prospectus or the applicable
Prospectus Supplement and, if applicable, an underwriting
agreement relating to the issuance of such shares, or (b)
pursuant to the conversion of validly issued and fully paid
and non-assessable shares of Preferred Stock in accordance
with the established terms of such Preferred Stock such shares
of Common Stock issued thereby will be duly authorized,
validly issued, fully paid and non-assessable by the Company.
<PAGE> 3
U.S. Restaurant Properties, Inc.
October 29, 1998
Page 3
The opinions stated herein relating to the validity and binding nature
of obligations of the Company are subject to (i) the effect of any applicable
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
creditors' rights generally and (ii) the effect of general principles of equity
(regardless of whether considered in a proceeding in equity or at law).
The opinions expressed herein are as of the date hereof and are based
on the assumptions set forth herein and the laws and regulations currently in
effect, and we do not undertake and hereby disclaim any obligations to advise
you of any change with respect to any matter set forth herein. To the extent
that the opinion set forth herein is governed by laws other than the federal
laws of the United States, our opinion is based solely upon our review of the
General Corporation Law of the State of Maryland and upon certificates from
public officials or governmental offices of such state. We express no opinion as
to any matter other than as expressly set forth herein, and no opinion is to, or
may, be inferred or implied herefrom.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to us under the heading "Legal Matters"
in the Prospectus contained therein. In giving our consent, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
WINSTEAD SECHREST & MINICK P.C.
By: /s/ Kenneth L. Betts
-------------------------------
Kenneth L. Betts
<PAGE> 1
EXHIBIT 8.1
[WINSTEAD SECHREST & MINICK LETTERHEAD]
October 29, 1998
U.S. Restaurant Properties, Inc.
5310 Harvest Hill Road
Suite 270, L.B. 168
Dallas, Texas 75230
Ladies and Gentlemen:
We have acted as counsel to U.S. Restaurant Properties, Inc. (the
"Company") in connection with the Registration Statement on Form S-3 filed of
even date herewith with the Securities and Exchange Commission (as the same may
be amended or supplemented from time to time, the "Registration Statement").
This opinion relates to certain federal income tax matters in connection with
the Registration Statement. Capitalized terms not otherwise defined herein shall
have the meanings ascribed thereto in the Registration Statement.
For the purpose of rendering our opinion, we have examined and are
relying upon the truth, accuracy and completeness, at all relevant times, of the
statements and representations contained in the following documents:
1. The Amended Articles of Incorporation and the Bylaws of the Company;
2. The Registration Statement and the Prospectus filed therewith;
3. Representations made to us by the Company through Robert J. Stetson,
Chief Executive Officer and President, and Fred H. Margolin, Chairman of the
Board and Treasurer, of the Company and QSV Properties, Inc., in those certain
Certificates to Counsel (the "Certificates") dated of even date herewith and
delivered to us in connection with the Registration Statement and this letter.
4. The Fourth Amended and Restated Agreement of Limited Partnership of
U.S. Restaurant Properties Operating L.P. (the "Operating Partnership"); and
<PAGE> 2
U.S. Restaurant Properties, Inc.
October 29, 1998
Page 2
5. Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinion referred to in this
letter.
In connection with rendering this opinion, we have assumed to be true
and are relying upon, without any independent investigation or review thereof,
the following:
1. The authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as copies, and
authenticity of the originals of such documents.
2. The genuineness of all signatures, the due authorization, execution
and delivery of all documents by all parties thereto and the due authority of
all persons executing such documents.
3. All representations and statements set forth in such documents are
true and correct;
4. All obligations imposed by any such documents on the parties thereto
have been or will be performed or satisfied in accordance with their terms; and
5. The Company filed a proper election to be taxed as a REIT with its
timely filed federal income tax return for the taxable year ending December 31,
1997, and that the Company will not cause such election to be terminated or
revoked.
6. The beneficial ownership of the Company will be held by 100 or more
persons for at least 335 days during the 1998 tax year and each tax year
thereafter.
7. The Operating Partnership will be operated in accordance with
applicable state partnership statutes, the Operating Partnership Agreement and
the statements and representations made in the Registration Statement.
8. For each taxable year, less than 10% of the Operating Partnership's
and the Company's gross income will be derived from sources other than (i) real
property rental income and gain from sale or other disposition of real property,
as required by Section 7704(d) of the Code, or (ii) other items of "qualifying
income" within the meaning of Section 7704(d) of the Code.
We have further assumed the accuracy of the statements and descriptions
of the Company's and the Operating Partnership's intended activities as
described in the Registration Statement and the Prospectus and that the Company
and the Operating Partnership will operate in
<PAGE> 3
U.S. Restaurant Properties, Inc.
October 29, 1998
Page 3
accordance with the method of operation described in the Registration Statement
and the Prospectus.
Based upon our examination of the foregoing items, subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of opinion that, commencing with the Company's taxable year ending December 31,
1997, the Company has been organized and has operated in conformity with the
requirements for qualification as a REIT under the Code and the proposed method
of operation described in the Prospectus included in the Registration Statement
will enable the Company to satisfy the requirements for such qualification under
the Code for its taxable year ending December 31, 1997 and for subsequent
taxable years.
In addition to the assumptions set forth above, this opinion is subject
to the following exceptions, limitations and qualifications:
1. Our opinions expressed herein are based upon interpretation of the
current provisions of the Code and existing judicial decisions, administrative
regulations and published rulings and procedures. Our opinions are not binding
upon the Internal Revenue Service or courts and there is no assurance that the
Internal Revenue Service will not successfully challenge the conclusions set
forth herein. The Internal Revenue Service has not yet issued regulations or
administrative interpretations with respect to various provisions of the Code
relating to REIT qualification. Consequently, no assurance can be given that
future legislative, judicial or administrative changes, on either a prospective
or retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. We undertake no obligation to advise you of changes in law which
may occur after the date hereof.
2. Our opinions are limited to the federal income tax matters addressed
herein, and no other opinions are rendered with respect to any other matter not
specifically set forth in the foregoing opinion.
3. Our opinions are limited in all respects to the federal law of the
United States and the laws of the State of Texas, and we assume no
responsibility as to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction.
4. (a) The Company's qualification and taxation as a real estate
investment trust depend upon the Company's ability to satisfy, through
actual operating results, the applicable asset composition, source of
income, stockholder diversification, distribution, record keeping and
other requirements of the Code necessary to qualify and be taxed as a
REIT.
(b) The Company's qualification and taxation as a real estate
investment trust also depends upon the Operating Partnership's and the
Company's
<PAGE> 4
U.S. Restaurant Properties, Inc.
October 29, 1998
Page 4
ability to satisfy, through actual operating results, source of income
and other requirements of the Code necessary to qualify and be taxed as
a partnership.
The foregoing opinions are based upon the proposed method of operation
as described in the Registration Statement and facts stated in the Certificates
and other documents described herein. We undertake no obligation to review at
any time in the future whether the Company or the Operating Partnership has
fulfilled the requirements listed in this paragraph 4 and, consequently, no
assurance can be given that the actual results of the Company's or the Operating
Partnership's operations for any taxable year will satisfy the requirements of
the Code necessary to qualify or be taxed as a REIT or a partnership, as
applicable.
5. In the event any one of the statements, representations, warranties
or assumptions we have relied upon to issue this opinion is incorrect in a
material respect, our opinions might be adversely affected and may not be relied
upon.
We hereby consent to the reference to us under the caption "Federal
Income Tax Considerations" in the Registration Statement, and to the filing of
this opinion as an Exhibit to the Registration Statement, without implying or
admitting that we are experts within the meaning of the Securities Act of 1933,
as amended, with respect to any part of the Registration Statement.
Very truly yours,
WINSTEAD SECHREST & MINICK P.C.
By:/s/ Thomas R. Helfand
----------------------------
Thomas R. Helfand
<PAGE> 1
EXHIBIT 12
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 6/30/97 6/30/98
-------- -------- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) 4,528 4,933 5,223 7,473 (9,363) 4,099 9,266
Fixed Charges:
Interest Expense 109 90 263 2,558 9,599 3,687 6,856
Amortization of Debt Issue Costs -- -- 1 162 385 145 269
Preferred Stock Dividend Requirements -- -- -- -- 868 -- 3,551
Rent Exp. Portion Representing Interest -- 5 27 16 7(1)
------- ------- ------- ------- ------- ------- -------
Total Fixed Charges 109 90 264 2,725 10,879 3,848 10,683
Less Preferred Stock Dividend Requirements -- -- -- -- 868 -- 3,551
------- ------- ------- ------- ------- ------- -------
Earnings 4,637 5,023 5,487 10,198 618 7,947 16,398
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 42.5 55.8 20.8 3.7 0.1 2.1 1.5
</TABLE>
(1) 1997 and 1998 amounts represent capitalized lease interest.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
U.S. Restaurant Properties, Inc. on Form S-3 of our report dated March 19, 1998
appearing in the Annual Report on Form 10-K of U.S. Restaurant Properties, Inc.
for the year ended December 31, 1997; our report dated March 17, 1998, with
respect to the combined statement of revenues of Selected Properties Sold to
U.S. Restaurant Properties, Inc. (Wendy's Acquisition) for the year ended
December 31, 1997 appearing in the Current report on Form 8-K of U.S. Restaurant
Properties Inc. dated March 20, 1998; our report dated June 9, 1998 with respect
to the combined statement of revenues and certain expenses of Selected
Properties Sold to U.S. Restaurant Properties, Inc. (Ale House Acquisition) for
the year ended December 31, 1997, our report dated August 3, 1998 with respect
to the statement of revenues and certain expenses of the Property Sold to U.S.
Restaurant Properties, Inc. by Austin Partners for the year ended December 31,
1997, our report dated August 6, 1998 with respect to the combined statement of
revenues of Selected Properties Sold to U.S. Restaurant Properties, Inc.
(Minneapolis Teachers' Retirement Fund Association Acquisition) for the year
ended June 30, 1997, our report dated August 18, 1998 with respect to the
statement of revenues and certain expenses of the Property Sold to U.S.
Restaurant Properties, Inc. by Frances M. Fisher for the year ended December 31,
1997, our report dated August 18, 1998 with respect to the combined statement of
revenues and certain expenses of the Selected Properties Sold to U.S. Restaurant
Properties, Inc. by Brulon Properties for the year ended December 31, 1997 and
our report dated August 19, 1998 with respect to the combined statement of
revenues and certain expenses of the Selected Properties Sold to U.S. Restaurant
Properties, Inc. by Shoney's, Inc. for the year ended December 31, 1997
appearing in the Current Report on Form 8-K of U.S. Restaurant Properties, Inc.
dated August 21, 1998; and our report dated September 28, 1998 with respect to
the statement of revenues of the Property Sold to U.S. Restaurant Properties,
Inc. by Hub Hill, Inc. for the year ended December 31, 1997, our report dated
October 5, 1998 with respect to the statement of revenues and certain expenses
of the Property Sold to U.S. Restaurant Properties, Inc. by Inwood Plaza Joint
Venture for the year ended December 31, 1997, our report dated October 5, 1998
with respect to the combined statement of revenues and certain expenses of the
Selected Properties Sold to U.S. Restaurant Properties, Inc. (Shoney's
Acquisition) for the year ended December 31, 1997, our report dated October 5,
1998 with respect to the statement of revenues of the Property Sold to U.S.
Restaurant Properties, Inc. by Ralph L. Mason Trust, Mack V. Colt Trust and Mack
C. Colt Trust FBO Ann V. Colt for the year ended June 30, 1998 and our report
dated September 15, 1998 with respect to the statement of revenues and certain
expenses of BUCA, Inc.-Wheeling, Illinois, for the period from May 31, 1997
(inception) through June 28, 1998 appearing in the Current Report on Form 8-K of
U.S. Restaurant Properties, Inc. dated October 6, 1998 and to the reference to
us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Dallas, Texas
October 30, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Avado Brands, Inc. (formerly Apple South, Inc.)
We consent to the incorporation by reference in the registration statement on
Form S-3 of U.S. Restaurant Properties, Inc. of our report dated August 28,
1998, with respect to the Statement of Revenues and Direct Operating Expenses of
Avado Brands, Inc. (formerly Apple South, Inc.) Applicable to the Acquisition of
Eleven Applebee's Neighborhood Bar and Grill Properties by U.S. Restaurant
Properties Operating L.P. (a majority owned subsidiary of U.S. Restaurant
Properties, Inc.) for the year ended December 28, 1997, which report appears in
the Form 8-K of U.S. Restaurant Properties, Inc. dated October 6, 1998.
KPMG Peat Marwick LLP
Atlanta, Georgia
October 26, 1998
