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File Pursuant to Rule 424(b)(5)
Registration No. 333-34263
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 16, 1997)
72,900 SHARES
U.S. RESTAURANT PROPERTIES, INC.
COMMON STOCK
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We are offering and selling 72,900 shares of common stock with this
prospectus. Our common stock is listed for trading on the New York Stock
Exchange under the symbol "USV." On October 21, 1998, the reported last sale
price of our common stock on the New York Stock Exchange was $24.50 per share.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Price . . . . . . . . . . . . . . . . . . $ 24.375 $1,776,937.50
Underwriting Discount(1) . . . . . . . . . . . . $ 0.50 $ 36,450.00
Proceeds to the Company(2) . . . . . . . . . . $ 23.875 $1,740,487.50
</TABLE>
(1) We have agreed to indemnify Morgan Keegan & Company, Inc. against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by U.S. Restaurant Properties
estimated at $10,000.
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These Securities have not been approved by the SEC or any state securities
commission. None of those organizations has determined that this Prospectus is
accurate or complete. Any representation to the contrary is a criminal
offense.
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MORGAN KEEGAN & COMPANY, INC.
October 22, 1998
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SUMMARY
The following information supplements, and should be read in conjunction with,
the information contained in this prospectus supplement and in the accompanying
prospectus. This summary may not contain all of the information that is
important to you. To understand this offering fully, you should read the
entire prospectus supplement and the accompanying prospectus carefully.
THE COMPANY
U.S. Restaurant Properties, Inc. is a fully integrated, self-administered and
self-managed real estate investment trust. The company is one of the largest
publicly-traded entities in the United States dedicated to acquiring, owning,
managing and selectively developing restaurant properties.
The company also acquires, owns, manages and selectively develops strategically
located service stations and co-branded facilities that combine fast food and
convenience stores with service stations. As of August 31, 1998, we owned 741
properties. Our properties are spread out among 48 states and are operated by
approximately 320 operators. Our restaurants are affiliated with national
brands such as BurgerKing(R), Arby's(R), Dairy Queen(R), Hardee's(R),
Chili's(R) and Pizza Hut(R), and our service stations are affiliated with major
oil companies such as Shell and Mobil.
From May 1994, when existing management assumed control, through August 31,
1998, we have increased the number of properties we own by 618 properties,
representing a 502% increase in the number of properties.
RECENT DEVELOPMENTS
Between January 1, 1998 and August 31, 1998 we have undertaken the following
business activities:
o We bought 162 properties for an aggregate purchase price of approximately
$129.2 million.
o We sold eight properties for an aggregate sales price of approximately
$6.4 million.
o As of August 31, 1998, we had entered into letters of intent or contracts
to acquire an additional 66 properties at a maximum aggregate purchase
price of approximately $69 million. The closing of these proposed
purchases are subject to a number of conditions. Accordingly, we can
offer you no assurance that any of the properties will be purchased or if
purchased whether they will be closed based on the existing terms.
o On May 13, 1998, we issued $111 million of unsecured notes in a private
transaction. These notes are due in 2005 and bear interest at a rate of
7.15%.
Since January 1, 1998, we have completed four offerings of common stock. We
have received net proceeds of approximately $30,753,750 million from these
offerings.
THE OFFERING
Securities offered . . . . 72,900 shares of our common stock.
Shares to be outstanding
after the offering . . . 14,274,359. This does not include an aggregate of
732,000 shares of common stock issuable upon the
exercise of outstanding stock options or 1,151,630
shares of common stock issuable upon the exercise of
outstanding operating partnership units.
Use of proceeds . . . . . Repayment of debt.
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USE OF PROCEEDS
The net proceeds to U.S. Restaurant Properties, Inc. (the "Company")
from the sale of its common stock (the "Common Stock") in this offering, after
deducting estimated fees and expenses payable by the Company, including the
underwriting discount, are expected to be approximately $1,730,487.50. The
Company will use the net proceeds from this offering to reduce borrowings under
the Company's unsecured credit facility provided by a syndicate of banks led by
UnionBank of Switzerland (the "Unsecured Credit Facility"), which were used to
fund the acquisition and development of additional restaurant and service
station properties. The Unsecured Credit Facility currently bears interest at
LIBOR plus 1.05% per annum and matures in January 2001. The outstanding
indebtedness under the Unsecured Credit Facility at August 31, 1998 was $117
million.
THE COMPANY
GENERAL
The Company, a fully integrated, self-administered and self-managed
REIT, is one of the largest, publicly-traded entities in the United States
dedicated to acquiring, owning, managing and selectively developing restaurant
properties. At August 31, 1998, the Company's portfolio consisted of 741
properties (the "Properties") diversified geographically in 48 states operated
by approximately 320 operators. The Properties are leased by the Company
primarily to operators of fast food and casual dining chain restaurants
affiliated with national brands such as Burger King(R), Arby's(R), Dairy
Queen(R), Hardee's(R), Chili's(R) and Pizza Hut(R) and regional franchises such
as Grandy's(R) and Taco Cabana(R) and operators of service stations affiliated
with major oil companies such as Mobil and Texaco.
The Company is a Maryland corporation which has elected to be taxed as
a REIT for federal income tax purposes, commencing with its short taxable year
ended December 31, 1997. The Common Stock is traded on the NYSE under the
symbol "USV." The principal executive offices of the Company are located at
5310 Harvest Hill Road, Suite 270, Dallas, Texas 75230. The telephone number
is (972) 387-1487.
HISTORY OF THE COMPANY
The Company's predecessor, USRP, formerly Burger King Investors Master
L.P., was formed in 1985 by Burger King Corporation and QSV Properties, both of
which were at that time wholly-owned subsidiaries of The Pillsbury Company.
QSV Properties acted as the sole managing general partner of USRP. Burger King
Corporation was a special general partner of USRP until its withdrawal on
November 30, 1994. USRP effected an initial public offering in 1986 and the
proceeds therefrom were used to buy the Company's initial portfolio of
properties from Burger King Corporation. From 1986 through March 1995, the
partnership agreement governing USRP limited the activities of the Company to
managing the original portfolio of properties.
In May 1994, existing management assumed control of the Company and
began implementing a number of new growth strategies. These strategies
included, among other things, acquiring new properties, enhancing investment
returns through merchant banking activities and developing new co-branded
service centers on a selective basis. From May 1994, when existing management
assumed control of the Company, through August 31, 1998, the Company increased
the number of properties owned or managed by 618 properties, representing a
502% increase in the number of Properties. In addition, the Company provides
acquisition financing to owner/operators of restaurant properties, and at June
30, 1998, the Company held $6.3 million of real estate-backed notes and
mortgage receivables.
GROWTH STRATEGIES
The Company seeks to maximize growth in funds from operations ("FFO")
and cash available for distribution to stockholders through effective
management, operation, acquisition and selective development of restaurant
properties, service stations and co-branded facilities. The Company believes
it can achieve its goal of increasing FFO and cash available for distribution
per share by (i) acquiring high quality properties at attractive returns, (ii)
realizing contractual rental rate escalations or percentage rent on existing
leases, (iii) re-leasing space at increased rental rates, when market
conditions warrant, as leases expire, (iv) selectively developing properties
where the Company can secure leases prior to construction and where such
development is expected to result in returns on investment that the Company
believes
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will exceed returns on comparable acquisitions, and (v) actively managing the
Company's portfolio, including periodically re-evaluating all assets for
strategic disposition or repositioning. In pursuing its growth strategy, the
Company intends to maintain a conservative capital structure providing it
flexibility to access capital markets when financial and market conditions
warrant, thereby enabling it to take advantage of growth opportunities as they
arise.
Acquisition Strategy. The Company seeks to identify and acquire high
quality restaurant and service station properties. The Company believes that
it has been able to maximize returns on acquisitions as a result of its
expertise in evaluating and capitalizing on the real estate needs of chain
restaurant tenants, its ability to identify and acquire financially attractive
properties operated by major national and regional brands and its expertise in
identifying and evaluating restaurant and service station operators. The
Company also seeks to utilize the extensive personal and business relationships
that management has developed over time within the real estate and chain
restaurant industries to identify prospective acquisition opportunities and to
consummate favorable acquisitions prior to the active marketing of the subject
properties.
The Company believes that the ownership of chain restaurant properties
is highly fragmented and that such fragmentation often creates pricing
inefficiencies in the sale of such properties. Chain restaurants are generally
owned by numerous local operators, many of whom own or operate a single
facility. Additionally, the Company believes that numerous chain restaurants
are occupied by owners who desire to focus their investments on and attention
to the operation of their respective restaurants, and not on ownership of real
estate.
Critical evaluation of prospective property acquisitions is an
essential component of the Company's acquisition strategy. When evaluating
acquisition opportunities, the Company assesses a full range of matters
relating to the properties, including the quality of the tenant, the condition
and capacity of building infrastructure, the remaining lease term and the
strength of the brand affiliation. Additionally, the Company believes its
access to capital will provide it with a competitive advantage over other
potential property acquirors whose offers may be contingent upon obtaining the
requisite financing. To achieve a predictable return while maintaining a low
risk profile, the Company has developed the following acquisition criteria:
o Invest in Major Brands. The Company intends to continue to
acquire properties operated by competent, financially-stable
multi-unit operators, which properties are affiliated with
major national restaurant brands such as Burger King(R),
Arby's(R), Dairy Queen(R), Hardee's(R), Chili's(R), Pizza
Hut(R) and Schlotzsky's(R) and regional brands such as
Grandy's(R) and Taco Cabana(R) and major oil companies such as
Shell and Mobil. The Company believes that successful
restaurants and service stations operated under these types of
brands will continue to offer stable, consistent income to the
Company with reduced risk of default or non-renewal of the
lease and franchise agreement. The Company's strategy will
continue to focus primarily on the acquisition of existing
chain restaurant properties that have a history of profitable
operations with a remaining term on the current lease of at
least five years. The Company believes that acquiring
existing restaurant properties provides a higher risk-adjusted
rate of return to the Company than acquiring newly-constructed
restaurants.
o Acquire Properties Subject to Long-Term Leases. The Company
has historically acquired, and intends to continue to acquire,
properties subject to existing long-term leases. The Company
believes that by having long-term leases in place it avoids
the risks associated with trying to lease the property,
including uncertainty as to lease rate and tenant continuity.
o Consolidate Smaller Portfolios. While the Company generally
focuses its acquisition efforts on the acquisition of single
properties and smaller portfolios in the $1 million to $10
million range, the Company also pursues transactions involving
portfolios of restaurant properties (generally having a
portfolio acquisition price in excess of $10 million). These
smaller portfolio transactions have historically resulted in a
more attractive valuation for the Company because the size of
such transactions generally does not attract competition from
other large institutional property owners. Buyers for these
smaller portfolios typically are not well capitalized and may
be unable to compete for such transactions. Larger
transactions involving multiple properties generally attract
several institutional bidders, often resulting in a higher
purchase price and lower investment returns to the purchaser.
Since January 1, 1996, the Company has closed 147 transactions
involving the acquisition of single properties with an average
acquisition price of less than $1 million and with an average
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acquisition capitalization rate of between 11% and 14%. No
assurance can be given, however, that future acquisitions will
achieve such capitalization rates. In certain circumstances,
however, the Company has identified, evaluated and acquired
portfolios valued at up to $50 million that present attractive
risk/return ratios.
o Selectively Develop As Well As Acquire Properties. The
Company has begun to develop co-branded service centers, which
combine a fast food restaurant with a branded convenience
store and filling station on one prime retail site. The
Company's general approach is to place under contract or
option a prime commercial parcel, obtain lease commitments
from restaurant and gas station/convenience store operators,
and then supervise the construction of the facility. On
September 28, 1997, the Company opened its first co-branded
service center in Fort Worth, Texas. In addition, the Company
currently has two co-branded service center developments that
are open and 11 others under construction which are expected
to be completed over the next 12 months. The Company believes
that its development program may provide investment yields in
the range of 11% to 15%. The Company expects to invest
approximately $20 million to $24 million, which is
approximately 10% to 12% of its total annual investment
activity, in co-branded service center development over the
next 12 months. As an adjunct to this business, the Company
is exploring the acquisition of existing filling stations with
convenience stores. These properties do not currently have a
fast food restaurant but in some cases have the potential to
add a fast food restaurant.
Internal Growth. The Company's goal of maximizing sustainable growth
in FFO is expected to be enhanced by its strategy to achieve internal growth
from several sources. A substantial number of the Company's leases contain
annual rent escalations that are fixed (ranging from 2% to 3%). The Company
will seek to include similar escalation provisions in its future leases.
Operating Strategy. Management has endeavored to achieve a consistent
return by employing the strategies described above while at the same time
minimizing loss risk. The significant risk in the chain restaurant property
business falls into two categories: (i) default losses and/or (ii) non-renewal
of leases with accompanying declines in rent. The Company has implemented the
following operating strategies which are designed to enhance the predictability
and sustainability of the Company's cash flow:
o Rent Payment Protection. The Company protects against loss of
rent payment by employing strict underwriting standards, such
as rent coverage ratio analysis, and including terms and
conditions in its leases which discourage non-payment, such as
master leases covering multi-unit operations, cross default
provisions on other properties, non-access to restaurant
equipment and letter of credit and/or personal guaranty
requirements.
o Lease Renewal. The Company believes that the location of a
restaurant is a critical factor in a restaurant's success and
that, as a result, its tenants, in most cases, would experience
a loss in the profitability of a store and incur difficulty and
cost in moving the store in the event of non-renewal of the
lease and, as a result, believes renewal of the lease, on terms
equal to or better than the existing terms, is more likely to
occur than the tenant vacating the space. Since May 1994, the
Company has renewed 20 of the 24 leases that have expired
pursuant to their terms since that time. In addition, the
Company has implemented an early lease renewal program pursuant
to which the Company offers remodeling financing to tenants in
consideration for renewing and restructuring existing leases.
Diversification. The Company believes this program will help
mitigate the risk of non-renewals of leases and will enable the
Company, where needed, to restructure the leases to require the
tenant to be responsible for all costs associated with
operating the property. The Company aggressively pursues lease
renewals to take advantage of this need by tenants for
stability and continuity.
o Diversification. The Company believes its income stream is
further protected through the diversification of the
Properties by location, franchise affiliation and the large
number of operators leasing the Properties. The 741
Properties are located within 48 states, with no state, except
Texas (approximately 28%), Georgia (approximately 6.4%) and
Florida (approximately 5.1%), accounting for a concentration
of greater than 5% of the Properties. The Company believes
the geographic diversity provides the Company with protection
from downturns in local and regional economies.
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Since May 1994, the Company has significantly expanded the
number of its franchise affiliations. Of the 618 restaurant
properties acquired and retained since May 1994, only 86 are
Burger King(R) restaurants, reducing the concentration of
Burger King(R) properties from 100% to 28% of the Company's
portfolio. The balance of the restaurant properties are
primarily affiliated with other national and regional chain
restaurants such as Arby's(R), Hardee's(R), Pizza Hut(R),
Dairy Queen(R), Grandy's(R), Wendy's(R) and Chili's(R).
Additionally, the Company has no tenant that accounts for
greater than 12% of the Company's gross revenues. As a
result, the Company is not materially dependent on any one
operator or any small group of operators.
o Asset Management. The Company analyzes each restaurant
property within its portfolio to identify opportunities to
improve its return. Such opportunities may include purchasing
property adjacent to the current property, working with
existing tenants to improve the sales and performance of their
stores and in some cases providing remodeling financing toward
that end.
Financing Strategy. The Company utilizes its existing Unsecured
Credit Facility short term financing of the acquisition of additional
restaurant properties. Borrowings under the Unsecured Credit Facility
currently bear interest at a rate of LIBOR plus 1.05%. At June 30, 1998, $67
million was outstanding under the Unsecured Credit Facility. The Company may
also issue Common Stock or common or preferred OP Units as consideration for
future acquisitions. The Company believes that its access to capital should
provide it with a competitive advantage in acquisitions over other bidders that
qualify their bids with financing or other contingencies. The Company
believes that it is best served by a conservative capital structure with
flexibility to access the capital markets when financial and market conditions
warrant. The Company's policy is to maintain a debt to total market
capitalization ratio (i.e., total consolidated debt of the Company as a
percentage of market value of its capital stock plus total consolidated debt)
of less than 50%.
BUSINESS AND PROPERTIES
GENERAL
The Company acquires, owns, manages and selectively develops
restaurant properties that it leases on a triple net basis primarily to
operators of fast food and casual dining chain restaurants affiliated with
national brands such as Burger King(R), Arby's(R), Dairy Queen(R), Hardee's(R),
Chili's(R) and Pizza Hut(R) and regional franchises such as Grandy's(R) and
Taco Cabana(R). During the first year following acquisition by the Company,
the Properties have historically provided the Company with an aggregate first
year return on total investment in excess of 11%. Substantially all of the
leases are triple net leases, which typically require the tenants to be
responsible for property operating costs, including property taxes, insurance
and maintenance. Management believes that the long-term, triple net structure
of substantially all of its leases results in a more predictable and
sustainable income stream than other forms of real estate investments.
THE PROPERTIES
As of August 31, 1998, the Company owned 741 Properties, including 209
Burger King(R) Properties, 78 Arby's(R) Properties, 41 Dairy Queen(R)
Properties, 29 Hardee's(R) Properties, 22 Pizza Hut(R) Properties and 8
Chili's(R) Properties. The Properties are diversified geographically in 48
states, with no states, except Texas (approximately 28%), Georgia
(approximately 6.4%) and Florida (approximately 5.1%), accounting for greater
than 5% of the Properties.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement"), the Company has agreed to sell to
Morgan Keegan, and Morgan Keegan has agreed to purchase from the Company,
72,900 shares of Common Stock. Pursuant to the terms of the Underwriting
Agreement, Morgan Keegan is obligated to purchase all of such shares of Common
Stock if any are purchased.
Morgan Keegan has advised the Company that it proposes to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus Supplement The public offering price may be
changed by Morgan Keegan after the Common Stock is released for sale to the
public.
In the Underwriting Agreement, the Company and U.S. Restaurant
Properties Operating L.P. (a majority owned subsidiary of the Company through
which substantially all of the business and operations of the Company are
conducted) have agreed to indemnify Morgan Keegan against certain liabilities,
including liabilities under the federal securities laws, or to contribute to
payments that Morgan Keegan may be required to make in respect thereof.
Morgan Keegan does not intend to exercise discretion in confirming
sales to any account over which it otherwise has discretionary authority.
The Common Stock is listed on the NYSE under the symbol "USV." The
Company has applied for listing of the shares of Common Stock offered hereby on
the NYSE.
In connection with this offering, the rules of the Securities and
Exchange Commission permit Morgan Keegan to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If Morgan Keegan creates a short position in the Common Stock in
connection with this offering (i.e., if it sells more shares of Common Stock
than are set forth in the cover page of this Prospectus Supplement), Morgan
Keegan may reduce that short position by purchasing Common Stock in the open
market. Morgan Keegan may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases. Neither the Company
nor Morgan Keegan makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above might have on the
price of the Common Stock. In addition, neither the Company nor Morgan Keegan
makes any representation that the Morgan Keegan will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
In the ordinary course of their business, Morgan Keegan and/or its
affiliates have in the past engaged and may in the future engage in financial
advisory, investment banking and other transactions with the Company for which
customary compensation has been, and will be, received.
LEGAL MATTERS
Certain legal matters, including the legality of the Common Stock
offered hereby, will be passed upon for the Company by Winstead Sechrest &
Minick P.C., Dallas, Texas, as securities and tax counsel to the Company, and
for Morgan Keegan by Baker, Donelson, Bearman & Caldwell. As to matters of
Maryland law contained in its opinion, Baker, Donelson, Bearman & Caldwell will
rely on the opinion of Winstead Sechrest & Minick.
EXPERTS
The consolidated financial statements and the related financial
statement schedule of the Company and USRP incorporated in this Prospectus
Supplement by reference from the Company's Annual Report on Form 10-K for the
year
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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.
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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PROSPECTUS
$150,000,000
U.S. RESTAURANT PROPERTIES, INC.
Common Stock, Common Stock Warrants, Preferred
Stock and Depositary Shares
U.S. Restaurant Properties, Inc. (together with its subsidiaries, the
"Company") may from time to time offer in one or more series (i) shares of its
common stock, par value $.001 per share (the "Common Stock"); (ii) warrants to
purchase Common Stock (the "Common Stock Warrants"); or (iii) shares or
fractional shares of its preferred stock, par value $.001 per share (the
"Preferred Stock"), which may be issued in the form of depositary shares (the
"Depositary Shares") evidenced by depositary receipts, with an aggregate public
offering price of up to $150,000,000. The Common Stock, Common Stock Warrants,
Preferred Stock and Depositary Shares (collectively, the "Offered Securities")
may be offered separately or together, in separate series, in amounts, at
prices and on terms to be determined at the time of offering and set forth in
one or more supplements to this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Common Stock,
any public offering price; (ii) in the case of Common Stock Warrants, the
duration, offering price, exercise price and detachability features; (iii) in
the case of Preferred Stock, the specific title, any distribution, liquidation,
redemption, conversion, voting and other rights and any initial public offering
price; and (iv) in the case of Depositary Shares, the fractional share of
Preferred Stock represented by each such Depositary Share. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Offered Securities, in each case as may be
appropriate to preserve the status of the Company as a real estate investment
trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information,
where applicable, concerning all material federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents
designated from time to time by the Company, or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Offered Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is October 16, 1997
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITERS, AGENTS OR DEALERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
In connection with the conversion of U.S. Restaurant Properties Master
L.P. (the "Predecessor") into a real estate investment trust, the Company has
succeeded to the business, operations, assets and liabilities of the
Predecessor and is the successor registrant to the Predecessor for purposes of
the Securities Act of 1933, as amended (the "Securities Act"), and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
is, and prior to the conversion the Predecessor was, subject to the
informational requirements of the Exchange Act and, in accordance therewith,
the Company files, and prior to the conversion the Predecessor filed, reports,
proxy statements and other information, with the Securities and Exchange
Commission (the "Commission"). The Company's Registration Statement on Form
S-3 (the "Registration Statement"), the exhibits and schedules forming a part
thereof and the reports, proxy statements and other information filed by the
Company and the Predecessor can be obtained from the web site that the
Commission maintains at http://www.sec.gov, or can be inspected and copied, at
the prescribed rates, at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, Suite 1300, New
York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. The Common Stock is listed on the New York Stock
Exchange (the "NYSE") and similar information concerning the Company may be
inspected at the offices of the NYSE at 20 Broad Street, New York, New York
10005.
This Prospectus constitutes a part of the Registration Statement filed
by the Company with the Commission under the Securities Act. This Prospectus
omits certain of the information contained in the Registration Statement and
the exhibits and schedules thereto, in accordance with the rules and
regulations of the Commission. For further information concerning the Company
and the Offered Securities, reference is hereby made to the Registration
Statement and the exhibits and schedules filed therewith, which may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and copies of which may be obtained from the
Commission at prescribed rates. Any statements contained herein concerning the
provisions of any document are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company or the
Predecessor (Commission File No. 1-9079) under the Exchange Act with the
Commission and are incorporated herein by reference:
(a) The Predecessor's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, as amended by the Form 10-K/A
filed May 2, 1997;
(b) The Predecessor's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997;
(c) The Predecessor's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997;
(d) The Predecessor's Current Report on Form 8-K dated April 14,
1997, as amended by the Form 8-K/A filed May 30, 1997;
(e) The Predecessor's Current Report on Form 8-K dated August 21,
1997;
(f) The Company's Current Report on Form 8-K dated August 22,
1997; and
(g) The Company's Registration Statement on Form 8-A filed
February 20, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Offered Securities shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the respective dates of filing such documents.
Any statement or information contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed modified or
superseded for the purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the documents incorporated by reference herein
(not including any exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference to
the information that this Prospectus incorporates). Requests should be
directed to: U.S. Restaurant Properties, Inc., 5310 Harvest Hill Road, Suite
270, Dallas, Texas 75230, Attention: Michael D. Warren, telephone (972)
387-1487.
FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference herein
may contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, and as such may involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use of the words
"may," "will," "should," "expect," "anticipate," "estimate," "believe,"
"intend" or "project" or the negative thereof or other variations thereon or
comparable terminology. Factors which could have a material adverse effect on
the operations and future prospects of the Company include, but are not limited
to, changes in: economic conditions generally and the real estate market
specifically, legislative/regulatory changes (including changes to laws
governing the taxation of REITs), availability of capital, interest rates,
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competition, supply and demand for properties in current and proposed market
areas of the Company and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating any forward-looking statements contained herein.
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THE COMPANY
U.S. Restaurant Properties, Inc. (together with its subsidiaries, the
"Company"), a fully integrated, self-administered and self-managed REIT,
acquires, owns, manages and selectively develops income-producing properties
that it leases on a triple net basis primarily to operators of national and
regional fast food and casual dining chain restaurants such as Burger King(R),
Arby's(R), Dairy Queen(R), Grandy's(R) and Pizza Hut(R). At July 31, 1997, the
Company's portfolio consisted of 494 restaurant properties located in 44 states
operated by approximately 200 operators and representing over 45 franchise
affiliations. Approximately 99.5% of the Company's portfolio is leased with an
average remaining lease term of over ten years.
The Company, together with its predecessors, has been engaged in the
business of leasing restaurant properties since 1986. Prior to 1994, the
Company's portfolio was limited to approximately 125 Burger King(R) restaurant
properties. In May 1994, existing management assumed control of the Company
and began restructuring operations in a manner that has allowed the Company to
implement a number of new strategies intended to encourage Company growth.
These strategies have involved the Company in new property acquisitions,
merchant banking activities in which the Company acquires entire restaurant
chains but retains only the real estate in order to enhance investment returns,
new property developments of co-branded service centers, securing a $95 million
revolving line of credit and the Merger.
The business and operations of the Company are conducted through U.S.
Restaurant Properties Operating L.P. (the "Operating Partnership"). The
Operating Partnership is a totally-owned Delaware limited partnership
subsidiary of the Company. The Operating Partnership does not conduct any
operations that are independent from those of the Company.
The Company is a Maryland corporation which has elected to be taxed as
a REIT for federal income tax purposes for the year ending December 31, 1997.
The Common Stock is traded on the NYSE under the symbol "USV." The principal
executive offices of the Company are located at 5310 Harvest Hill Road, Suite
270, Dallas, Texas 75230. The telephone number is (972) 387-1487.
USE OF PROCEEDS
Except as otherwise provided in the applicable Prospectus Supplement,
the Company intends to use the net proceeds from any sale of the Offered
Securities for working capital and for general corporate purposes, which may
include the repayment of indebtedness, the financing of capital commitments and
possible future acquisitions associated with the continued expansion of the
Company's business.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to combined fixed charges for the periods shown:
<TABLE>
<CAPTION>
Years ended December 31, Six Months ended
------------------------------------------------ ----------------
1992 1993 1994 1995 1996 6/30/96 6/30/97
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges 20.73x 42.60x 55.86x 20.77x 3.74x 4.02x 2.06x
</TABLE>
The ratios of earnings to fixed charges were computed by dividing the
Company's earnings by fixed charges. For this purpose, earnings have been
calculated by adding fixed charges (excluding capitalized interest) to pretax
income from continuing operations. Fixed charges consist of interest costs,
whether expensed or capitalized, the interest component of rental expense, if
any, and amortization of deferred financing costs
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<PAGE> 14
(including amounts capitalized). To date, the Company has not issued any
Preferred Stock; therefore, the ratios of earnings to combined fixed charges
and Preferred Stock distributions are the same as the ratios of earnings to
fixed charges.
Prior to 1995, the operations of, and the amount of indebtedness which
could be incurred by, the Predecessor were limited by its partnership
agreement. In connection with the restructuring of its operations in 1995, the
Predecessor's partnership agreement was amended to permit the expansion of its
portfolio. Since that time, the Predecessor's acquisitions have been funded
through a mixture of debt and equity, resulting in an increased fixed charge
for interest expense.
DESCRIPTION OF COMMON STOCK
GENERAL
Under the Company's Amended and Restated Articles of Incorporation
(the "Charter"), the Company has authority to issue 60 million shares of
capital stock, par value $.001 per share, with 45 million of such shares
designated as Common Stock. Upon completion of the Merger, the Company will
have outstanding 8,354,354 shares of Common Stock. Under Maryland law,
stockholders generally are not responsible for a corporation's debts or
obligations. The following descriptions do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the more complete
descriptions thereof set forth in the following documents: (i) the Charter and
(ii) the Company's By-Laws (the "By-Laws"), which documents are exhibits to the
Registration Statement of which this Prospectus is a part.
TERMS
Subject to the preferential rights of any other shares or series of
capital stock and to the provisions of the Charter regarding excess stock
("Excess Stock"), holders of shares of Common Stock will be entitled to receive
distributions on shares of Common Stock if, as and when authorized and declared
by the Board of Directors out of assets legally available therefor and to share
ratably in the assets of the Company legally available for distribution to its
stockholders in the event of its liquidation, dissolution or winding up after
payment of, or adequate provision for, all known debts and liabilities of the
Company.
Subject to the provisions of the Charter regarding Excess Stock, each
outstanding share of Common Stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors, and, except as otherwise required by law or except as provided with
respect to any other class or series of stock, the holders of such shares will
possess the exclusive voting power. There is no cumulative voting in the
election of directors, which means that the holders of a majority of the
outstanding shares of Common Stock, together with any other voting stock of the
Company, can elect all of the directors then standing for election and the
holders of the remaining shares will not be able to elect any directors.
Holders of Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company,
except that Common Stock is convertible into Excess Stock as provided in the
Charter.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for
the first three quarters of each fiscal year containing unaudited financial
information.
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<PAGE> 15
Subject to the provisions of the Charter regarding Excess Stock,
shares of Common Stock will have equal distribution, liquidation and other
rights, and will have no preference, appraisal or exchange rights.
Pursuant to the Maryland General Corporation Law ("MGCL"), a
corporation generally cannot dissolve, amend its charter, merge, sell all or
substantially all of its assets, engage in a share exchange or engage in
similar transactions outside the ordinary course of business unless approved by
the affirmative vote of stockholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter) is set forth in
the corporation's charter. The Charter provides that in such situations the
approval of a majority of the total number of the shares entitled to vote on
the matter is required.
Provisions of the Charter described below under "Restrictions on
Transfers of Capital Stock," together with other provisions of the Charter and
of the MGCL, may discourage a takeover or other transaction which holders of
some, or a majority, of the shares of Common Stock might believe to be in their
best interests or in which holders of some, or a majority, of the shares of
Common Stock might receive a premium for their shares of Common Stock over the
then- prevailing market price of such shares of Common Stock.
RESTRICTIONS ON TRANSFER AND OWNERSHIP
Following the Merger, the Company will elect to be treated as a REIT
for federal income tax purposes. For the Company to qualify as a REIT under
the Internal Revenue Code of 1986, as amended (the "Code"), not more than 50%
in value of its outstanding shares of capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year. To assist the
Company in meeting this requirement, the Charter contains certain provisions
restricting certain transfers and limiting the beneficial ownership, directly
or indirectly, of the Company's Common Stock. See "Restrictions on Transfers
of Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American
Stock Transfer and Trust Company.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with any
other Offered Securities offered by any Prospectus Supplement and may be
attached to or separate from such Offered Securities. Each series of Common
Stock Warrants will be issued under a separate warrant agreement (each, a
"Warrant Agreement") to be entered into between the Company and a warrant agent
specified in the applicable Prospectus Supplement (the "Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Common Stock Warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
Common Stock Warrants. The following description of the Common Stock Warrants
sets forth certain general terms and provisions of the Common Stock Warrants to
which any Prospectus Supplement may relate. The statements below describing
the Common Stock Warrants and the applicable Warrant Agreements are in all
respects subject to and qualified in their entirety by any further terms and
provisions that may be set forth in any applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Common Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (i) the title of such Common Stock
Warrants; (ii) the aggregate number of such Common Stock Warrants; (iii) the
price or prices at
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which such Common Stock Warrants will be issued; (iv) the designation, number
and terms of the shares of Common Stock purchasable upon exercise of such
Common Stock Warrants; (v) the designation and terms of the other Offered
Securities with which such Common Stock Warrants are issued and the number of
such Common Stock Warrants issued with each such Offered Security; (vi) the
date, if any, on and after which such Common Stock Warrants and the related
Common Stock will be separately transferable; (vii) the price at which each
share of Common Stock purchasable upon exercise of such Common Stock Warrants
may be purchased; (viii) the date on which the right to exercise such Common
Stock Warrants shall commence and the date on which such right shall expire;
(ix) the minimum or maximum amount of such Common Stock Warrants which may be
exercised at any one time; (x) information with respect to book-entry
procedures, if any; (xi) a discussion of all material federal income tax
considerations; and (xii) any other terms of such Common Stock Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Common Stock Warrants.
Each Common Stock Warrant will entitle the holder thereof to purchase
such number of shares of Common Stock, as the case may be, at such exercise
price as shall, in each case, be set forth in, or calculable from, the
applicable Prospectus Supplement relating to the offered Common Stock Warrants.
Prior to the exercise of any Common Stock Warrants, holders of such Common
Stock Warrants will not have any rights of holders of Common Stock, including
the right to receive payments of distributions, if any, on such Common Stock,
or to exercise any applicable right to vote. After the close of business on
the expiration date of any series of Common Stock Warrants (or such later date
to which such expiration date may be extended by the Company), unexercised
Common Stock Warrants will become void.
Common Stock Warrants may be exercised by delivering to the Warrant
Agent payment, as provided in the applicable Prospectus Supplement, of the
amount required to purchase the Common Stock purchasable upon such exercise and
otherwise by following the procedures specified in such Prospectus Supplement.
The Warrant Agreements may be amended or supplemented without the
consent of the holders of the Common Stock Warrants issued thereunder to effect
changes that are not inconsistent with the provisions of the Common Stock
Warrants and that do not adversely affect the interests of the holders of the
Common Stock Warrants.
Reference is made to the section captioned "Description of Common
Stock" for a general description of the Common Stock to be acquired upon the
exercise of the Common Stock Warrants, including a description of certain
restrictions on the ownership or transfer of Common Stock.
DESCRIPTION OF PREFERRED STOCK
GENERAL
Under the Charter, the Company has authority to issue 10 million
shares of Preferred Stock, none of which is outstanding as of the date of this
Prospectus. Prior to issuance of shares of each series, the Board of Directors
is required by the MGCL and the Charter to fix for each series, subject to the
provisions of the Charter regarding Excess Stock, the number of shares to be
included in each series and the preferences, conversion or other rights, voting
powers, restrictions (including restrictions on transfers of shares),
limitations as to dividends, qualifications and terms or conditions of
redemption, and to file articles supplementary to the Charter (the "Articles
Supplementary") reflecting such terms, preferences and other rights. Except as
may be expressly provided with respect to any class or series of Preferred
Stock, no holder of the Preferred Stock will have any preemptive rights. The
Board of Directors could authorize the issuance of shares of Preferred Stock
with terms and conditions that could have the effect of discouraging a takeover
or other transaction which holders of some, or a majority, of the shares of
Common Stock might believe to be in their best interests or in which holders of
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<PAGE> 17
some, or a majority, of the shares of Common Stock might receive a premium for
their shares of Common Stock over the then-prevailing market price of such
shares of Common Stock.
TERMS
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Charter and the By-Laws and any Articles
Supplementary designating the terms of a series of Preferred Stock.
Reference is made to the Prospectus Supplement relating to the
Preferred Stock offered thereby for the specific terms thereof, including,
where applicable, the following:
(1) The title of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of
such Preferred Stock;
(3) The distribution rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred
Stock;
(4) The date from which distributions on such Preferred Stock
shall accumulate, if applicable;
(5) The provision for a sinking fund, if any, for such Preferred
Stock;
(6) The provision for redemption, if applicable, of such Preferred
Stock;
(7) Any listing of such Preferred Stock on any securities
exchange;
(8) The terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Common Stock,
including the conversion price or rate (or manner of
calculation thereof);
(9) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(10) A discussion of all material federal income tax considerations
applicable to such Preferred Stock;
(11) The relative ranking and preference of such Preferred Stock as
to distribution rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
(12) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred
Stock as to distribution rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company; and
(13) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate
to preserve the status of the Company as a REIT.
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<PAGE> 18
RANK
Unless otherwise specified in the applicable Prospectus Supplement,
the Preferred Stock will, with respect to distribution rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to the
Common Stock and to all equity securities ranking junior to such Preferred
Stock with respect to distribution rights or rights upon liquidation,
dissolution or winding up of the Company; (ii) on a parity with all equity
securities issued by the Company, the terms of which specifically provide that
such equity securities rank on a parity with the Preferred Stock with respect
to distribution rights or rights upon liquidation, dissolution or winding up of
the Company; and (iii) junior to all equity securities issued by the Company,
the terms of which specifically provide that such equity securities rank senior
to the Preferred Stock with respect to distribution rights or rights upon
liquidation, dissolution or winding up of the Company.
DISTRIBUTIONS
Holders of the Preferred Stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors, out of assets of
the Company legally available for payment, cash distributions at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement.
Each such distribution shall be payable to holders of record as they appear on
the stock transfer books of the Company on such record dates as shall be fixed
by the Board of Directors.
Distributions on any series of the Preferred Stock may be cumulative
or noncumulative, as provided in the applicable Prospectus Supplement.
Distributions, if cumulative, will be cumulative from and after the date set
forth in the applicable Prospectus Supplement. If the Board of Directors fails
to declare a distribution payable on a distribution payment date on any series
of the Preferred Stock for which distributions are noncumulative, then the
holders of such series of the Preferred Stock will have no right to receive a
distribution in respect of the distribution period ending on such distribution
payment date, and the Company will have no obligation to pay the distribution
accrued for such period, whether or not distributions on such series are
declared payable on any future distribution payment date.
If Preferred Stock of any series is outstanding, no distributions will
be declared or paid or set apart for payment on any capital stock of the
Company of any other series ranking, as to distributions, on a parity with or
junior to the Preferred Stock of such series for any period, unless (i) if such
series of Preferred Stock has a cumulative distribution, full cumulative
distributions have been or contemporaneously are declared and paid, or declared
and a sum sufficient for the payment thereof is set apart for such payment on
the Preferred Stock of such series for all past distribution periods and the
then current distribution period, or (ii) if such series of Preferred Stock
does not have a cumulative distribution, full distributions for the then
current distribution period have been or contemporaneously are declared and
paid, or declared and a sum sufficient for the payment thereof is set apart for
such payment on the Preferred Stock of such series. When distributions are not
paid in full (or a sum sufficient for such full payment is not so set apart)
upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to distributions with the Preferred
Stock of such series, all distributions declared upon Preferred Stock of such
series and any other series of Preferred Stock ranking on a parity as to
distributions with such Preferred Stock shall be declared pro rata so that the
amount of distributions declared per share of Preferred Stock of such series
and such other series of Preferred Stock shall in all cases bear to each other
the same ratio that accrued distributions per share on the Preferred Stock of
such series (which shall include any accumulation in respect of unpaid
distributions for prior distribution periods if such Preferred Stock provides
for a cumulative distribution) and such other series of Preferred Stock bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any distribution payment or payments on Preferred Stock of such
series that may be in arrears.
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<PAGE> 19
Except as provided in the immediately preceding paragraph, unless (i)
if such series of Preferred Stock has a cumulative distribution, full
cumulative distributions on the Preferred Stock of such series have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof is set apart for payment for all past distribution periods
and the then current distribution period, or (ii) if such series of Preferred
Stock does not have a cumulative distribution, full distributions on the
Preferred Stock of such series have been or contemporaneously are declared and
paid, or declared and a sum sufficient for the payment thereof is set apart for
payment for the then current distribution period, no distributions (other than
in shares of Common Stock or other shares of capital stock ranking junior to
the Preferred Stock of such series as to distributions and upon liquidation)
shall be declared or paid or set aside for payment nor shall any other
distribution be declared or made upon the Common Stock or any other capital
stock of the Company ranking junior to or on a parity with the Preferred Stock
of such series as to distributions or upon liquidation, nor shall any shares of
Common Stock or any other shares of capital stock of the Company ranking junior
to or on a parity with the Preferred Stock of such series as to distributions
or upon liquidation, be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any such shares) by the Company (except by conversion
into or exchange for other capital stock of the Company ranking junior to the
Preferred Stock of such series as to distributions and upon liquidation).
Any distribution payment made on shares of a series of Preferred Stock
shall first be credited against the earliest accrued but unpaid distribution
due with respect to shares of such series that remain payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Stock will be subject to mandatory redemption or redemption at the option of
the Company, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The applicable Prospectus Supplement relating to a series of Preferred
Stock that is subject to mandatory redemption will specify the number of shares
of such Preferred Stock that shall be redeemed by the Company in each year
commencing after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to all accrued and unpaid
distributions thereon (which shall not, if such Preferred Stock does not have a
cumulative distribution, include any accumulation in respect of unpaid
distributions for prior distribution periods) to the date of redemption. The
redemption price may be payable in cash or other property, as specified in the
applicable Prospectus Supplement. If the redemption price for Preferred Stock
of any series is payable only from the net proceeds of the issuance of shares
of capital stock of the Company, the terms of such Preferred Stock may provide
that if no such shares of capital stock shall have been issued, or to the
extent the net proceeds from any issuance are insufficient to pay in full the
aggregate redemption price then due, such Preferred Stock shall automatically
and mandatorily be converted into the applicable shares of capital stock of the
Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred
Stock has a cumulative distribution, full cumulative distributions on all
outstanding shares of such series of Preferred Stock shall have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for payment for all past distribution periods and
the then current distribution period, or (ii) if a series of Preferred Stock
does not have a cumulative distribution, full distributions on all shares of
the Preferred Stock of such series have been or contemporaneously are declared
and paid, or declared and a sum sufficient for the payment thereof set apart
for payment for the then current distribution period, no shares of such series
of Preferred Stock shall be redeemed unless all outstanding shares of Preferred
Stock of such series are simultaneously redeemed; provided, however, that the
foregoing shall not prevent the purchase or acquisition of Preferred Stock of
such series to preserve the REIT status of the Company or pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Preferred Stock of such series. In addition, unless (i) if such
series of
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Preferred Stock has a cumulative distribution, full cumulative distributions on
all outstanding shares of such series of Preferred Stock have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for payment for all past distribution periods and
the then current distribution period, or (ii) if such series of Preferred Stock
does not have a cumulative distribution, full distributions on the Preferred
Stock of such series have been or contemporaneously are declared and paid, or
declared and a sum sufficient for the payment thereof set apart for payment for
the then current distribution period, the Company shall not purchase or
otherwise acquire directly or indirectly any shares of such series of Preferred
Stock (except by conversion into or exchange for capital shares of the Company
ranking junior to the Preferred Stock of such series as to distributions and
upon liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of shares of Preferred Stock of such series to preserve
the REIT status of the Company or pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding shares of Preferred Stock of
such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held or for which redemption is requested by such holder (with adjustments to
avoid redemption of fractional shares) or by any other equitable manner
determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Preferred Stock
of any series to be redeemed at the address shown on the stock transfer books
of the Company. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Stock are to be surrendered for payment of the redemption price; (v)
that distributions on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the shares of
Preferred Stock of any series are to be redeemed, the notice mailed to each
such holder thereof shall also specify the number of shares of Preferred Stock
to be redeemed from each such holder. If notice of redemption of any Preferred
Stock has been given and if the funds necessary for such redemption have been
set aside by the Company in trust for the benefit of the holders of any
Preferred Stock so called for redemption, then from and after the redemption
date distributions will cease to accrue on such Preferred Stock, and all rights
of the holders of such shares will terminate, except the right to receive the
redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment
shall be made to the holders of any Common Stock or any other class or series
of capital stock of the Company ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company, the holders of each series of Preferred Stock shall be entitled to
receive out of assets of the Company legally available for distribution to
stockholders liquidating distributions in the amount of the liquidation
preference per share, if any, set forth in the applicable Prospectus
Supplement, plus an amount equal to all distributions accrued and unpaid
thereon (which shall include any accumulation in respect of unpaid cumulative
distributions for prior distribution periods). After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of Preferred Stock will have no right or claim to any of the remaining assets
of the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding shares of Preferred Stock and the corresponding amounts payable on
all shares of other classes or series of capital stock of the Company ranking
on a parity with the Preferred Stock in the distribution of assets, then the
holders of the Preferred Stock and all other such classes or
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series of capital stock ranking on parity with the Preferred Stock shall share
ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all
holders of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation,
trust or entity, or the sale, lease or conveyance of all or substantially all
of the property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except
as set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long
as any shares of Preferred Stock of a series remain outstanding, the Company
will not, (i) without the affirmative vote or consent of the holders of at
least a majority of the shares of such series of Preferred Stock outstanding at
the time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
senior to such series of Preferred Stock with respect to payment of
distributions or the distribution of assets upon liquidation, dissolution or
winding up of the Company or reclassify any authorized capital stock of the
Company into such shares, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such shares,
or (ii) without the affirmative vote or consent of the holders of at least a
majority of the shares of such series of Preferred Stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), amend, alter or repeal the provisions of
the Charter or the Articles Supplementary for such series of Preferred Stock,
whether by merger, consolidation or otherwise (an "Event"), so as to materially
and adversely affect any right, preference, privilege or voting power of such
series of Preferred Stock or the holders thereof; provided, however, with
respect to the occurrence of any Event set forth in (ii) above, so long as the
Preferred Stock remains outstanding with the terms thereof materially
unchanged, taking into account that upon the occurrence of an Event the Company
may not be the surviving entity, the occurrence of any such Event shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting power of holders of Preferred Stock, and provided further that (i)
any increase in the amount of the authorized Preferred Stock or the creation or
issuance of any other series of Preferred Stock or (ii) any increase in the
amount of authorized shares of such series or any other series of Preferred
Stock, in each case ranking on a parity with or junior to the Preferred Stock
of such series with respect to payment of distributions or the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series of Preferred Stock
shall have been redeemed or called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.
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
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or rate (or manner of calculation thereof), the conversion period, provisions
as to whether conversion will be at the option of the holders of the Preferred
Stock or the Company, the events requiring an adjustment of the conversion
price and the provisions affecting conversion in the event of the redemption of
such series of Preferred Stock.
RESTRICTIONS ON TRANSFER AND OWNERSHIP
The provisions contained in the Charter restricting certain transfers
and limiting the beneficial ownership, directly or indirectly, of the Company's
outstanding capital stock will effect any shares of Preferred Stock that may
from time to time be issued by the Company. See "Restrictions on Transfers of
Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for the Preferred Stock will be set
forth in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (a "Preferred Stock
Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the applicable Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest
of a share of a particular series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipt, to all the rights and
preferences of the Preferred Stock represented by such Depositary Shares
(including distribution, voting, conversion, redemption and liquidation
rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the
issuance and delivery of the Preferred Stock by the Company to a Preferred
Stock Depositary, the Company will cause such Preferred Stock Depositary to
issue, on behalf of the Company, the Depositary Receipts. Copies of the
applicable form of Deposit Agreement and Depositary Receipt may be obtained
from the Company upon request, and the statements made hereunder relating to
Deposit Agreements and the Depositary Receipts to be issued thereunder are
summaries of certain anticipated provisions thereof and do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all of the provisions of the applicable Deposit Agreement and related
Depositary Receipts.
DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
distributions received in respect of the applicable Preferred Stock to the
record holders of Depositary Receipts evidencing the related Depositary Shares
in proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and
other information and to pay certain charges and expenses to such Preferred
Stock Depositary.
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In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay
certain charges and expenses to such Preferred Stock Depositary, unless such
Preferred Stock Depositary determines that it is not feasible to make such
distribution, in which case such Preferred Stock Depositary may, with the
approval of the Company, sell such property and distribute the net proceeds
from such sale to such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which has been converted or
exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust
office of the applicable Preferred Stock Depositary (unless the related
Depositary Shares have previously been called for redemption or converted), the
holders thereof will be entitled to delivery at such office, to or upon each
such holder's order, of the number of whole or fractional shares of the
applicable Preferred Stock and any money or other property represented by the
Depositary Shares evidenced by such Depositary Receipts. Holders of Depositary
Receipts will be entitled to receive whole or fractional shares of the related
Preferred Stock on the basis of the proportion of Preferred Stock represented
by each Depositary Share as specified in the applicable Prospectus Supplement,
but holders of such shares of Preferred Stock will not thereafter be entitled
to receive Depositary Shares therefor. If the Depositary Receipts delivered by
the holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of Preferred Stock to be
withdrawn, the applicable Preferred Stock Depositary will be required to
deliver to such holder at the same time a new Depositary Receipt evidencing
such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by a
Preferred Stock Depositary, such Preferred Stock Depositary will be required to
redeem as of the same redemption date the number of Depositary Shares
representing shares of the Preferred Stock so redeemed, provided the Company
shall have paid in full to such Preferred Stock Depositary the redemption price
of the Preferred Stock to be redeemed plus an amount equal to any accrued and
unpaid distributions thereon to the date fixed for redemption. The redemption
price per Depositary Share will be equal to the redemption price and any other
amounts per share payable with respect to the Preferred Stock. If fewer than
all the Depositary Shares are to be redeemed, the Depositary Shares to be
redeemed will be selected pro rata (as nearly as may be practicable without
creating fractional Depositary Shares) or by any other equitable method
determined by the Company that preserves the REIT status of the Company.
From and after the date fixed for redemption, all distributions in
respect of the shares of Preferred Stock so called for redemption will cease to
accrue, the Depositary Shares so called for redemption will no longer be deemed
to be outstanding and all rights of the holders of the Depositary Receipts
evidencing the Depositary Shares so called for redemption will cease, except
the right to receive any moneys payable upon such redemption and any money or
other property to which the holders of such Depositary Receipts were entitled
upon such redemption upon surrender thereof to the applicable Preferred Stock
Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Stock. Each record holder of Depositary
Receipts evidencing Depositary Shares on the record date (which will
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<PAGE> 24
be the same date as the record date for the Preferred Stock) will be entitled
to instruct such Preferred Stock Depositary as to the exercise of the voting
rights pertaining to the amount of Preferred Stock represented by such holder's
Depositary Shares. Such Preferred Stock Depositary will be required to vote
the amount of Preferred Stock represented by such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by such Preferred Stock
Depositary in order to enable such Preferred Stock Depositary to do so. Such
Preferred Stock Depositary will be required to abstain from voting the amount
of Preferred Stock represented by such Depositary Shares to the extent it does
not receive specific instructions from the holders of Depositary Receipts
evidencing such Depositary Shares. A Preferred Stock Depositary will not be
responsible for any failure to carry out any instruction to vote, or for the
manner or effect of any such vote made, as long as such action or non-action is
in good faith and does not result from negligence or willful misconduct of such
Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of each Depositary
Receipt will be entitled to the fraction of the liquidation preference accorded
each share of Preferred Stock represented by the Depositary Share evidenced by
such Depositary Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common
Stock or any other securities or property of the Company. Nevertheless, if so
specified in the applicable Prospectus Supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders
thereof to the applicable Preferred Stock Depositary with written instructions
to such Preferred Stock Depositary to instruct the Company to cause conversion
of the Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of
Preferred Stock of the Company or other shares of stock, and the Company will
agree that upon receipt of such instructions and any amounts payable in respect
thereof, it will cause the conversion thereof utilizing the same procedures as
those provided for delivery of Preferred Stock to effect such conversion. If
the Depositary Shares evidenced by a Depositary Receipt are to be converted in
part only, a new Depositary Receipt or Depositary Receipts will be issued for
any Depositary Shares not to be converted. No fractional shares of Common
Stock will be issued upon conversion, and if such conversion will result in a
fractional share being issued, an amount will be paid in cash by the Company
equal to the value of the fractional interest based upon the closing price of
the Common Stock on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary
Receipts then outstanding. No amendment shall impair the right, subject to
certain anticipated exceptions in the Deposit Agreements, of any holders of
Depositary Receipts to surrender any Depositary Receipt with instructions to
deliver to the holder the related Preferred Stock and all money and other
property, if any, represented thereby, except in order to comply with any
applicable law. Every holder of an outstanding Depositary Receipt at the time
any such amendment becomes effective shall be deemed, by
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continuing to hold such Depositary Receipt, to consent and agree to such
amendment and to be bound by the applicable Deposit Agreement as amended
thereby.
A Deposit Agreement will be permitted to be terminated by the Company
upon not less than 30 days' prior written notice to the applicable Preferred
Stock Depositary if (i) such termination is necessary to preserve the Company's
status as a REIT or (ii) a majority of each series of Preferred Stock affected
by such termination consents to such termination, whereupon such Preferred
Stock Depositary will be required to deliver or make available to each holder
of Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
receipts to such Depositary Receipts. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list the Preferred Stock issued upon
surrender of the related Depositary Shares on a national securities exchange.
In addition, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares thereunder shall have been redeemed; (ii) there
shall have been a final distribution in respect of the related Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company
and such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Stock; or
(iii) each share of the related Preferred Stock shall have been converted into
stock of the Company not so represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental
charges arising solely from the existence of a Deposit Agreement. In addition,
the Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of a
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the applicable
Deposit Agreement.
RESIGNATION AND REMOVAL OF A PREFERRED STOCK DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time
by delivering to the Company notice of its election to do so, and the Company
will be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company
having its principal office in the United States and having a combined capital
and surplus of at least $50 million.
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor the Company will be liable if
it is prevented from or delayed in, by law or any circumstances beyond its
control, performing its obligations under a Deposit Agreement. The obligations
of the Company and a Preferred Stock Depositary under a Deposit Agreement will
be limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither the Company nor any applicable Preferred Stock
Depositary will be obligated to
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<PAGE> 26
prosecute or defend any legal proceeding in respect of any Depositary Receipts,
Depositary Shares or shares of Preferred Stock represented thereby unless
satisfactory indemnity is furnished. The Company and any Preferred Stock
Depositary will be permitted to rely on written advice of counsel or
accountants, or information provided by persons presenting shares of Preferred
Stock represented thereby for deposit, holders of Depositary Receipts or other
persons believed in good faith to be competent to give such information, and on
documents believed in good faith to be genuine and signed by a proper party.
In the event a Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on
the one hand, and the Company, on the other hand, such Preferred Stock
Depositary shall be entitled to act on such claims, requests or instructions
received from the Company.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
For the Company to maintain its status as a REIT under the Code,
shares of Common Stock must be beneficially owned by 100 or more persons during
at least 335 days of the taxable year of 12 months (other than the first year)
or during a proportionate part of a shorter taxable year. Also, not more than
50% of the value of the outstanding shares of capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year (other than
the first year) or during a proportionate part of a shorter taxable year.
Because the Board of Directors believes it is essential for the
Company to qualify as a REIT, the Charter, subject to certain exceptions,
provides that no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than (i) 9.8% of the number of issued
and outstanding shares of Common Stock of the Company, except for QSV
Properties, Inc. ("QSV") which may own initially no more than 12% of the number
of such outstanding shares, or (ii) 9.8% of the number of outstanding shares of
Preferred Stock of any series of Preferred Stock (together, the "Ownership
Limit").
Any purported transfer of shares of Common Stock that would (i) result
in a person (other than QSV with respect to shares of Common Stock) owning,
directly or indirectly, shares of Common Stock or Preferred Stock in excess of
the Ownership Limit, (ii) result in QSV owning, directly or indirectly, in
excess of 12% of the number of outstanding shares of Common Stock (or the
decreased percentage that may be applicable), (iii) result in the Common Stock
and Preferred Stock being owned by fewer than 100 persons (determined without
reference to any rules of attribution), (iv) result in the Company being
"closely held" within the meaning of Section 856(h) of the Code, or (v) cause
the Company to own, directly or constructively, 10% or more of the ownership
interests in a tenant of the Company's or the Operating Partnership's real
property, within the meaning of Section 856(d)(2)(B) of the Code, shall be null
and void, and the intended transferee will acquire no rights in such shares of
Common Stock or Preferred Stock. Such Common Stock or Preferred stock will be
designated as Excess Stock and will be transferred automatically to a trust
(the "Trust") effective on the day before the purported transfer of such Common
Stock or Preferred Stock. The record holder of the shares of Common Stock or
Preferred Stock that are designated as Excess Stock (the "Prohibited Owner")
will be required to submit such number of shares of Common Stock or Preferred
Stock to the Company for registration in the name of the Trust. The Trustee of
the Trust will be designated by the Company, but will not be affiliated with
the Company or any Prohibited Owner. The beneficiary of the Trust (the
"Beneficiary") will be one or more not-for-profit organizations that are named
by the Company.
Excess Stock will remain issued and outstanding shares of Common Stock
or Preferred Stock and will be entitled to the same rights and privileges as
all other shares of the same class or series. The Trust will receive all
dividends and distributions on the Excess Stock and will hold such dividends
and distributions in trust for the benefit of the Beneficiary. The Trustee
will vote all Excess Stock. The Trustee will designate a permitted
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transferee of the Excess Stock, provided that the permitted transferee (i)
purchases such Excess Stock for valuable consideration and (ii) acquires such
Excess Stock without such acquisition resulting in a transfer to another Trust
and resulting in the redesignation of such shares of Common Stock or Preferred
Stock as Excess Stock.
The Prohibited Owner with respect to Excess Stock will be required to
repay the Trust the amount of any dividends or distributions received by the
Prohibited Owner (i) that are attributable to any Excess Stock and (ii) the
record date for which was on or after the date that such shares became Excess
Stock. The Prohibited Owner generally will receive from the Trustee the lesser
of (a) the price per share such Prohibited Owner paid for the shares of Common
Stock or Preferred Stock that were designated as Excess Stock (or, in the case
of a gift or devise, the Market Price (as defined below) per share on the date
of such transfer) and (b) the price per share received by the Trustee from the
sale of such Excess Stock. Any amounts received by the Trustee in excess of
the amounts to be paid to the Prohibited Owner will be distributed to the
Beneficiary.
The Excess Stock will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Excess Stock (or, in the
case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept
such offer for a period of 90 days after the later of (i) the date of the
purported transfer which resulted in such Excess Stock and (ii) the date the
Company determines in good faith that a transfer resulting in such Excess Stock
occurred.
"Market Price" means the average of the Closing Prices for the ten
consecutive trading days immediately preceding the relevant date. "Closing
Price" on any day means the last sale price, regular way on such day, or, if no
such sale takes place on that day, the average of the closing bid and asked
prices, regular way, in either case as reported on the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE, or if the affected class or series of capital stock is not
so listed or admitted to trading, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange (including the National Market System of the
National Association of Securities Dealers, Inc. Automated Quotation System) on
which the affected class or series of capital stock is listed or admitted to
trading or, if the affected class or series of capital stock is not so listed
or admitted to trading, the last quoted price or, if not quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported
by the National Association of Securities Dealers, Inc. Automated Quotation
System or, if such system is no longer in use, the principal automated
quotation system then in use or, if the affected class or series of capital
stock is not so quoted by any such system, the average of the closing bid and
asked prices as furnished by a professional market maker selected by the Board
making a market in the affected class or series of capital stock, or, if there
is no such market maker or such closing prices otherwise are not available, the
fair market value of the affected class or series of capital stock as of such
day, as determined by the Board in its discretion.
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
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notice to the Company by January 31 of each year stating the name and address
of such person, the number of shares of each class or series so owned and a
description of how such shares are owned. In addition, each stockholder shall
upon demand be required to disclose to the Company in writing such information
with respect to the direct, indirect and constructive ownership of shares of
Common Stock as the Board of Directors deems reasonably necessary to comply
with the provisions of the Code applicable to a REIT, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of
shares of Common Stock might believe to be in their best interests or in which
holders of some, or a majority, of the shares of Common Stock might receive a
premium for their shares over the then- prevailing market price of such shares
of Common Stock or which such holders might believe to be otherwise in their
best interest.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities through underwriters or
dealers, directly to one or more purchasers (including executive officers of
the Company or other persons that may be deemed affiliates of the Company),
through agents or through a combination of any such methods of sale. Any
underwriter involved in the offer and sale of the Offered Securities will be
named in the applicable Prospectus Supplement.
The distribution of the Offered Securities may be effected from time
to time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of the sale, at prices related
to such prevailing market prices or at negotiated prices. Further, the
distribution of any Common Stock in one or more special offerings pursuant to a
dividend reinvestment plan or other similar plan of the Company may be effected
from time to time at a fixed price or prices, which may be changed, at market
prices prevailing at the time of the sale, at prices related to such prevailing
market prices or at negotiated prices.
In connection with the sale of the Offered Securities, underwriters or
agents may receive compensation from the Company or from purchasers of the
Offered Securities, for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters may sell the Offered Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Underwriters, dealers and
agents that participate in the distribution of the Offered Securities may be
deemed to be underwriters under the Securities Act, and any discounts or
commissions they receive from the Company and any profit on the resale of the
Offered Securities they realize may be deemed to be underwriting discounts and
commissions under the 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.
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Under agreements into which the Company may enter, underwriters,
dealers and agents who participate in the distribution of the Offered
Securities may be entitled to indemnification by the Company, as the case may
be, against certain liabilities, including liabilities under the Securities
Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company in the ordinary course of
business.
FEDERAL INCOME TAX CONSIDERATIONS
The Company will elect to be treated as a REIT for federal income tax
commencing with its taxable year ending December 31, 1997. Based on certain
assumptions and representations that are summarized below, Winstead Sechrest &
Minick P.C., counsel to the Company, is of the opinion that beginning with its
taxable year ending December 31, 1997, the Company has been organized in
conformity with the requirements for qualification as a REIT and that its
proposed method of operations described in this Prospectus will enable it to
satisfy the requirements for such qualification. The rules governing REITs are
highly technical and require ongoing compliance with a variety of tests that
depend, among other things, on future operating results. Winstead Sechrest &
Minick P.C. will not monitor the Company's compliance with these requirements.
While the Company expects to satisfy these tests, and will use its best efforts
to do so, no assurance can be given that the Company will qualify as a REIT for
any particular year, or that the applicable law will not change and adversely
affect the Company and its stockholders. See "--Failure to Qualify as a REIT."
The Taxpayer Relief Act of 1997 (the "Tax Act") contained several provisions
affecting REIT's and is generally effective January 1, 1998. The following is
a summary of the material federal income tax considerations affecting the
Company as a REIT and its stockholders:
REIT QUALIFICATION. Entities like the Company that invest
principally in real estate and that otherwise would be taxed as regular
corporations may elect to be treated as REITs when they satisfy certain
detailed requirements imposed by the Code. If the Company qualifies for
taxation as a REIT, it generally will not be subject to corporate income tax to
the extent the Company currently distributes its REIT taxable income to its
stockholders. This treatment effectively eliminates the "double taxation"
(i.e., taxation at both the corporate and stockholder levels) imposed on
investments in most corporations. A qualifying REIT, however, may be subject
to certain excise and other taxes, as well as to normal corporate tax on
taxable income that is not currently distributed to its stockholders. See "--
Taxation of the Company as a REIT." In addition, if the Company fails to
qualify as a REIT in any taxable year, it will be subject to federal income tax
at regular corporate rates on all of its taxable income.
General Qualification Requirements. The Company must be organized as
an entity that would, if it does not maintain its REIT status, be taxable as a
regular corporation. It cannot be a financial institution or an insurance
company. The Company must be managed by one or more directors. The Company's
taxable year must be the calendar year. The Company expects to meet each of
these requirements. The Company also expects to satisfy the requirements that
are separately described below concerning share ownership and reporting, the
nature and amounts of the Company's income and assets and the levels of
required annual distributions.
Share Ownership; Reporting. Beneficial ownership of the Company must
be and is evidenced by transferable shares. The Company's capital stock must
be held by at least 100 persons during at least 335 days of a taxable year of
12 months or during a proportionate part of a taxable year of less than 12
months. Not more than 50% of the value of the shares of capital stock of the
Company may be held, directly or indirectly, applying certain constructive
ownership rules, by five or fewer individuals at any time during the last half
of each of the Company's taxable years. The Company is not required to satisfy
the 100 person and 50% tests until its second taxable year for which an
election is made to be taxed as a REIT. The Company believes that its shares
of
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Common Stock will be owned by a sufficient number of investors and in
appropriate proportions to permit it to satisfy these requirements. To protect
against violations of these requirements, the Articles will provide that no
person is permitted to own (applying certain constructive ownership tests) more
than 8.75% of the outstanding Common Stock (except for QSV which can initially
own up to 15% of the outstanding Common Stock, subject to reduction under
certain circumstances) or 9.8% of the outstanding Preferred Stock. In
addition, the Articles will contain restrictions on transfers of capital stock,
as well as provisions that automatically convert shares of stock into
nonvoting, non-dividend paying Excess Stock to the extent that the ownership
otherwise might jeopardize the Company's REIT status.
To monitor the Company's compliance with the share ownership
requirements, the Company is required to and will maintain records disclosing
the actual ownership of common shares. To do so, the Company will demand
written statements each year from the record holders of certain percentages of
shares in which the record holders are to disclose the actual owners of the
shares (i.e., the persons required to include in gross income the REIT
dividends). A list of those persons failing or refusing to comply with this
demand will be maintained as part of the Company's records. Stockholders who
fail or refuse to comply with the demand must submit a statement with their tax
returns disclosing the actual ownership of the shares and certain other
information.
Sources of Gross Income. In order to qualify as a REIT for a
particular year, the Company also must meet three tests governing the sources
of its income. These tests are designed to ensure that a REIT derives its
income principally from passive real estate investments. In evaluating a
REIT's income, the REIT will be treated as receiving its proportionate share of
the income produced by any partnership in which the REIT invests, and any such
income will retain the character that it has in the hands of the partnership.
The Code allows the Company to own and operate a number of its properties
through wholly-owned subsidiaries which are "qualified REIT subsidiaries." The
Code provides that a qualified REIT subsidiary is not treated as a separate
corporation, and all of its assets, liabilities and items of income, deduction
and credit are treated as assets, liabilities and such items of the REIT.
75% Gross Income Test. At least 75% of a REIT's gross income for each
taxable year must be derived from specified classes of income that principally
are real estate related. The permitted categories of principal importance to
the Company are: (i) rents from real property; (ii) interest on loans secured
by real property; (iii) gain from the sale of real property or loans secured by
real property (excluding gain from the sale of property held primarily for sale
to customers in the ordinary course of the Company's trade or business,
referred to below as "dealer property"); (iv) income from the operation and
gain from the sale of certain property acquired in connection with the
foreclosure of a mortgage securing that property ("foreclosure property"); (v)
distributions on, or gain from the sale of, shares of other qualifying REITs;
(vi) abatements and refunds of real property taxes; and (vii) "qualified
temporary investment income" (described below). In evaluating the Company's
compliance with the 75% income test (as well as the 95% income test described
below), gross income does not include gross income from "prohibited
transactions." A prohibited transaction is one involving a sale of dealer
property, not including foreclosure property and certain dealer property held
by the Company for at least four years.
The Company expects that substantially all of its operating gross
income will be considered rent from real property. Rent from real property is
qualifying income for purposes of the 75% income test only if certain
conditions are satisfied. Rent from real property includes charges for
services customarily rendered to tenants, and rent attributable to personal
property leased together with the real property so long as the personal
property rent is less than 15% of the total rent. The Company does not expect
to earn material amounts in these categories. Rent from real property
generally does not include rent based on the income or profits derived from the
property. The Company does not intend to lease property and receive rentals
based on the tenant's net income or profit. However, rent based on a
percentage of gross income is permitted as rent from real property and the
Company will have leases where rent is based on a percentage of gross income.
Also excluded from "rents from real property" is rent received from a person or
corporation in which the Company (or any of its 10% or greater
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owners) directly or indirectly through the constructive ownership rules
contained in Section 318 of the Code, owns a 10% or greater interest ("Related
Party Tenant Rent"). The Company, through such attribution rules, owns greater
than a 10% interest in one tenant which leases three (3) Burger King restaurant
properties from the Operating Partnership. However, such non-qualifying income
is less than 3.5% of total gross income of the Operating Partnership. A third
exclusion covers amounts received with respect to real property if the Company
furnishes services to the tenants or manages or operates the property, other
than through an "independent contractor" from whom the Company does not derive
any income. The obligation to operate through an independent contractor
generally does not apply, however, if the services provided by the Company are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not considered rendered primarily for the convenience of
the tenant (applying standards that govern in evaluating whether rent from real
property would be unrelated business taxable income when received by a tax
exempt owner of the property). The Tax Act provides a de minimis rule for
non-customary services which is effective for taxable years beginning after
August 5, 1997. If the value of the non-customary service income with respect
to a property (valued at no less than 150% of the Company's direct cost of
performing such services is 1% or less of the total income derived from the
property, then all rental income except the non-customary service income will
qualify as "rents from real property." This provision will be effective for
the Company's taxable year ending December 31, 1998.
The Company will, in most instances, directly operate and manage its
assets without using an "independent contractor." The Company believes that
the only material services to be provided to tenants will be those usually or
customarily rendered in connection with the rental of space for occupancy only.
The Company will not provide services that might be considered rendered
primarily for the convenience of the tenants, such as hotel, health care or
extensive recreational or social services. Consequently, the Company believes
that substantially all of its rental income will be qualifying income under the
75% income test, and that the Company's provision of services will not cause
the rental income to fail to be included under that test.
Upon the Company's ultimate sale of properties, any gains realized
also are expected to constitute qualifying income, as gain from the sale of
real property (not involving a prohibited transaction).
95% Gross Income Test. In addition to earning 75% of its gross income
from the sources listed above, at least an additional 20% of the Company's
gross income for each taxable year must come either from those sources, or from
dividends, interest or gains from the sale or other disposition of stock or
other securities that do not constitute dealer property. This test permits a
REIT to earn a significant portion of its income from traditional "passive"
investment sources that are not necessarily real estate related. The term
"interest" (under both the 75% and 95% tests) does not include amounts that are
based on the income or profits of any person, unless the computation is based
only on a fixed percentage of receipts or sales.
Failing the 75% or 95% Tests; Reasonable Cause. As a result of the
75% and 95% tests, REITs generally are not permitted to earn more than 5% of
their gross income from active sources (such as brokerage commissions or other
fees for services rendered) the Company may receive certain types of such
income. This type of income will not qualify for the 75% test or 95% test but
is not expected to be significant and such income and other nonqualifying
income (including Related Party Tenant Rent, as discussed above) are expected
to be at all times less than 5% of the Company's annual gross income. While
the Company does not anticipate that it will earn substantial amounts of
nonqualifying income, if nonqualifying income exceeds 5% of the Company's gross
income, the Company could lose its status as a REIT. The Company may establish
subsidiaries of which the Company will hold less than 10% of the Voting Stock
to hold assets generating non-qualifying income. The gross income generated by
these subsidiaries would not be included in the Company's gross income.
However, dividends from such subsidiaries to the Company would be included in
the Company's gross income and qualify for the 95% income test.
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If the Company fails to meet either the 75% or 95% income tests during
a taxable year, it may still qualify as a REIT for that year if (i) it reports
the source and nature of each item of its gross income in its federal income
tax return for that year; (ii) the inclusion of any incorrect information in
its return is not due to fraud with intent to evade tax; and (iii) the failure
to meet the tests is due to reasonable cause and not to willful neglect.
However, in that case the Company would be subject to a 100% tax based on the
greater of the amount by which it fails either the 75% or 95% income tests for
such year. See "-- Taxation of the Company as a REIT."
30% Income Test. The Company also must earn less than 30% of its
gross income from the sale or other disposition of: (i) real property and
loans secured by real property held for less than four years (other than
foreclosure property and involuntarily conversions), (ii) stock or securities
held by the Company for less than one year and (iii) property in a prohibited
transaction. The 30% income test does not have a reasonable cause exception as
do the 75% and 95% income tests. Consequently, a failure to meet the 30%
income test would terminate the Company's status as a REIT. Because the
Company expects to hold its assets for long-term investment and does not
anticipate selling them within four years, the Company expects to comply with
this requirement. The Tax Act repeals the 30% gross income test for taxable
years beginning after its enactment on August 5, 1997. Thus, the 30% gross
income test will apply only to the Company's taxable year ending December 31,
1997.
Character of Assets Owned. On the last day of each calendar quarter,
the Company also must meet two tests concerning the nature of its investments.
First, at least 75% of the value of the total assets of the Company generally
must consist of real estate assets, cash, cash items (including receivables)
and government securities. For this purpose, "real estate assets" include
interests in real property, interests in loans secured by mortgages on real
property or by certain interests in real property, shares in other REITs and
certain options, but exclude mineral, oil or gas royalty interests. The
temporary investment of new capital in debt instruments also qualifies under
this 75% asset test, but only for the one-year period beginning on the date the
Company receives the new capital. Second, although the balance of the
Company's assets generally may be invested without restriction, the Company
will not be permitted to own (i) securities of any one non-governmental issuer
that represent more than 5% of the value of the Company's total assets or (ii)
more than 10% of the outstanding voting securities of any single issuer. A
REIT, however, may own 100% of the stock of a qualified REIT subsidiary, in
which case the assets, liabilities and items of income, deduction and credit of
the subsidiary are treated as those of the REIT. In evaluating a REIT's
assets, if the REIT invests in a partnership, it is deemed to own its
proportionate share of the assets of the partnership.
The Company anticipates that it will comply with these asset tests.
While some portion of its assets initially may be invested in qualifying
temporary debt investments, substantially all of the Company's investments will
be in properties which should represent qualifying real estate assets.
Annual Distributions to Stockholders. To maintain REIT status, the
Company generally must distribute to its stockholders in each taxable year at
least 95% of its net ordinary income (capital gain is not required to be
distributed). More precisely, the Company must distribute an amount equal to
(i) 95% of the sum of (a) its "REIT Taxable Income" before deduction of
dividends paid and excluding any net capital gain and (b) any net income from
foreclosure property less the tax on such income, minus (ii) certain limited
categories of "excess noncash income" (including as a result of the Tax Act,
inter alia, cancellation of indebtedness and original issue discount income).
REIT Taxable Income is defined to be the taxable income of the REIT, computed
as if it were an ordinary corporation, with certain modifications. For
example, the deduction for dividends paid is allowed, but neither net income
from foreclosure property, nor net income from prohibited transactions, is
included. In addition, the REIT may carry over, but not carry back, a net
operating loss for 15 years following the year in which it was incurred.
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A REIT may satisfy the 95% distribution test with dividends paid
during the taxable year and with certain dividends paid after the end of the
taxable year. Dividends paid in January that were declared during the last
calendar quarter of the prior year and were payable to stockholders of record
on a date during the last calendar quarter of that prior year are treated as
paid on December 31 of the prior year (for both the Company and its
stockholders). Other dividends declared before the due date of the Company's
tax return for the taxable year (including extensions) also will be treated as
paid in the prior year for the Company if they are paid (i) within 12 months of
the end of such taxable year and (ii) no later than the Company's next regular
distribution payment. Dividends that are paid after the close of a taxable
year and do not qualify under the rule governing payments made in January that
is described above will be taxable to the shareholders in the year paid, even
though they may be taken into account by the Company for a prior year. A
nondeductible excise tax equal to 4% will be imposed on the Company for each
calendar year to the extent that dividends declared and distributed or deemed
distributed before December 31 are less than the sum of (a) 85% of the
Company's "ordinary income" plus (b) 95% of the Company's capital gain net
income plus (c) any undistributed income from prior periods.
The Company will be taxed at regular corporate rates to the extent
that it retains any portion of its taxable income (e.g., if the Company
distributes only the required 95% of its taxable income, it would be taxed on
the retained 5%). Under certain circumstances the Company may not have
sufficient cash or other liquid assets to meet the distribution requirement.
This could arise because of competing demands for the Company's funds, or due
to timing differences between tax reporting and cash receipts and disbursements
(i.e., income may have to be reported before cash is received, or expenses may
have to be paid before a deduction is allowed). Although the Company does not
anticipate any difficulty in meeting this requirement, no assurance can be
given that necessary funds will be available. In the event that such
circumstances do occur, then in order to meet the 95% distribution requirement,
the Company may cause the Operating Partnership to arrange for short-term, or
possibly long-term, borrowings to permit the payment of required dividends.
If the Company fails to meet the 95% distribution requirement because
of an adjustment to the Company's taxable income by the IRS, the Company may be
able to cure the failure retroactively by paying a "deficiency dividend" (as
well as applicable interest and penalties) within a specified period.
TAXATION OF THE COMPANY AS A REIT. The Company will adopt the
calendar year for federal income tax purposes, and will use the accrual method
of accounting. For each taxable year in which the Company qualifies as a REIT,
it generally will be taxed only on the portion of its taxable income that it
retains (which will include any undistributed net capital gain), because the
Company will be entitled to a deduction for dividends paid to shareholders
during the taxable year. A dividends paid deduction is not available for
dividends that are considered preferential within any given class of shares or
as between classes except to the extent such class is entitled to such
preference. The Company does not anticipate that it will pay any such
preferential dividends. The Articles provide for the automatic exchange of
outstanding shares for Excess Stock in circumstances in which the Company's
REIT status might otherwise be put into jeopardy (i.e., if a person attempts to
acquire a block of shares that would be sufficient to cause the Company to
fail the requirement that five or fewer individuals may not own more than 50%
of the value of the outstanding shares). Because Excess Stock will represent a
separate class of outstanding shares, the fact that those shares will not be
entitled to dividends should not adversely affect the Company's ability to
deduct its dividend payments.
Even if it qualifies as a REIT, the Company will be subject to tax in
certain circumstances. The Company would be subject to tax on any income or
gain from foreclosure property at the highest corporate rate (currently 35%).
A confiscatory tax of 100% applies to any net income from prohibited
transactions. In addition, if the Company fails to meet either the 75% or 95%
source of income tests described above, but still qualifies for REIT status
under the reasonable cause exception to those tests, a 100% tax would be
imposed equal to the amount obtained by multiplying (i) the greater of the
amount, if any, by which it failed either the 75% income test or the 95% income
test, times (ii) the ratio of the Company's REIT Taxable Income to the
Company's gross income
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(excluding capital gain and certain other items). The Company also will be
subject to the alternative minimum tax on items of tax preference (excluding
items specifically allocable to the Company's stockholders). Finally, under
regulations that are to be promulgated, the Company also may be taxed at the
highest regular corporate tax rate on any built-in gain (i.e., the excess of
value over adjusted tax basis) attributable to assets that the Company acquires
in certain tax-free corporate transactions, to the extent the gain is
recognized during the first ten years after the Company acquires such assets.
FAILURE TO QUALIFY AS A REIT. For any taxable year in which the
Company fails to qualify as a REIT and certain relief provisions do not apply,
it would be taxed at regular corporate rates on all of its taxable income.
Distributions to its stockholders would not be deductible in computing that
taxable income, and distributions would no longer be required to be made. Any
corporate level taxes generally would reduce the amount of cash available to
the Company for distribution to its stockholders and, because the stockholders
would continue to be taxed on the distributions they receive, the net after tax
yield to the shareholders from their investment in the Company likely would be
reduced substantially. As a result, the Company's failure to qualify as a REIT
during any taxable year could have a material adverse effect upon the Company
and its stockholders. If the Company loses its REIT status, unless certain
relief provisions apply, the Company will not be eligible to elect REIT status
again until the fifth taxable year which begins after the first year for which
the Company's election was terminated.
TAXATION OF STOCKHOLDERS. Distributions generally will be taxable to
stockholders as ordinary income to the extent of the Company's earning and
profits. Dividends declared during the last quarter of a calendar year and
actually paid during January of the immediately following calendar year are
generally treated as if received by the stockholders on December 31 of the
calendar year during which they were declared. Distributions paid to
stockholders will not constitute passive activity income, and as a result
generally cannot be offset by losses from passive activities of a stockholder
who is subject to the passive activity rules. Distributions designated by the
Company as capital gains dividends generally will be taxed as long term capital
gains to stockholders to the extent that the distributions do not exceed the
Company's actual net capital gain for the taxable year. Corporate stockholders
may be required to treat up to 20% of any such capital gains dividends as
ordinary income. The Tax Act provides that beginning with the taxable year
ended December 31, 1998, if the Company elects to retain and pay income tax on
any net long-term capital gain, stockholders of the Company would include in
their income as long-term capital gain their proportionate share of such net
long-term capital gain. Such stockholders would receive a credit for such
stockholder's proportionate share of the tax paid by the Company on such
retained capital gains and an increase in basis in the stock of the Company in
an amount equal to the difference between the undistributed long-term capital
gains and the amount of tax paid by the Company. Distributions by the Company,
whether characterized as ordinary income or as capital gains, are not eligible
for the dividends received deduction for corporations. Stockholders are not
permitted to deduct losses or loss carry-forwards of the Company. Future
regulations may require that the stockholders take into account, for purposes
of computing their individual alternative minimum tax liability, certain tax
preference items of the Company.
The Company may generate cash in excess of its net earnings. If the
Company distributes cash to stockholders in excess of the Company's current and
accumulated earnings and profits (other than as a capital gain dividend), the
excess cash will be deemed to be a return of capital to each stockholder to the
extent of the adjusted tax basis of the shareholder's shares. Distributions in
excess of the adjusted tax basis will be treated as gain from the sale or
exchange of the shares of stock. A stockholder who has received a distribution
in excess of current and accumulated earnings and profits of the Company may,
upon the sale of the shares, realize a higher taxable gain or a smaller loss
because the basis of the shares as reduced will be used for purposes of
computing the amount of the gain or loss.
Generally, gain or loss realized by a stockholder upon the sale of
Common Stock will be reportable as capital gain or loss. If a stockholder
receives a long-term capital gain dividend from the Company and has held
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the shares of stock for six months or less, any loss incurred on the sale or
exchange of the shares is treated as a long-term capital loss, to the extent of
the corresponding long-term capital gain dividend received.
In any year in which the Company fails to qualify as a REIT, the
stockholders generally will continue to be treated in the same fashion
described above, except that none of the Company dividends will be eligible for
treatment as capital gains dividends, corporate stockholders will qualify for
the dividends received deduction and the stockholders will not be required to
report any share of the Company's tax preference items.
BACKUP WITHHOLDING. The Company will report to its stockholders and
the IRS the amount of dividends paid during each calendar year and the amount
of tax withheld, if any. If a stockholder is subject to backup withholding,
the Company will be required to deduct and withhold from any dividends payable
to that stockholder a tax of 31%. These rules may apply (i) when a stockholder
fails to supply a correct taxpayer identification number, (ii) when the IRS
notifies the Company that the stockholder is subject to the rules or has
furnished an incorrect taxpayer identification number, or (iii) in the case of
corporations or others within certain exempt categories, when they fail to
demonstrate that fact when required. A stockholder that does not provide a
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount withheld as backup withholding may be credited against
the stockholder's federal income tax liability. The Company also may be
required to withhold a portion of capital gain distributions made to
stockholders who fail to certify their non-foreign status to the Company.
TAXATION OF TAX EXEMPT ENTITIES. In general, a tax exempt entity that
is a stockholder of the Company will not be subject to tax on distributions
from the Company or gain realized on the sale of shares. In Revenue Ruling
66-106, the IRS specifically confirmed that a REIT's distributions to a tax
exempt employees' pension trust did not constitute unrelated business taxable
income ("UBTI"). A tax exempt entity may be subject to UBTI, however, to the
extent that it has financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Code. The Revenue Reconciliation Act
of 1993 has modified the rules for tax exempt employees' pension and profit
sharing trusts which qualify under Section 401(a) of the Code and are exempt
from tax under Section 501(a) of the Code ("qualified trusts") for tax years
beginning after December 31, 1993. Under the new rules, in determining the
number of stockholders a REIT has for purposes of the "50% test" described
above under "--REIT Qualification-- Share Ownership; Reporting," generally, any
stock held by a qualified trust will be treated as held directly by its
beneficiaries in proportion to their actuarial interests in such trust and will
not be treated as held by such trust.
A qualified trust owning more than 10% of a REIT may be required to
treat a percentage of dividends from the REIT as UBTI. The percentage is
determined by dividing the REIT's gross income (less direct expenses related
thereto) derived from an unrelated trade or business for the year (determined
as if the REIT were a qualified trust) by the gross income of the REIT for the
year in which the dividends are paid. However, if this percentage is less than
5%, dividends are not treated as UBTI. These UBTI rules apply only if the REIT
qualifies as a REIT because of the change in the 50% test discussed above and
if the trust is "predominantly held" by qualified trusts. A REIT is
predominantly held by qualified trusts if at least one pension trust owns more
than 25% of the value of the REIT or a group of pension trusts each owning more
than 10% of the value of the REIT collectively own more than 50% of the value
of the REIT. The Company does not expect to meet either of the requirements.
For social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts and qualified group legal services
plans exempt from federal income taxation under Sections 501(c)(7), (c)(9),
(c)(17) and (c)(20) of the Code, respectively, income from an investment in the
Company will constitute UBTI unless the organization is able to deduct an
amount properly set aside or placed in reserve for certain purposes so as to
offset the unrelated business taxable income generated by the investment in the
Company. These prospective investors should consult their own tax advisors
concerning the "set aside" and reserve requirements.
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<PAGE> 36
TAXATION OF FOREIGN INVESTORS. The rules governing federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex and no attempt will be made herein to provide more
than a summary of such rules. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of federal, state
and local income tax laws with regard to an investment in shares of Common
Stock, including any reporting requirements, as well as the tax treatment of
such an investment under the laws of their home country.
Dividends that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gain dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such dividends ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the dividend unless an
applicable tax treaty reduces or eliminates that tax. However, if income from
the investment in the Common Stock is treated as effectively connected with the
Non-U.S. Stockholder's conduct of a United States trade or business, the
Non-U.S. Stockholder generally will be subject to a tax at graduated rates, in
the same manner as U.S. stockholders are taxed with respect to such dividends
(and may also be subject to the 30% branch profits tax in the case of a
stockholder that is a foreign corporation). The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
dividends paid to a Non-U.S. Stockholder unless (i) the Non-U.S. Stockholder
files on IRS Form 1001 claiming that a lower treaty rate applies or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that the
dividend is effectively connected income. Dividends in excess of current and
accumulated earnings and profits of the Company will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that such dividends exceed the adjusted basis of a Non-U.S.
Stockholder's shares of stock, they will give rise to tax liability if the
Non-U.S. Stockholder would otherwise be subject to tax on any gain from the
sale or disposition of his shares, as described below. If it cannot be
determined at the time a dividend is paid whether or not such dividend will be
in excess of current and accumulated earnings and profits, the dividends will
be subject to such withholding. The Company does not intend to make quarterly
estimates of that portion of dividends that are in excess of earnings and
profits, and, as a result, all dividends will be subject to such withholding.
However, the Non-U.S. Stockholder may seek a refund of such amounts from the
IRS.
For any year in which the Company qualifies as a REIT, dividends that
are attributable to gain from sales or exchanges by the Company of United
States real property interests will be taxed to a Non-U.S. Stockholder under
the provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, those dividends are taxed to a Non-U.S. Stockholder
as if such gain were effectively connected with a United States business.
Non-U.S. Stockholders would thus be taxed at the normal capital gain rates
applicable to U.S. stockholders (subject to applicable alternative minimum tax
and a special alternative minimum tax in the case of nonresident alien
individuals). Also, dividends subject to FIRPTA may be subject to a 30% branch
profits tax in the hands of a corporate Non-U.S. Stockholder not entitled to
treaty exemption. The Company is required by the Code and applicable Treasury
Regulations to withhold 35% of any dividend that could be designated by the
Company as a capital gain dividend. This amount is creditable against the
Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the shares was held directly
or indirectly by foreign persons. It is currently anticipated that the Company
will be a "domestically controlled REIT," and therefore the sale of shares will
not be subject to taxation under FIRPTA. Because the shares of Common Stock
will be publicly traded, however, no assurance can be given that the Company
will remain a "domestically controlled REIT." However, gain not subject to
FIRPTA will be taxable to a Non-U.S. Stockholder if (i) investment in the
shares of Common Stock is effectively connected with the Non-U.S. Stockholder's
United States trade or business,
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<PAGE> 37
in which case the Non-U.S. Stockholder will be subject to the same treatment as
U.S. stockholders with respect to such gain (and may also be subject to the 30%
branch profits tax in the case of a corporate Non-U.S. Stockholder, or (ii) the
Non-U.S. Stockholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains. If the Company were
not a domestically controlled REIT, whether or not a Non-U.S. Stockholder's
sale of shares of Common Stock would be subject to tax under FIRPTA would
depend on whether or not the shares of Common Stock were regularly traded on an
established securities market (such as the NYSE) and on the size of selling
Non-U.S. Stockholder's interest in the Company. If the gain on the sale of
shares were to be subject to taxation under FIRPTA, the Non-U.S. Stockholder
will be subject to the same treatment as U.S. stockholders with respect to such
gain (subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals) and the purchaser of
such shares of Common Stock may be required to withhold 10% of the gross
purchase price.
Upon the death of a foreign individual stockholder, the investor's
shares will be treated as part of the investor's U.S. estate for purposes of
the U.S. estate tax, except as may be otherwise provided in an applicable
estate tax treaty.
STATE AND LOCAL TAXES. The Company and its stockholders may be
subject to state or local taxation in various state or local jurisdictions,
including those in which it or they transact business or reside. Consequently,
prospective stockholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in the Company.
LEGAL MATTERS
The validity of the Offered Securities issued hereunder, as well as
legal matters described under "Federal Income Tax Considerations," will be
passed upon for the Company by Winstead Sechrest & Minick P.C., Dallas, Texas,
and certain legal matters will be passed upon for any underwriters, dealers or
agents by the counsel named in the applicable Prospectus Supplement. Winstead
Sechrest & Minick P.C. will rely as to certain matters of Maryland law on the
opinion of Piper & Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The consolidated financial statements of the Predecessor as of
December 31, 1996 and 1995, the related consolidated statements of income,
partners' capital and cash flows for each of the three years in the period
ended December 31, 1996 which are incorporated herein by reference from the
Predecessor's Annual Report on Form 10-K and the balance sheet of the Company
as of February 4, 1997, which is incorporated herein by reference from the
Company's Current Report on Form 8-K dated August 22, 1997, have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
which are incorporated by reference herein, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting auditing.
The financial statements listed below of the following entities which
are incorporated herein by reference from the Predecessor's Current Report on
Form 8-K dated August 21, 1997 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated by
reference herein, and have been so incorporated in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing: (i)
Charleston's of Norman, Inc. Statement of Revenues and Certain Expenses for the
fifty-two week period ended March 23, 1997; (ii) Statement of Revenues and
Certain Expenses of the Property Sold to U.S.
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<PAGE> 38
Restaurant Properties Master L.P. by David E. Rodgers - Trustee for the year
ended December 31, 1996; (iii) Statement of Revenues and Certain Expenses of
Magazine Company Property Sold to U.S. Restaurant Properties Master L.P. for
the year ended December 31, 1996; (iv) Statement of Revenues and Certain
Expenses of Ribbit Holdings, Inc. Property Sold to U.S. Restaurant Properties
Master L.P. for the nine months ended June 30, 1997; (v) Combined Statement of
Revenues and Certain Expenses of Selected Properties Sold to U.S. Restaurant
Properties Master L.P. (Taco Cabana Acquisition) for the year ended December
31, 1996; (vi) Combined Statement of Revenues and Certain Expenses of BCL II,
L.P. Properties Sold to U.S. Restaurant Properties Master L.P. for the year
ended December 31, 1996; and (vii) Combined Statement of Revenues and Certain
Expenses of Selected Properties Sold to U.S. Restaurant Properties Master L.P.
(Midon Acquisition) for the year ended December 31, 1996.
The financial statements listed below of the following entities which
are incorporated herein by reference from the Predecessor's Current Report on
Form 8-K dated April 14, 1997 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated by
reference herein and have been so incorporated in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing: (i)
Combined Statement of Revenues and Certain Expenses of RR Restaurant 1986-1
Properties Sold to U.S. Restaurant Properties Master L.P. for the year ended
December 31, 1996; (ii) Selected Properties Sold to U.S. Restaurant Properties
Master L.P. (Bruegger's Acquisition) for the year ended December 31, 1996; and
(iii) Statement of Revenues and Certain Expenses of Tulip Properties Limited
Property Sold to U.S. Restaurant Properties Master L.P. for the year ended
December 31, 1996.
The audit of the Statement of Revenues and Direct Operating Expenses
Applicable to Seventy-Five Arby's Restaurant Properties Acquired by U.S.
Restaurant Properties Master L.P. for the year ended December 28, 1996 which
has been incorporated herein by reference from the Predecessor's Current Report
on Form 8-K dated April 14, 1997, has been audited by Coopers & Lybrand L.L.P.,
independent auditors, as stated in their reports and included and incorporated
herein by reference, and have been so included and incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
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<PAGE> 39
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Neither we nor Morgan Keegan has authorized any person to make a
statement that differs from what is in this Prospectus Supplement and the
accompanying Prospectus. If any person does make a statement that differs from
what is in this Prospectus Supplement and the accompanying Prospectus, you
should not rely on it. This Prospectus Supplement and the accompanying
Prospectus are not an offer to sell, nor are they seeking an offer to buy,
these securities in any state where the offer or sale is not permitted. The
information in this Prospectus Supplement and the accompanying Prospectus is
complete and accurate as of their dates, but the information may change after
the date of this Prospectus Supplement.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary . . . . . . . S-2
Use of Proceeds . . . . . . . . . . . . . . . S-3
The Company . . . . . . . . . . . . . . . . . S-3
Business and Properties . . . . . . . . . . . S-6
Underwriting . . . . . . . . . . . . . . . . S-7
Legal Matters . . . . . . . . . . . . . . . . S-7
Experts . . . . . . . . . . . . . . . . . . . S-7
PROSPECTUS
Available Information . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference 3
Forward-Looking Information . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . 5
Use of Proceeds . . . . . . . . . . . . . . . 5
Ratio of Earnings to Fixed Charges . . . . . 5
Description of Common Stock . . . . . . . . . 6
Description of Common Stock Warrants . . . . 7
Description of Preferred Stock . . . . . . . 8
Description of Depositary Shares . . . . . . 14
Restrictions on Transfers of Capital Stock . 18
Plan of Distribution . . . . . . . . . . . . 20
Federal Income Tax Considerations . . . . . . 21
Legal Matters . . . . . . . . . . . . . . . . 29
Experts . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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72,900 SHARES
U.S. Restaurant
Properties, Inc.
Common Stock
------------------
PROSPECTUS SUPPLEMENT
------------------
MORGAN KEEGAN &
COMPANY, INC.
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October 22, 1998
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