<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998.
Commission File Number 1-13089
U.S. RESTAURANT PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 75-2687420
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5310 Harvest Hill Rd., Suite 270, LB 168, Dallas, Texas 75230
(Address of principal executive offices, including zip code)
972-387-1487
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
<S> <C>
Common Stock, par value $0.001 per share New York Stock Exchange
$1.93 Series A Cumulative Convertible Preferred Stock New York Stock Exchange
</TABLE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The aggregate market value of the Common Stock (based upon the closing
price of the Common Stock on March 12, 1999, on the New York Stock Exchange)
held by non-affiliates of the Registrant was $260,047,114.
As of March 12, 1999, there were 14,347,427 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission related to the Company's 1998 Annual
Meeting of Stockholders is incorporated by reference in Part III hereof.
================================================================================
<PAGE> 2
U.S. RESTAURANT PROPERTIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C> <C>
Item 1. Business................................................................... 3
Item 2. Properties................................................................. 9
Item 3. Legal Proceedings.......................................................... 11
Item 4. Submission of Matters to a Vote of Security-Holders........................ 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 12
Item 6. Selected Financial Data.................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 14
Item 8. Financial Statements and Supplementary Data................................ 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................... 22
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 22
Item 11. Executive Compensation..................................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 22
Item 13. Certain Relationships and Related Transactions............................. 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 23
</TABLE>
2
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PART I
ITEM 1. BUSINESS
GENERAL
U.S. Restaurant Properties, Inc. (the "Company"), a fully integrated,
self-administered real estate investment trust ("REIT"), is one of the largest
publicly-traded entities in the United States that is dedicated to acquiring,
owning, managing and selectively developing restaurant, service station and
other service retail properties. At December 31, 1998, the Company's portfolio
consisted of 854 core business properties (Properties) diversified
geographically in 48 states and operated by approximately 320 operators. In
addition, the Company also held 10 billboard properties and one office building.
The Properties are leased by the Company on a triple net basis primarily to
operators of fast food and casual dining chain restaurants affiliated with major
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 franchises such as
Grandy's(R) and Taco Cabana(R), and to gasoline service station operators
affiliated with major brands such as Shell(R), Texaco(R) and Arco(R). As of
December 31, 1998, over 99% of the Properties were leased pursuant to leases
with average remaining lease terms (excluding extension options) in excess of
ten years.
The Company is a Maryland corporation which made an election to be
taxed as a REIT for federal income tax purposes commencing with its taxable year
ended December 31, 1997. Both the common stock, par value $.001 per share (the
"Common Stock"), and the $1.93 Series A Cumulative Convertible Preferred Stock,
par value $.001 per share (the "Preferred Stock"), of the Company are traded on
the New York Stock Exchange under the symbols "USV" and "USV pA," respectively.
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 AND STRUCTURE OF THE COMPANY
The Company's predecessor, U.S. Restaurant Properties Master LP
("USRP"), formerly Burger King Investors Master L.P. and U.S. Restaurant
Properties Operating L.P. (the "Operating Partnership"), formerly Burger King
Operating L.P., were formed in 1985 by Burger King Corporation ("BKC") and QSV
Properties, Inc. ("QSV"), both of which were at that time wholly-owned
subsidiaries of The Pillsbury Company. QSV acted as the general partner of USRP
and U.S. Restaurant Properties Operating L.P. BKC 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 128 properties from BKC. 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 strategies intended to pursue Company growth.
These strategies have involved the Company in, among other things, acquiring new
properties, enhancing investment returns through merchant banking activities and
developing new co-branded service centers on a selective basis. From May 1994
through December 31, 1998, the Company acquired 763 Properties for a net
aggregate purchase price of approximately $515 million. Between December 31,
1998, and March 12, 1999, the Company has acquired an additional 13 properties
(net of 10 dispositions) for a total net investment of approximately $24
million.
On October 15, 1997, the Company effected the conversion of USRP into a
self-administered REIT. The conversion was effected through the merger (the
"Merger") of USRP Acquisition, L.P., a partnership subsidiary of the Company,
with and into USRP. As a result of the Merger, USRP became a subsidiary of the
Company and, at the effective time of the Merger, all holders of units of
beneficial interest
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(the "Units") of USRP became stockholders of the Company. On October 16, 1997,
the Common Stock, in replacement of the Units, commenced trading on the NYSE
under the symbol "USV." In connection with the Conversion, QSV withdrew as
general partner of USRP and Operating Partnership, effective as of October 15,
1997, and USRP Managing, Inc., a wholly-owned subsidiary of the Company, was
substituted as the general partner for USRP and the Operating Partnership. In
exchange for its interests in USRP and the Operating Partnership and the
termination of its management contract, QSV received 126,582 shares of Common
Stock and 1,148,418 units of beneficial interest in the Operating Partnership
("Operating Partnership Units"), which are exchangeable at any time for shares
of Common Stock on a one-for-one basis, and the right to receive up to 825,000
additional Operating Partnership Units in 2001 if certain earnings targets are
met by the year 2000. The earnings targets are based upon what QSV would have
received under their prior management contract.
DIVERSIFICATION
The Company conducts its operations in such a manner as to enhance the
predictability and sustainability of its cash flows. The Company enhances the
predictability of the operating performance of the Properties and its financial
position by diversifying its portfolio by geographic location and number of
tenants. The Company believes that geographic diversification minimizes the
effects on the Company's financial position of downturns in regional and local
economics. The Properties are further diversified by number of tenants. At
December 31, 1998, only one tenant accounts for over 6% of the Company's
properties. Sybra, Inc., the operator of 81 Arby's(R) restaurants located on the
Properties, accounted for 9% of the Company's minimum base rental revenues for
the year ended December 31, 1998.
LEASES WITH RESTAURANT OPERATORS
The Company's strategy is to acquire operating restaurant properties
rather than developing new restaurant properties, although the Company has begun
to acquire newly constructed properties. Typically, the Company acquires a
property that has been operated as a fast food or casual dining restaurant and
that is subject to a lease with a remaining term of five to 20 years and a
co-terminus franchise agreement. The Company believes that this strategy reduces
the Company's financial risk because the restaurant operated on such property
has a proven operating record that mitigates the risk of default or non-renewal
under the lease.
Substantially all of the Company's existing leases are "triple net."
Triple net leases typically require the tenants to be responsible for the
property operating costs, including property taxes, insurance and maintenance. A
majority of the Company's leases provide for a base rent plus a percentage of
the restaurant's sales in excess of a threshold amount. The triple net lease
structure is designed to provide the Company with a consistent stream of income
without the obligation to reinvest in the property. For the twelve months ended
December 31, 1998, base rental revenues and percentage rental revenues
represented 91% and 9%, respectively, of total gross rental revenues.
The Company seeks to renew and restructure leases which will provide
for an increase in the percentage of total rental revenues derived from base
rental revenues and a decrease in the percentage of total rental revenues
derived from percentage rental revenues. For the year ended December 31, 1998,
percentage rental revenues represented 9% of total rental revenues (12% before
the effect of implementation of EITF 98-9), down from 16% in the prior year. In
addition, the Company has implemented an early renewal program pursuant to which
the Company offers remodeling financing to tenants in consideration for renewing
and restructuring leases. To date, the Company has renewed 72 leases under this
program, with an aggregate of $2.6 million paid out by the Company for
remodeling. The Company considers the remodeling financing to be prudent given
the increased sales resulting at the remodeled restaurants and the lower costs
incurred because of the early lease renewals. The early renewal
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<PAGE> 5
program has resulted in an increase of the average remaining lease term of the
Properties to over twelve years, thus mitigating the risk of non-renewal of
leases.
The Company generally acquires properties from third-party lessors or
from operators in sale/leaseback transactions in which the operator sells the
property to the Company and then enters into a long-term lease (typically 20
years) with the Company for such property. A sale/leaseback transaction is
attractive to the operator because it allows the operator to realize the value
of the real estate while retaining occupancy for the long term. A sale/leaseback
transaction may also provide specific accounting, earnings and market value
benefits to the selling operator. For example, the lease on the property may be
structured by the tenant as an off-balance sheet operating lease, consistent
with Financial Accounting Standards Board rules, which may increase the
operator's earnings, net worth and borrowing capacity. The following table sets
forth certain information regarding lease expirations for the Properties.
LEASE EXPIRATION SCHEDULE (1)
<TABLE>
<CAPTION>
NUMBER PERCENT
OF LEASES OF
YEAR EXPIRING TOTAL
---- --------- -------
<S> <C> <C>
1999 to 2000........................ 49 6%
2001 to 2003........................ 91 11%
2004 to 2006........................ 67 8%
2007 to 2009........................ 48 6%
2010 to 2012........................ 38 4%
2013 to 2015........................ 78 9%
2016 to 2018........................ 395 46%
2019 to 2021........................ 25 3%
2022 to 2024........................ 10 1%
Properties under development........ 17 2%
Unleased operating properties....... 14 1%
Other (2)........................... 22 3%
=== ===
Total core business properties...... 854 100%
=== ===
</TABLE>
(1) The lease expiration schedule does not include lease extension options.
(2) Consists of 22 sandwich lease properties
OWNERSHIP OF REAL ESTATE INTERESTS
Of the 854 Properties included in the Company's portfolio as of
December 31, 1998, the Company (i) owned both the land and the restaurant
building in fee simple on 687 of such Properties (the "Fee Properties"), (ii)
owned the land, with the tenant owning the restaurant building, on 37 of such
Properties and (iii) leased the land, the building or both from a third-party
lessor on 130 of such Properties (the "Leasehold Properties"). Of the 130
Leasehold Properties, 38 are Properties on which the Company leases from a third
party the underlying land, the restaurant building and the other improvements
thereon (the "Primary Leases") and then subleases the property to the restaurant
operator. Under the terms of the remaining 92 Leasehold Properties (the "Ground
Leases"), the Company leases the underlying land from a third party and owns the
restaurant building and the other improvements constructed thereon. Upon
expiration or termination of a Primary Lease or Ground Lease, the owner of the
underlying land generally will become the owner of the building and all
improvements thereon. The terms of the Primary Leases and
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<PAGE> 6
Ground Leases expire from 1 to 12 years. With renewal options considered, the
terms of the Primary Leases and Ground Leases expire from 1 to 33 years, with
the average remaining term being 20 years.
The terms and conditions of each Primary Lease and each Ground Lease
vary substantially. Such leases, however, have certain provisions in common,
including that: (i) the initial term is 20 years or less, (ii) the rentals
payable are stated amounts that may escalate over the terms of the Primary
Leases and Ground Leases (and/or during renewal terms), but normally are not
based upon a percentage of sales of the restaurants thereon, and (iii) the
Company is required to pay all taxes and operating, maintenance and insurance
expenses for the Leasehold Properties. In addition, under substantially all of
the leases the Company may renew the term one or more times at its option
(although the provisions governing any such renewal vary significantly and some
renewal options are at a fixed rental amount while others are at fair rental
value at the time of renewal). Several Primary Leases and Ground Leases also
give the owner the right to require the Company, upon the termination or
expiration thereof, to remove all improvements situated on the property.
Although the Company, as lessee under each Primary Lease and Ground
Lease, generally has the right to freely assign or sublet all of its rights and
interests thereunder, the Company is not permitted to assign or sublet any of
its rights or interests under certain of the Primary Leases and certain of the
Ground Leases without obtaining the lessor's consent or satisfying certain other
conditions. In addition, approximately 20% of the Primary Leases and Ground
Leases require the Company to use such Leasehold Properties only for the purpose
of operating a Burger King(R) restaurant or another specified brand of
restaurant thereon. In any event, no transfer will release the Company from any
of its obligations under any Primary Lease or Ground Lease, including the
obligation to pay rent.
USE AND OTHER RESTRICTIONS ON THE OPERATION AND TRANSFER OF BURGER KING
RESTAURANT PROPERTIES
The Company was originally formed for the purpose of acquiring all
BKC's interests in the original portfolio and leasing or subleasing them to BKC
franchisees under the leases/subleases. Accordingly, the Operating Partnership
Agreement contains provisions that state, except as expressly permitted by BKC,
that the Company may not use such properties for any purpose other than to
operate a Burger King restaurant during the term of the lease. In furtherance
thereof, the Operating Partnership Agreement: (i) requires the Company, in
certain specified circumstances, to renew or extend a lease/sublease and enter
into a new lease with another franchisee of BKC, to approve an assignment of a
lease/sublease, to permit BKC to assume a lease/sublease at any time and to
renew a Primary Lease, and (ii) imposes certain restrictions and limitations
upon the Company's ability to sell, lease or otherwise transfer any interest in
such properties. The Operating Partnership Agreement requires the Company to
provide BKC notice of default under a lease/sublease and an opportunity to cure
such default prior to taking any remedial action. The Operating Partnership
Agreement also requires the Company under certain circumstances to provide
tenants with assistance with remodeling costs. Such terms with respect to such
properties imposed on the Company by the Operating Partnership Agreement may be
less favorable than those imposed upon other lessors of Burger King restaurants.
BKC has advised the Company that it intends to waive or not impose certain of
the restrictive provisions contained in the Operating Partnership Agreement.
EMPLOYEES AND MANAGEMENT
On February 28, 1999, the Company had approximately 45 employees. The
Company believes that relations with its employees are good.
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COMPETITION
The Company believes that it competes with numerous other
publicly-owned entities, some of which dedicate substantially all of their
assets and efforts to acquiring, owning and managing chain restaurant
properties. The Company also competes with numerous private firms and
individuals for the acquisition of restaurant, service station and other service
retail properties. In addition, there are other publicly owned entities that are
dedicated to acquiring, owning and managing triple net lease properties. The
majority of chain restaurant properties are owned by restaurant operators and
real estate investors. Management believes, based on its industry knowledge and
experience, that this fragmented market provides the Company with substantial
acquisition opportunities. The Company also believes that the inability of most
small service retail owners to obtain funds with which to compete for
acquisitions as timely and inexpensively as the Company provides the Company
with a competitive advantage when seeking to acquire a restaurant property.
The restaurants operated on the Company's properties are subject to
significant competition (including, for example, competition from other national
and regional "fast food" restaurant chains, local restaurants, national and
regional restaurant chains that do not specialize in "fast food" but appeal to
many of the same customers as do "fast food" restaurants, and other competitors
such as convenience store and supermarkets that sell ready-to-eat food). The
success of the Company depends, in part, on the ability of the restaurants
operated on the properties to compete successfully with such businesses. The
Company does not anticipate that it will seek to engage directly in or meet such
competition. Instead, the Company will be dependent upon the experience and
ability of the lessees operating the restaurants located on the properties and,
with respect to its franchisee operated properties, the franchisor systems
generally, to compete with these other restaurants and similar operations. The
Company believes that the ability of its lessees to compete is affected by their
compliance with the image requirements at their restaurants.
REGULATIONS
The Company, through its ownership of interests in and management of
real estate, is subject to various environmental, health, land-use and other
regulation by federal, state and local governments that affects the development
and regulation of restaurant properties. The Company's leases impose the primary
obligation for regulatory compliance on the operators of the restaurant
properties.
Environmental Regulation. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain hazardous substances
releases on or within its property. Such liability may be imposed without regard
to whether the owner or operator knew of, or caused the release of the hazardous
substances. In addition to liability for cleanup costs, the presence of
hazardous substances on a property could result in the owner or operator
incurring liability as a result of a claim by an employee or another person for
personal injury or a claim by an adjacent property owner for property damage.
In connection with the Company's acquisition of a new property, a Phase
I environmental assessment is obtained. A Phase I environmental assessment
involves researching historical uses of a property, analyzing databases
containing registered underground storage tanks and other matters, and including
an on-site inspection to determine whether an environmental issue exists with
respect to the property which needs to be addressed. If the results of a Phase I
environmental assessment reveal potential issues, a Phase II assessment, which
may include soil testing, ground water monitoring or borings to locate
underground storage tanks, is ordered for further evaluation and, depending upon
the results of such assessment, the transaction is consummated or the
acquisition is terminated. The Company generally places acquired properties with
potential issues in special purpose limited liability companies to limit any
future claims concerning the properties, and requires tenants to assume
obligations relating to environmental issues.
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<PAGE> 8
The Company is not currently a party to any litigation or
administrative proceeding with respect to any property's compliance with
environmental standards. Furthermore, the Company is not aware of nor does it
anticipate any such action, or the need to expend any of its funds, in the
foreseeable future in connection with its acquisition or ownership of existing
properties which would have a material adverse affect upon the Company's
financial position, operations or cash flow.
Americans With Disabilities Act ("ADA"). Under the ADA, all public
accommodations, including restaurants, are required to meet certain federal
requirements relating to physical access and use by disabled persons. A
determination that the Company or a property of the Company is not in compliance
with the ADA could result in the imposition of fines, injunctive relief, damages
or attorney's fees. The Company's leases contemplate that compliance with the
ADA is the responsibility of the operator. The Company is not currently a party
to any litigation or administrative proceeding with respect to a claim of
violation of the ADA and does not anticipate any such action or proceeding that
would have a material adverse effect upon the Company.
Land-use, Fire and Safety Regulations. In addition, the Company and its
restaurant operators are required to operate the properties in compliance with
various laws, land-use regulations, fire and safety regulations and building
codes as may be applicable or later adopted by the governmental body or agency
having jurisdiction over the location of the property or the matter being
regulated. The Company does not believe that the cost of compliance with such
regulations and laws will have a material adverse effect upon the Company.
Health Regulations. The restaurant industry is regulated by a variety of state
and local departments and agencies, concerned with the health and safety of
restaurant customers. These regulations vary by restaurant location and type.
The Company's leases provide for compliance by the restaurant operator with all
health regulations and inspections and require that the restaurant operator
obtain insurance to cover liability for violation of such regulations or the
interruption of business due to closure caused by failure to comply with such
regulations. The Company is not currently a party to any litigation or
administrative proceeding with respect to the compliance with health regulations
of any property it finances, and does not anticipate any such action or
proceeding that would have a material adverse effect upon the Company.
Insurance. The Company requires its lessees to maintain adequate comprehensive
liability, fire, flood and extended loss insurance provided by reputable
companies with commercially reasonable and customary deductibles. The Company
also requires that it be named as an additional insured under such policies.
Certain types and amounts of insurance are required to be carried by each
restaurant operator under the leases with the Company, and the Company actively
monitors tenant compliance with this requirement. The Company intends to require
lessees of subsequently acquired properties to obtain similar insurance
coverage. There are, however, certain types of losses generally of a
catastrophic nature, such as earthquakes and floods, that may be either
uninsurable or not economically insurable, as to which the Company's properties
are at risk depending on whether such events occur with any frequency in such
areas. An uninsured loss could result in a loss to the Company of both its
capital investment and anticipated profits from the affected property. In
addition, because of coverage limits and deductibles, insurance coverage in the
event of a substantial loss may not be sufficient to pay the full current market
value or current replacement cost of the Company's investment. Inflation,
changes in building codes and ordinances, environmental considerations and other
factors also might make using insurance proceeds to replace a facility after it
has been damaged or destroyed infeasible. Under such circumstances, the
insurance proceeds received by the Company might be inadequate to restore its
economic position with respect to such property.
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ITEM 2. PROPERTIES
GENERAL
The Company acquires, owns, manages and selectively develops
restaurant, service station and other service retail 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), Pizza Hut(R) and
Schlotzsky's(R) and regional brands 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%. Management believes that the long-term, triple net
structure of its leases results in a more predictable and sustainable income
stream than other forms of real estate investments.
PROPERTIES
As of December 31, 1998, the Company owned 854 core business
properties, including 208 Burger King(R) Properties (out of approximately 6,400
U.S. locations), 87 Arby's(R) Properties (out of approximately 2,890 U.S.
locations), 41 Dairy Queen(R) Properties (out of approximately 6,000 U.S.
locations), 27 Hardee's(R) Properties (out of approximately 2,300 U.S.
locations), 20 Pizza Hut(R) Properties (out of approximately 9,570 U.S.
locations), 28 Schlotzsky's(R) Properties (out of approximately 560 U.S.
locations) and eight Chili's(R) Properties (out of approximately 110 U.S.
locations). The Properties are diversified geographically in 48 states, with no
state, except Texas (32%), accounting for greater than 8% of the Properties. Of
the 854 Properties, approximately 99% were leased on a triple net basis as of
December 31, 1998.
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The following table contains information by state regarding the
Properties owned by the Company as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
LOCATION BY STATE PROPERTIES TOTAL
--------------------------------------- ---------- ----------
<S> <C> <C>
Texas ................................. 273 32%
Georgia ............................... 72 8%
Florida ............................... 38 5%
New York .............................. 35 4%
Illinois .............................. 34 4%
Michigan .............................. 33 4%
California ............................ 31 4%
Oklahoma .............................. 26 3%
Arizona ............................... 24 3%
Minnesota ............................. 23 3%
North Carolina ........................ 22 3%
Pennsylvania .......................... 20 2%
Tennessee ............................. 19 2%
Iowa .................................. 18 2%
Indiana ............................... 16 2%
South Carolina ........................ 15 2%
Maryland .............................. 12 1%
Louisiana ............................. 11 1%
Missouri .............................. 11 1%
Arkansas .............................. 10 1%
Ohio .................................. 10 1%
Wisconsin ............................. 10 1%
Other states (less than 10 properties). 91 11%
--- ---
Total core business properties......... 854 100%
=== ===
</TABLE>
The Company intends to continue to acquire properties affiliated with
major national 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), operated by competent,
financially-stable multi-unit restaurant operators. The Company believes that
successful restaurants 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 agreements. The Company believes its
income stream is further protected through the increasing diversification of the
Properties by brand affiliation. Since existing management assumed control of
the Company in May 1994, the Company has significantly expanded the number of
its brand affiliations. Of the 763 Properties acquired since May 1994, only 104
are Burger King(R) restaurants and the balance are affiliated with other
national and regional chain restaurants.
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The following table contains information by brand regarding the
Properties owned by the Company as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
BRAND NAME PROPERTIES TOTAL
------------------------------ ---------- ----------
<S> <C> <C>
Burger King .................... 208 24%
Arby's ......................... 87 10%
Fina ........................... 53 6%
Dairy Queen .................... 41 5%
Grandy's ....................... 30 4%
Schlotzsky's ................... 28 3%
Hardee's ....................... 27 3%
Conoco ......................... 27 3%
El Chico ....................... 22 3%
Popeye's ....................... 20 2%
Pizza Hut ...................... 20 2%
Kettle ......................... 19 2%
Bruegger's Bagel ............... 17 2%
Applebee's ..................... 12 1%
Phillip 66 ..................... 10 1%
Citgo .......................... 9 1%
Chili's ........................ 8 1%
Wendy's ........................ 8 1%
Denny's ........................ 6 1%
Kentucky Fried Chicken ......... 5 1%
Taco Bell ...................... 5 1%
Mobil .......................... 4 1%
Chevron ........................ 2 0%
Other brands ................... 186 22%
--- ---
Total core business properties.. 854 100%
=== ===
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any material litigation, nor
to its knowledge is any material litigation threatened against the Company or
its Properties, other than routine litigation arising in the ordinary course of
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to stockholders in the quarter ended
December 31, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the New York Stock Exchange
under the symbol "USV". The high and low sales prices of the shares and the
distributions paid during each calendar quarter of 1997 and 1998, and through
March 12, 1999 are set forth below (market prices and distributions per share
have been adjusted to reflect the impact of the three-for-two stock split
effected on October 30, 1997):
<TABLE>
<CAPTION>
DIVIDENDS AND
MARKET PRICE DISTRIBUTIONS
HIGH LOW CLOSE PAID
-------- -------- -------- --------
1997
<S> <C> <C> <C> <C>
First Quarter $20.5833 $17.8333 $18.0000 $ 0.3333
Second Quarter 19.7917 17.6667 19.6667 0.3433
Third Quarter 23.4167 19.6667 22.9583 0.3500
Fourth Quarter 25.6667 21.6250 23.9375 0.3575
--------
$ 1.3841
1998
First Quarter $28.2500 $23.6875 $27.3750 $ 0.3700
Second Quarter 30.1250 26.8125 27.0625 0.3850
Third Quarter 29.2500 23.1250 25.4375 0.4000
Fourth Quarter 25.8125 21.8125 24.3125 0.4175
--------
$ 1.5725
1999
First Quarter $24.6250 $17.7500 $17.8750 $ 0.4300
(Through March 12)
</TABLE>
As of March 12, 1999, the Common Stock was held by 1,735 stockholders of record.
The Company makes quarterly distributions in the form of dividends to common
stockholders and distributions to holders of Operating Partnership units. As a
REIT, the Company is required to distribute 95% of taxable income to
shareholders in the form of dividends. Of the $1.5725 per share distributed in
1998, $1.0064, or 64%, represented ordinary dividend income, and $0.5661, or
36%, represented return of capital.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA.
The following information should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
in thousands, (except per unit/share and property data)
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Revenues
Rental income ................................. $ 6,340 $ 7,540 $ 16,346 $ 32,925 $ 54,501
Interest Income ............................... 94 70 194 1,091 2,855
Amortization of unearned income on
Direct financing leases ................ 2,453 2,240 1,978 1,568 1,174
--------- --------- --------- --------- ---------
Total Revenues ..................................... $ 8,887 $ 9,850 $ 18,518 $ 35,584 $ 58,530
Expenses:
Rent .......................................... 1,348 1,405 2,080 2,488 3,158
Depreciation and amortization ................. 1,361 1,541 3,978 9,415 15,753
General and administrative ................... 1,144 1,419 2,299 3,590 4,793
Interest expense .............................. 90 262 2,720 10,011 16,689
REIT Conversion Costs ......................... -- -- -- 920 --
Termination of management contract ............ -- -- -- 19,220 12,047
Equity in net loss of contract ................ -- -- -- -- 317
Non-cash charge for impairment of
long-lived assets ........................... 11 -- -- -- 127
--------- --------- --------- --------- ---------
Total expenses ..................................... $ 3,954 $ 4,627 $ 11,077 $ 45,644 $ 52,884
Gain on sale of property ........................... -- -- 32 869 403
Minority interest in operating partnership ......... -- -- -- (202) 58
Loss on early extinguishment of debt ............... -- -- -- -- (190)
--------- --------- --------- --------- ---------
Net income (loss) .................................. $ 4,933 $ 5,223 $ 7,473 $ (9,393) $ 5,917
========= ========= ========= ========= =========
Net income (loss) allocable to
Unitholders/Shareholders(1) ................... $ 4,834 $ 5,119 $ 7,325 $ (10,261) $ (1,185)
Weighted average units/shares outstanding (2):
Basic ......................................... 6,953 6,957 8,984 11,693 13,325
Diluted ....................................... 6,953 7,015 9,190 11,693 13,325
Earnings (loss) per unit/share (2):
Basic ......................................... $ 0.70 $ 0.74 $ 0.82 $ (0.88) $ (0.09)
Diluted ....................................... $ 0.70 $ 0.73 $ 0.80 $ (0.88) $ (0.09)
Dividends/distributions per unit/share (2) ......... $ 1.07 $ 1.14 $ 1.25 $ 1.38 $ 1.57
BALANCE SHEET DATA:
Total assets ....................................... $ 62,889 $ 71,483 $ 177,418 $ 359,149 $ 604,169
Line of credit and long term debt .................. -- 10,931 69,486 129,196 342,112
Capitalized lease obligations ...................... 775 563 362 170 63
General partners' capital .......................... 1,308 1,241 1,163 N/A N/A
Limited partners' capital .......................... 60,361 58,071 103,120 N/A N/A
Stockholders' equity ............................... N/A N/A N/A 205,412 209,775
Minority interest .................................. N/A N/A N/A 19,536 29,567
OTHER DATA:
Funds From Operations (FFO)(3) ..................... $ 7,638 $ 8,314 $ 13,111 $ 20,744 $ 30,686
Cash flow from operating activities ................ $ 6,990 $ 9,288 $ 13,852 $ 19,334 $ 41,002
Cash flow from (used in) investing activities ..... $ -- $ (12,039) $(100,978) $(174,040) $(246,488)
Cash flow from (used in) financing activities ...... $ (7,569) $ 2,077 $ 87,500 $ 155,429 $ 206,239
Number of properties ............................... 123 139 322 591 854
</TABLE>
- --------------------
(1) Prior to October 15, 1997 the Company operated in the form of a master
limited partnership. Amounts shown for years prior to 1997 reflect net
income allocable to partnership unitholders, net income per partnership
unit, and cash distributions declared per partnership unit.
(2) Weighted average number of units/shares outstanding,
dividends/distributions per unit/share and earnings (loss) per unit/share
have been adjusted to reflect the three-for-two split of the Common Stock
and calculation of earnings (loss) per unit/share in accordance with SFAS
128.
(3) The Company believes that it computes FFO in accordance with the standards
established by the National Association of Real Estate Investment Trusts
("NAREIT"), which may differ from the methodology for calculating FFO
utilized by other equity REITs, and, accordingly, may not be comparable to
such other REITs. The Company's FFO is computed as net income (loss)
13
<PAGE> 14
available to common stockholders (computed in accordance with GAAP), plus
real estate related depreciation and amortization but excluding the effects
of direct financing leases, minority interest, unusual charges and gains
(or losses) from debt restructuring and sales of property, and the effect
of EITF 98-9. The Company believes FFO enhances and is helpful to investors
as a measure of the performance of an equity REIT because, along with the
Company's financial condition, results of operations and cash flows, it
provides investors with an understanding of the ability of the Company to
incur and service debt and make capital expenditures. In evaluating FFO and
the trends it depicts, investors should consider the major factors
affecting FFO. Growth in FFO will result from increases in revenue or
decreases in related operating expenses. Conversely, FFO will decline if
revenues decline or related operating expenses increase. FFO does not
represent amounts available for management's discretionary use because of
needed capital replacement or expansion, debt service obligations, or other
commitments and uncertainties. FFO should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund
the Company's cash needs, including its ability to make distributions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS.
The Company derives its revenue from the leasing of its Properties to
operators (primarily restaurant) on a "triple net" basis. Triple net leases
typically require the tenants to be responsible for property operating costs,
including property taxes, insurance and maintenance. A majority of the Company's
leases provide for base rent plus a percentage of the restaurant's sales in
excess of a threshold amount. As a result, a portion of the Company's revenues
is a function of the number of restaurants in operation and their level of
sales. Sales at individual restaurants are influenced by local market
conditions, by the efforts of specific restaurant operators, by marketing, by
new product programs, support by the franchisor and by the general state of the
economy.
On October 15, 1997 the Company changed its form of business from a
master limited partnership to a REIT. U.S. Restaurant Properties, Inc. became
the successor entity to U.S. Restaurant Properties Master L.P. The results of
operations for the period October 15, 1997 to December 31, 1997 and for the year
ended December 31, 1998 are presented as the continuation of the operations of
the predecessor entity.
The results of operations of the Company, together with its
predecessors, for the periods discussed below have been affected by the growth
in the total number of Properties owned by the Company, as well as by increases
in rental income across the portfolio, over such time periods. The following
discussion considers the specific impact of such factors on the results of
operations of the Company for the following periods.
Comparison of the twelve months ended December 31, 1998 to the twelve months
ended December 31, 1997
The Company owned 591 properties prior to January 1, 1998. The Company
acquired 286 properties from January 1, 1998 to December 31, 1998, the
operations of which are included in the periods presented from their respective
dates of acquisition.
Revenues, including income earned on direct financing leases, in the
twelve months ended December 31, 1998 totaled $58,530,000, an increase of 64%
when compared to the twelve months ended December 31, 1997. The increase was due
primarily to increases in the number of properties owned during this period as
compared to the same period in 1997. Through December 31, 1998, approximately 9%
of the Company's rental revenues resulted from percentage rents (rents
determined as a percentage of tenant sales), down from 16% for the year ended
December 31, 1997. Percentage rents for 1998 would have been approximately 12%
of the Company's rental revenues before adjustment for the impact of EITF 98-9.
Thus, during the twelve months ended December 31, 1998, the impact of
fluctuations in restaurant sales had a diminishing impact on total rental
revenues.
14
<PAGE> 15
Also included in revenues is interest income relating to secured notes
and mortgages receivable from tenants and related parties. Interest income was
$2,855,000 for the twelve months ended December 31, 1998 and $1,091,000 for the
twelve months ended December 31, 1997, an increase of 162%. The increase over
1997 resulted primarily from the increase in mortgage loan receivables during
the year ended December 31, 1998.
Rent expense for the twelve months ended December 31, 1998 totaled
$3,158,000, an increase of 27% when compared to the twelve months ended December
31, 1997. Depreciation and amortization expenses in the twelve months ended
December 31, 1998 totaled $15,753,000, an increase of 67% when compared to the
twelve months ended December 31, 1997. The increase in rent expense and
depreciation and amortization expenses directly relate to the property
acquisitions.
General and administrative expenses for the twelve months ended
December 31, 1998 totaled $4,793,000, an increase of 34% when compared to the
twelve months ended December 31, 1997. The increase was a result of the costs of
the increased infrastructure, including additional employees, required by the
Company to manage and maintain the Company's rate of growth, and to replace
management functions performed under the management contract prior to October
15, 1997, and an increase in bad debt reserves that relate to the increase in
the number of properties managed.
Interest expense for the twelve months ended December 31, 1998 totaled
$16,689,000, an increase of 67%, when compared to the twelve months ended
December 31, 1997. The increase in interest expense directly relates to the
additional debt associated with the acquisitions.
A non-cash accounting charge of $12,047,000 relating to the termination
of the management contract with QSV was recorded for the year ended December 31,
1998. This charge represents the market value, based on the market value of a
share of the Common Stock at December 31, 1998, of 495,509 contingent Operating
Partnership Units which would be earned by QSV at December 31, 1998 under the
terms of the terminated management contract. A total of 825,000 shares of Common
Stock of the Company or their equivalent in Operating Partnership Units will be
issued to QSV if certain earnings targets are met by the year 2000. These
Operating Partnership Units have not been issued, and will not participate in
any income (loss) or receive any distributions from the Operating Partnership
until they have been earned and issued.
Equity in net loss of affiliates of $317,000 for the twelve months
ended December 31, 1998 relates to the Company's share of net losses from its
investments in other entities in which the Company holds a minority interest.
The non-cash charge for impairment of long-lived assets of $127,000 for the
twelve months ended December 31, 1998 relates to the Company's routine review of
the carrying value of real estate, direct financing leases and intangibles.
Minority interest in net income of the Operating Partnership of $58,000
for 1998 related to Operating Partnership units held by QSV and other minority
interest holders. Gain on sale of properties of $403,000 in 1998 related
primarily to the sale of 12 restaurant properties for cash of $6,679,000 net of
closing costs. The loss on early extinguishment of debt of $190,000 for the year
ended December 31, 1998 relates to the write off of unamortized deferred
financing costs in conjunction with the termination of the Company's secured
revolving credit facility in January, 1998.
Comparison of the twelve months ended December 31, 1997 to the twelve months
ended December 31, 1996
The Company owned 322 properties prior to January 1, 1997. The Company
acquired 277 properties and sold eight properties from January 1, 1997 to
December 31, 1997, the operations of which are included in the periods presented
from their respective dates of acquisition.
15
<PAGE> 16
Revenues, including income earned on direct financing leases, in the
twelve months ended December 31, 1997 totaled $35,584,000, an increase of 92%
when compared to the twelve months ended December 31, 1996. The increase was due
primarily to increases in the number of properties owned during this period as
compared to the same period in 1996. Through December 31, 1997, approximately
16% of the Company's rental revenues resulted from percentage rents (rents
determined as a percentage of tenant sales), down from 33% for the year ended
December 31, 1996. Thus, during the twelve months ended December 31, 1997, the
impact of fluctuations in restaurant sales had a diminishing impact on total
rental revenues. Also included in revenues is interest income relating to
secured notes and mortgages receivable from tenants and related parties.
Interest income was $1,091,000 in 1997.
Rent expense for the twelve months ended December 31, 1997 totaled
$2,488,000, an increase of 20% when compared to the twelve months ended December
31, 1996. Depreciation and amortization expenses in the twelve months ended
December 31, 1997 totaled $9,415,000, an increase of 137% when compared to the
twelve months ended December 31, 1996. The increase in rent expense and
depreciation and amortization expenses directly relates to the property
acquisitions.
General and administrative expenses for the twelve months ended
December 31, 1997 totaled $3,590,000, an increase of 56% when compared to the
twelve months ended December 31, 1996. The increase was a result of the costs of
the increased infrastructure, including additional employees, required by the
Company to manage and maintain the Company's rate of growth and an increase in
management fees paid to the managing general partner prior to October 15, 1997.
Interest expense for the twelve months ended December 31, 1997 totaled
$10,011,000, an increase of 268%, when compared to the twelve months ended
December 31, 1996. The increase in interest expense directly relates to the
additional debt associated with the acquisitions.
Minority interest in net income of the Operating Partnership of
$202,000 for 1997 related to Operating Partnership Units held by QSV after
October 15, 1997. Gain on sale of properties of $869,000 in 1997 related
primarily to the sale of five restaurant properties for cash of $3,960,000. REIT
conversion costs of $920,000 consisted of direct costs associated with the
conversion of the Company to a REIT on October 15, 1997.
A non-cash accounting charge of $19.2 million relating to the
termination of the management contract was recorded on October 15, 1997. The
management contract termination cost was computed as the fair market value of
the Operating Partnership Units issued upon conversion from a master limited
partnership to a REIT less QSV's existing investment basis in USRP. The fair
market value of the Operating Partnership Units ($19.00 based on the market
value of a share of Common Stock at that time) was determined by the average
unit price for the five trading days before and after the announcement of the
conversion. This accounting charge increased expenses by $19,220,000 and was the
direct cause of the net loss incurred by the Company for the twelve months ended
December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's principal source of cash to meet its short term cash
requirements is rental revenues generated by the Company's properties. Cash
generated by the portfolio in excess of operating needs is used to pay dividends
and reduce amounts outstanding under the Company's credit agreements. As of
December 31, 1998, the Company has non-binding contracts for acquisitions of
approximately $113.1 million. The terms of the Company's leases ("triple net
leases") generally require that the tenant is responsible for maintenance and
improvements to the property. Thus the Company is generally not required to
expend funds for remodels and renovation. However, the Company expects to spend
approximately $1 million a year to renovate and remodel currently owned
properties. At December 31, 1998 the Company had 17 properties in various stages
of development. As of December 31, 1998 the Company had commitments of
approximately $13 million representing construction contract costs not yet
incurred.
16
<PAGE> 17
During 1998 the Company paid dividends of $1.5725 per share, or an
aggregate of $22,824,000 to common stockholders and minority interests. In
addition, the Company paid dividends of $1.93 per share, or an aggregate of
$7,675,000 to holders of the Company's Preferred Stock. On March 15, 1999, the
Company paid a dividend of $0.43 per share to common stockholders and minority
interests and $0.4825 per share to preferred stockholders. In addition, on
February 15, 1999, the Company declared a dividend of $0.4425 per share to
common stockholders and minority interests and $0.4825 per share to preferred
stockholders to be paid on June 15, 1999.
On December 30, 1998 the Company financed part of a property
acquisition with the seller in the amount of $6,550,000. The note bears interest
at the rate of prime plus 1% per annum (8.75% as of December 31, 1998) and is
due in two installments of $3,275,000 plus accrued interest on June 15, 1999 and
December 30, 1999. On January 9, 1999, the Company issued a $20 million note
payable to Pacific Life Insurance Company to fund the acquisition of properties.
The note bears interest at the rate of LIBOR plus a margin of 300 basis points
and is due on December 15, 1999. On March 10, 1999 the Company issued a $15
million short-term unsecured note payable to Equilon Enterprises to fund the
acquisition of properties. The note must be repaid on or before May 10, 1999.
The Company's long-term capital needs include the refinancing of various debt
facilities. Lines of credit and notes payable principal debt maturities for the
next five years at December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999 ............... $ 6,574
2000 ............... 12,528
2001 ............... 136,031
2002 ............... 27,533
2003 ............... 47,536
Later .............. 111,910
--------
Total .............. $342,112
========
</TABLE>
On January 17, 1998 the Company entered into a credit agreement with a
syndicate of banks for an unsecured revolving credit line of $175 million. This
line of credit replaced the Company's existing line of credit. As of March 12,
1999, the Company has approximately $11 million available under the new
unsecured line of credit. The Company may request advances under this line of
credit to finance the acquisition of restaurant properties, to repair and update
restaurant properties and for working capital. The banks will also issue standby
letters of credit up to an aggregate of $30 million for the account of the
Company under this loan facility. Letters of credit will generally not reduce
availability under the terms of the agreement. This credit agreement expires on
January 15, 2001 and provides that borrowings thereunder bear interest at the
then current LIBOR plus a margin spread of either 1.05%, 1.20% or 1.35%,
dependent on a leverage ratio formula. As of March 12, 1999 the margin spread
was 1.35%.
In January, 1998 the note holders of the Company's 8.06% Series A
Senior Secured Guaranteed Notes due January 31, 2000 in the amount of
$12,500,000, and 8.30% Series B Senior Secured Guaranteed Notes due January 31,
2002 in the amount of $27,500,000, agreed to release the collateral for these
notes. The proceeds were used to fund acquisitions and to pay down the revolving
credit line.
The Company has signed an agreement with Credit Lyonnais for an
additional credit facility of up to $50 million, which is expected to close
before the end of March, 1999. The facility will bear interest at the rate of
LIBOR plus a margin of between 200 and 275 basis points and will be due in
March, 2002.
17
<PAGE> 18
Proceeds from this facility will be used to refinance the $15 million short-term
note due on or before May 10, 1999, pay down the balance of the unsecured
revolving credit line and for general corporate purposes.
Management believes that cash from operations and the existing debt
facilities, along with the Company's ability to raise additional debt and
equity, including the issuance of Operating Partnership Units in exchange for
properties, will provide the Company with sufficient liquidity to meet its
short-term and long-term capital needs. However, there can be no assurance that
the terms at which existing debt is refinanced will be as favorable to the
company as under the existing facilities.
FUNDS FROM OPERATIONS (FFO)
The Company believes that it computes FFO in accordance with the
standards established by the National Association of Real Estate Investment
Trusts ("NAREIT"), which may differ from the methodology for calculating FFO
utilized by other equity REITs, and, accordingly, may not be comparable to such
other REITs. The Company's FFO is computed as net income (loss) available to
common stockholders (computed in accordance with GAAP), plus real estate related
depreciation and amortization but excluding the effects of direct financing
leases, minority interest, unusual charges and gains (or losses) from debt
restructuring and sales of property, and the effect of EITF 98-9. The Company
believes FFO enhances and is helpful to investors as a measure of the
performance of an equity REIT because, along with the Company's financial
condition, results of operations and cash flows, it provides investors with an
understanding of the ability of the Company to incur and service debt and make
capital expenditures. In evaluating FFO and the trends it depicts, investors
should consider the major factors affecting FFO. Growth in FFO will result from
increases in revenue or decreases in related operating expenses. Conversely, FFO
will decline if revenues decline or related operating expenses increase. FFO
does not represent amounts available for management's discretionary use because
of needed capital replacement or expansion, debt service obligations, or other
commitments and uncertainties. FFO should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of the Company's liquidity,
nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make distributions.
The following table sets forth, for the years ended December 31, the
calculation of FFO:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1996 1997 1998
<S> <C> <C> <C>
Net income (loss) allocable to
Common stock/unit holders $ 7,325 $(10,261) $ (1,185)
Direct financing lease payments 2,041 2,286 2,250
Capital lease principal payments (201) (169) (107)
Depreciation and amortization 3,978 9,415 15,677
Income allocable to minority interest -- 202 (58)
Gain on sale of property (32) (869) (403)
REIT Conversion costs -- 920 --
Termination of management contract (1) -- 19,220 12,047
Loss on early extinguishment of debt -- -- 190
Non-cash impairment of long-lived assets -- -- 127
Effect of EITF 98-9 (2) -- -- 2,148
-------- -------- --------
Funds from operations (FFO) $ 13,111 $ 20,744 $ 30,686
======== ======== ========
Total shares/units applicable to FFO 9,190 12,179 14,641
======== ======== ========
</TABLE>
18
<PAGE> 19
(1) The charge for the management contract is an unusual non-cash charge
against earnings. The Company has no other management contracts and the
termination of this contract is a one time event and does not relate to the
ongoing business activity of the Company. The 1998 charge relates to
contingent Operating Partnership Units that would be earned by QSV at
December 31, 1998 under the terms of the terminated management contract.
Since FFO is intended as a supplementary measure of operating performance,
this charge has been added back to net income in arriving at FFO.
(2) Net income (loss) for 1998 reflects the implementation of EITF Issue 98-9,
effective May 21, 1998. The adjustment for EITF 98-9 represents a deferral
of revenue to future periods for which cash has been received. Since FFO is
intended as a supplementary measure of operating performance, the impact of
adoption of EITF Issue 98-9 has been added back to net income in arriving
at FFO.
INFLATION
Some of the Company's leases are subject to adjustments for increases
in the Consumer Price Index, which reduces the risk to the Company of the
adverse effects of inflation. Additionally, to the extent inflation increases
sales volume, percentage rents may tend to offset the effects of inflation on
the Company. Because triple net leases also require the restaurant operator to
pay for some or all operating expenses, property taxes, property repair and
maintenance costs (including environmental costs) and insurance, some or all of
the inflationary impact of these expenses will be borne by the restaurant
operator and not by the Company.
Operators of restaurants, in general, possess the ability to adjust
menu prices quickly. However, competitive pressures may limit a restaurant
operator's ability to raise prices in the face of inflation.
SEASONALITY
Fast food restaurant operations historically have been seasonal in
nature, reflecting higher unit sales during the second and third quarters due to
warmer weather and increase leisure travel. This seasonality can be expected to
cause fluctuations in the Company's quarterly revenue to the extent it
recognizes percentage rent.
NEW ACCOUNTING PRONOUNCEMENTS
In May 1998, the Financial Accounting Standards Board's Emerging Issues
Task Force issued EITF 98-9, "Accounting for Contingent Rent in Interim
Financial Periods," (EITF 98-9), which provides guidance on recognition of
rental income during interim periods for leases which provide for contingent
rents (commonly referred to as "percentage rents"). In accordance with the
initial consensus reached in EITF 98-9, the Company revised its method of
accounting for contingent rent on a prospective basis effective May 21, 1998.
In 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued. This standard establishes new accounting and
reporting standards for derivative financial instruments and must be adopted no
later than January 2000. The Company is currently evaluating the effect of this
standard and does not expect it to have a material effect on its results of
operations, financial position or cash flows.
YEAR 2000 SYSTEMS CONVERSION
The Company recognizes the need to ensure that its data processing
systems and operations are not adversely affected by the change to the calendar
year 2000. All software currently in use at U. S. Restaurant Properties, Inc. is
represented by the respective manufacturer to be compliant. In addition, the
Information Technology Association of America certifies through its ITAA*2000
program, that our accounting software and the software used by our outside
payroll processor are Year 2000 compliant. All owned-property information is
maintained in a database that mandates use of 4-digit year input, thus removing
any Year 2000 ambiguity.
19
<PAGE> 20
Hardware in current use has been tested and found to be compliant or to support
manual rollover. Two older workstations retained for historical data retrieval
from retired systems are not compliant. However, such non-compliance is not
believed to effect retrieval of the data and no upgrade is planned. All hardware
not related to information processing (e.g., copiers, faxes, phones, etc.) is
represented by the respective manufacturer to be compliant with the exception of
one fax machine. No upgrade is planned. Ongoing verification of Company systems
will continue throughout 1999.
All major vendors and all tenants were surveyed to determine the extent of their
preparedness to meet Y2K challenges and to assess any possible impact on USRP
from a material third-party failure. Vendor responses received do not identify
any major potential problems. Several vendors, including an insurance provider,
an attorney, a printer and a stock-handling agency, have not responded to our
inquiries. Services provided by these vendors can be easily obtained from other
sources. No problems are anticipated in securing these services.
Tenant responses to the survey have to date been limited. Of 309 requested
responses, 33 have been received. The Company is sending additional surveys to
major tenants to try to determine preparedness. Should adequate assurances that
tenants are prepared not be received, a contingency plan will be formulated to
deal with any payment defaults.
In the event of information system failure, the Company would continue to
process transactions manually, assisted by any systems still correctly
functioning. The primary costs associated with such a scenario would be time
delays associated with handling of information and any additional personnel
required to process the data. We believe the costs associated with such
personnel would not exceed $150,000.
The Company has not finalized its contingency plan as of this date. However, a
formal contingency plan will be developed as any risks are identified during
1999. The Company does not anticipate any material impact on its results from
operations or its financial condition as a result of any Year 2000 compliance
issues. The estimated remaining costs of compliance, consisting primarily of
verification and testing costs, are not expected to exceed $25,000.
The most reasonably likely worst case scenario would involve some or all of the
following elements, none of which pose a serious threat to the operations of
USRP:
1. The operation of some of the properties will be inconvenienced due to the
failure of alarm and safe systems which may temporarily prevent the timely
opening of the restaurant or service station on January 1, 2000. The
operator may be able to bypass the systems involved to overcome these
inconveniences.
2. Isolated utility outages may occur, preventing the operation of some
properties. Since these outages will also affect residential and government
users of these services, they will likely be corrected quickly.
3. Some properties may experience cash shortages due to failure of local banks
to become Y2K compliant. This may impede the ability of the operator to
conduct business and/or pay rent timely until the Federal Reserve has taken
steps to overcome the problem. This is also likely to be corrected quickly
to preserve the integrity of the banking system.
20
<PAGE> 21
4. Some properties may experience delays or lack of food supplies due to
disruption in the distribution system. Such problems may decrease the
volume of business at the property until corrected.
If some or all of the above conditions become severe or sustained for any
individual tenant, that tenant may become unable to pay rents on a timely basis.
Should this affect a number of tenants, USRP could experience a reduction of
cash receipts and could issue default notices to those tenants. A default due to
non-payment of rent arising from non-compliance issues could result in the
termination of a lease. Correcting any non-compliant systems could require
additional capital expenditures on the part of the Company in order to prepare
the property for re-lease. These expenditures, should they be required, are not
expected to be significant. Availability of resources to correct deficiencies
could be limited depending on the extent of failures experienced in the
industry.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-K.
This Form 10-K contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934, which are intended to be covered by the safe harbors
created thereby. These statements include the plans and objectives of management
for future operations, including plans and objectives relating to property
acquisitions. The forward-looking statements included herein are based on
current expectations that involve numerous risks and uncertainties. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore there can
be no assurance that the forward-looking statements included in this Form 10-K
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has limited exposure to financial market risks, including
changes in interest rates and other relevant market prices. The Company does not
have any foreign operations and thus is not exposed to foreign currency
fluctuations.
The fair value of the Company's investments would be affected by an
increase or decrease in interest rates as the majority of the investments are
interest denominated instruments. However the Company's investment portfolio of
$3 million is relatively small, and changes in value relating to market risks
would not significantly impact the Company's earnings. The Company also has
investments in fixed rate notes and mortgage loans receivable. Changes in
interest rates do not have a direct impact on interest income related to these
notes and loans, and are not a significant factor in the board of directors'
determination of the fair value of these loans.
An increase or decrease in interest rates would affect interest costs
relating to the Company's variable rate revolving line of credit. At December
31, 1998 there was $136,000,000 of variable rate debt outstanding on this
facility. This facility is priced with a floating interest rate based on LIBOR
plus a margin of between 105 and 135 basis points. The Company has no interest
rate swap or other hedging agreements relating to this facility. This facility
represents approximately 40% of the Company's outstanding long term debt. A 10%
increase or decrease in interest rates would result in an increase or decrease
in interest charges relating to this facility of approximately $680,000 for a
full year. Changes in interest rates do not have a direct impact on interest
expense relating to the remaining fixed rate debt facilities.
21
<PAGE> 22
The Company has on occasion issued shares of Common Stock or Operating
Partnership Units in exchange for property, and has guaranteed a minimum value
for those shares/units. Should the market value of the Common Stock not reach
the guaranteed value by a specified date (usually two or three years after
issue), then the Company may be obligated to issue additional shares/units under
the guarantee agreements. At December 31, 1998 there were 568,944 shares of
Common Stock and 14,254 Operating Partnership Units with guaranteed market
prices of between $15.33 and $30.00 per share/unit. The dilutive equivalent of
these guarantees at the end of 1998 represented an additional 3,791 shares.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial information and supplementary data begin on page F-1 of
this Annual Report on Form 10-K. Such information is incorporated by reference
into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934.
22
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
For a list of the consolidated financial statements of the
Registrant filed as part of this Annual Report on Form 10-K, see
page F-1, herein.
(a)(2) Financial Statement Schedules.
Schedule III Real Estate and Accumulated Depreciation.
All other schedules have been omitted because the required
information of such other schedules is not present, is not
present in amounts sufficient to require submission of the
schedule or is included in the consolidated financial statements.
(b) Reports on Form 8-K.
A report on Form 8-K/A dated November 26, 1997 was filed with the
Securities and Exchange Commission on January 23, 1998 reporting
information regarding the acquisition of 68 properties.
A report on Form 8-K and 8-K/A dated January 21, 1998 was filed
with the Securities and Exchange Commission on February 4, 1998
and March 20, 1998, respectively, reporting information regarding
the acquisition of 35 properties.
A report on Form 8-K and 8-K/A dated June 24,1998 was filed with
the Securities and Exchange Commission on July 7, 1998 and August
21, 1998, respectively, reporting information regarding the
acquisition of 58 properties.
A report on Form 8-K and 8-K/A dated August 7, 1998 was filed
with the Securities and Exchange Commission on August 21, 1998
and October 6, 1998, respectively, reporting information
regarding the acquisition of 74 properties.
(c) Exhibits.
The Exhibits filed as part of this Annual Report on Form 10-K are
submitted as a separate section.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
U.S. Restaurant Properties, Inc.
By: /s/ Robert J. Stetson
---------------------------
Robert J. Stetson
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of U.S Restaurant
Properties, Inc. and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Robert J. Stetson Chief Executive Officer, March 29, 1999
- ------------------------- President and Director
Robert J. Stetson (Principal Executive Officer)
/s/ Fred H. Margolin Chairman of the Board of March 29, 1999
- ------------------------- Directors, Secretary and
Fred H. Margolin Director
/s/ Michael D. Warren Director of Finance March 29, 1999
- ------------------------- (Principal Accounting Officer)
Michael D. Warren
/s/ Gerald H. Graham Director March 29, 1999
- -------------------------
Gerald H. Graham
/s/ David K. Rolph Director March 29, 1999
- -------------------------
David K. Rolph
/s/ Darrel L.Rolph Director March 29, 1999
- -------------------------
Darrel L. Rolph
/s/ Eugene G.Taper Director March 29, 1999
- -------------------------
Eugene G. Taper
</TABLE>
24
<PAGE> 25
This page intentionally left blank
<PAGE> 26
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
U.S. RESTAURANT PROPERTIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report......................................................................F - 2
Consolidated Balance Sheets as of December 31, 1998 and 1997......................................F - 3
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996........F - 5
Consolidated Statements of Other Comprehensive Operations for the years ended
December 31, 1998, 1997 and 1996................................................................F - 6
Consolidated Statement of Stockholders' Equity and Partners' Capital for the years
ended December 31, 1998, 1997 and 1996..........................................................F - 7
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996........F - 8
Notes to Consolidated Financial Statements........................................................F - 10
The following financial statement supplementary schedule of the Registrant and
its subsidiaries required to be included in Item 14(a)(2) is listed below:
Schedule III - Real Estate and Accumulated Depreciation...........................................S - 1
</TABLE>
F-1
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
U.S. Restaurant Properties, Inc.
We have audited the accompanying consolidated balance sheets of U.S. Restaurant
Properties, Inc. and its subsidiaries (the Company) (formerly U.S. Restaurant
Properties Master L.P.) as of December 31, 1998 and 1997, and the related
consolidated statements of operations, comprehensive operations, stockholders'
equity and partners' capital and cash flows for each of the three years in the
period ended December 31, 1998. Our audit for the year ended December 31, 1998
also included the financial statement schedule listed in the Index at Item 14
(a) (2). These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of U.S. Restaurant Properties, Inc.
and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for contingent rents effective May 21, 1998 to
comply with the consensus reached by the Emerging Issues Task Force in Issue
98-9.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Dallas, Texas
March 19, 1999
F-2
<PAGE> 28
U.S. RESTAURANT PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
--------- ---------
ASSETS
<S> <C> <C>
Property, net
Land $ 172,155 $ 109,515
Building and leasehold improvements 342,686 211,200
Machinery and equipment 8,057 4,813
--------- ---------
522,898 325,528
Less: Accumulated depreciation (27,938) (13,438)
--------- ---------
494,960 312,090
Construction in progress 30,713 --
Cash and cash equivalents 1,857 1,104
Restricted cash 700 --
Rent and other receivables, net
(includes $1,962 and $523 due from related parties in 1998 and 1997,
respectively) 10,817 4,791
Prepaid expenses and purchase deposits 10,091 1,967
Investments 3,057 23
Notes receivable
(includes $2,300 and $5,406 due from related parties in 1998 and 1997,
respectively) 8,225 8,518
Mortgage loan receivable 23,275 5,947
Net investment in direct financing leases 9,678 13,764
Intangibles and other assets, net 10,796 10,945
--------- ---------
TOTAL ASSETS $ 604,169 $ 359,149
========= =========
</TABLE>
continued on next page
F-3
<PAGE> 29
U.S. RESTAURANT PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities
(includes $0 and $121 due to related parties in 1998 and 1997, $ 11,492 $ 4,193
respectively)
Accrued dividends and distributions 8,456 --
Unearned contingent rent 2,148 --
Deferred gain on sale of property 556 642
Lines of credit 136,000 89,196
Notes payable 205,050 40,000
Mortgage note payable 1,062 --
Capitalized lease obligations 63 170
--------- ---------
TOTAL LIABILITIES 364,827 134,201
COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 9)
MINORITY INTEREST IN OPERATING PARTNERSHIP 29,567 19,536
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value per share;
50,000 shares authorized,
Series A - 3,680 shares issued and outstanding at December 31, 1998
and 1997 (aggregate liquidation value of $92,000) 4 4
Common stock, $.001 par value per share;
100,000 shares authorized, shares issued and outstanding: 14,372
at December 31, 1998; and 12,698 at December 31, 1997 14 13
Additional paid in capital 262,024 226,140
Excess stock, $.001 par value per share,
15,000 shares authorized, no shares issued -- --
Accumulated other comprehensive loss (797) --
Distributions in excess of net income (51,470) (20,745)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 209,775 205,412
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 604,169 $ 359,149
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 30
U.S. RESTAURANT PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Rental income $ 54,501 $ 32,925 $ 16,346
Interest income 2,855 1,091 194
Amortization of unearned income on
direct financing leases 1,174 1,568 1,978
-------- -------- --------
TOTAL REVENUES 58,530 35,584 18,518
EXPENSES
Rent 3,158 2,488 2,080
Depreciation and amortization 15,753 9,415 3,978
General and administrative 4,793 3,590 2,299
Interest expense 16,689 10,011 2,720
REIT conversion costs -- 920 --
Termination of management contract 12,047 19,220 --
Equity in net loss of affiliates 317 -- --
Non-cash charge for impairment of long-lived assets 127 -- --
-------- -------- --------
TOTAL EXPENSES 52,884 45,644 11,077
-------- -------- --------
Income (loss) before gain on sale of property and minority
interest in operating partnership and extraordinary item 5,646 (10,060) 7,441
Gain on sale of property 403 869 32
-------- -------- --------
Income (loss) before minority interest in operating
partnership and extraordinary item 6,049 (9,191) 7,473
Minority interest in operating partnership 58 (202) --
-------- -------- --------
Income (loss) before extraordinary item 6,107 (9,393) 7,473
Loss on early extinguishment of debt (190) -- --
-------- -------- --------
NET INCOME (LOSS) 5,917 (9,393) 7,473
Dividends on Preferred Stock/General Partner interest (7,102) (868) (148)
-------- -------- --------
Net income (loss) allocable to
Common stockholders/unit holders $ (1,185) $(10,261) $ 7,325
======== ======== ========
Net income (loss) per share/unit
Basic $ (0.09) $ (0.88) $ 0.82
Diluted $ (0.09) $ (0.88) $ 0.80
Weighted average shares/units outstanding
Basic 13,325 11,693 8,984
Diluted 13,325 11,693 9,190
</TABLE>
See Note 2 for Pro Forma Effect of Change in Accounting Principle
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 31
U.S. RESTAURANT PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
NET INCOME (LOSS) $ 5,917 $(9,393) $ 7,473
Other comprehensive loss - unrealized loss on
investments (797) -- --
------- ------- -------
COMPREHENSIVE INCOME (LOSS) $ 5,120 $(9,393) $ 7,473
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 32
U.S. RESTAURANT PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
GENERAL LIMITED --------------------- --------------------- PAID IN
UNITS PARTNERS PARTNERS SHARES PAR VALUE SHARES PAR VALUE CAPITAL
------- --------- --------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 6,989 $ 1,241 $ 58,071 -- $ -- -- $ -- $ --
Net income 148 7,325
Units issued for property 577 -- 7,912
Proceeds from units issued in public 2,700 -- 40,203
offering
Proceeds from exercised unit options 75 -- 775
Distributions (226) (11,166)
------- --------- --------- ------- --------- ------- -------- --------
Balance December 31, 1996 10,341 1,163 103,120 -- -- -- -- --
Net income for the period January 1
Through October 15, 1997 135 6,678
Units issued for property 681 -- 13,796
Proceeds from units issued
In private placements 1,435 -- 25,000
Proceeds from exercised
unit options 75 -- 775
Distributions (240) (11,776)
------- --------- --------- ------- --------- ------- -------- --------
Balance before REIT conversion 12,532 1,058 137,593 -- -- -- -- --
Conversion to REIT (12,532) (1,058) (137,593) 12,658 13 138,109
Sale of preferred stock 3,680 4 87,618
Proceeds from exercised stock options 40 413
Net loss for the period October 16
Through December 31, 1997
Distributions
------- --------- --------- ------- --------- ------- -------- --------
Balance December 31, 1997 -- -- -- 3,680 4 12,698 13 226,140
Proceeds from exercised stock options 300 3,099
Proceeds from sale of common stock 1,359 1 32,406
Stock issued for "equity ownership
interest in another entity" 24 621
Stock issued for property 25 600
Common stock repurchased and retired (34) (842)
Other comprehensive loss
Net income
Distributions on preferred stock
Distributions on common stock
Common and preferred stock distributions
declared
------- --------- --------- ------- --------- ------- -------- --------
-- $ -- $ -- 3,680 $ 4 14,372 $ 14 $262,024
======= ========= ========= ======= ========= ======= ======== ========
<CAPTION>
ACCUMULATED
DISTRIBUTIONS OTHER
IN EXCESS OF COMPREHENSIVE
NET INCOME LOSS TOTAL
----------- ------------ -----------
<S> <C> <C> <C>
Balance January 1, 1996 $ -- $ -- $ 59,312
Net income 7,473
Units issued for property 7,912
Proceeds from units issued in public 40,203
offering
Proceeds from exercised unit options 775
Distributions (11,392)
----------- ------------ -----------
Balance December 31, 1996 -- -- 104,283
Net income for the period January 1
Through October 15, 1997 6,813
Units issued for property 13,796
Proceeds from units issued
In private placements 25,000
Proceeds from exercised
unit options 775
Distributions (12,016)
----------- ------------ -----------
Balance before REIT conversion -- -- 138,651
Conversion to REIT (529)
Sale of preferred stock 87,622
Proceeds from exercised stock options 413
Net loss for the period October 16
Through December 31, 1997 (16,206) (16,206)
Distributions (4,539) (4,539)
----------- ------------ -----------
Balance December 31, 1997 (20,745) -- 205,412
Proceeds from exercised stock options 3,099
Proceeds from sale of common stock 32,407
Stock issued for "equity ownership
interest in another entity" 621
Stock issued for property 600
Common stock repurchased and retired (842)
Other comprehensive loss (797) (797)
Net income 5,917 5,917
Distributions on preferred stock (7,675) (7,675)
Distributions on common stock (21,011) (21,011)
Common and preferred stock distributions
declared (7,956) (7,956)
----------- ------------ -----------
$ (51,470) $ (797) $ 209,775
=========== ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE> 33
U.S. RESTAURANT PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,917 $ (9,393) $ 7,473
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and amortization 15,753 9,415 3,978
Amortization of deferred financing costs 666 385 162
Loss on impairment of long-lived assets 127 -- --
Non-cash interest income (136) -- --
Equity in loss of affiliates 317 -- --
Minority interest in operating partnership (58) 202 --
Gain on sale of property (403) (869) (32)
Loss on early extinquishment of debt 190 -- --
Termination of management contract 12,047 19,220 --
Distributions received on investments 470 -- --
Increase in restricted cash (700) -- --
Increase in rent and other receivables, net (5,463) (2,365) (1,702)
Increase in prepaid expenses 708 (1,043) (88)
Reduction in net investment in direct financing leases 2,172 2,286 2,041
Increase in accounts payable and accrued liabilities 7,247 1,496 2,020
Increase in unearned contingent rent 2,148 -- --
--------- --------- ---------
35,085 28,727 6,379
--------- --------- ---------
Cash provided by operating activities 41,002 19,334 13,852
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 6,679 4,107 122
Purchase of property (202,967) (166,123) (95,918)
Purchase of machinery and equipment (3,467) (1,569) (3,032)
Purchase deposits (paid) used (8,308) 387 884
Purchase of investments (3,393) (23) --
Increase in mortgage loan receivable (18,450) (6,000) --
Reduction of mortgage loan receivable principal 653 53 --
Increase in notes receivable (18,227) (5,072) (4,933)
Reduction of notes receivable principal 992 200 1,899
--------- --------- ---------
Cash used in investing activities (246,488) (174,040) (100,978)
</TABLE>
continued on next page
F-8
<PAGE> 34
U.S. RESTAURANT PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 306,786 133,530 104,805
Payments on line of credit (259,995) (113,820) (46,250)
Distributions to minority interest (1,813) (415) --
Cash distributions to stockholders/partners (21,011) (16,555) (11,392)
Payment of Preferred Stock dividends (7,675) -- --
Proceeds from sale of common stock/units 35,506 26,188 40,978
Proceeds from sale of preferred stock -- 87,622 --
Proceeds from notes payable 158,500 40,000 --
Financing costs and other intangibles (3,110) (952) (440)
Payments on capitalized lease obligations (107) (169) (201)
Repurchase and retirement of stock (842) -- --
--------- -------- ---------
Cash flows provided by financing activities 206,239 155,429 87,500
--------- -------- ---------
Increase in cash and cash equivalents 753 723 374
Cash and cash equivalents at beginning of year 1,104 381 7
--------- -------- ---------
Cash and cash equivalents at end of year $ 1,857 $ 1,104 $ 381
========= ======== =========
SUPPLEMENTAL DISCLOSURE:
Interest paid during the year $ 15,115 $ 9,073 $ 2,431
========= ======== =========
NON-CASH INVESTING ACTIVITIES:
Fair value of stock issued for ownership interest in another $ 621 $ -- $ --
entity
Fair value of stock options received 469 -- --
Fair value of stock and units issued for property 955 13,796 7,912
Deferred gain on sale of property 85 52 590
Notes received on sale of property 675 1,661 743
Reduction in note receivable for property acquired 11,822 2,061 --
Reduction in accounts receivable for property acquired 219 227 --
Sale of property for account receivable 589 -- --
Sale of property on capital lease -- 23 --
Sale of property on direct financing lease -- -- 225
Mortgage note assumed 1,075 -- --
Property acquired in exchange for note payable 6,550 -- --
Unrealized loss on investments 797 -- --
Purchase of net assets of U.S. Restaurant Properties
Development, L.P. (See Note 12) 6,381 -- --
NON-CASH FINANCING ACTIVITIES:
Common stock dividends declared $ 6,180 $ -- $ --
Preferred stock dividends declared 1,776 -- --
Distributions to minority interest declared 500 -- --
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
U.S. Restaurant Properties, Inc. (the "Company") is a Maryland corporation
formed to continue the restaurant property management, acquisition and
development operations, related business objectives and strategies of U.S.
Restaurant Properties Master, L.P. (collectively, with its subsidiaries,
"USRP"). The Company became a self-administered real estate investment trust
("REIT") on October 15, 1997 as defined under the Internal Revenue Code of 1986,
as amended. This conversion was effected through the merger (the "Merger") of
USRP Acquisition, L.P. a partnership subsidiary of U.S. Restaurant Properties,
Inc., with and into U.S. Restaurant Properties Master L.P. As a result of the
Merger, all holders of common units (Units) of beneficial interest in USRP
became stockholders of the Company on a one unit for one share of Common Stock
basis. Accordingly, information contained in the consolidated financial
statements relating to the equity ownership of USRP following October 15, 1997
is presented as ownership of shares of Common Stock of the Company.
The Company is authorized to issue up to 100,000,000 shares of Common Stock, par
value $.001 per share (the "Common Stock"), 50,000,000 shares of Preferred
Stock, par value $.001 per share (the "Preferred Stock") and 15,000,000 shares
of Excess Stock, par value $.001 per share (the "Excess Stock"). Pursuant to the
Company's Articles of Incorporation (the "Articles"), any purported transfer of
shares of Common Stock or Preferred Stock that would result in a person owning
shares of Common Stock or Preferred Stock in excess of certain limits set out in
the Articles will result in the shares subject to such purported transfer being
automatically exchanged for an equal number of shares of Excess Stock. On
October 30, 1997 the REIT effected a three-for-two stock split. All of the
historical units and per unit information has been restated to reflect the
conversion to Common Stock and this stock split.
In connection with the conversion to a REIT, the management contract between
USRP and QSV Properties Inc. ("QSV"), the former General Partner of USRP, was
terminated. The contract termination and QSV's partnership interests in USRP
were converted to 126,582 shares of Common Stock of the Company and 1,148,418
units of U.S. Restaurant Properties Operating, L.P. ("OP"). An additional
825,000 shares of Common Stock of the Company or its equivalent in OP units may
be issued to QSV if certain earnings targets are met by the year 2000 (See Note
11). QSV's principal stockholders are Mr. Robert J. Stetson and Mr. Fred H.
Margolin, both executive officers of the Company.
The business and operations of the Company are conducted primarily through the
OP. The Company owns 92.59 % of and controls the OP. Each OP unit can only be
converted to one share of Common Stock and participates in any cash
distributions made by the OP in an amount equivalent to a share of common stock
of the Company. With each exchange of outstanding OP units for Common Stock, the
Company's percentage ownership interest in the OP, directly or indirectly, will
increase. The units do not have voting rights with respect to the Company and
are not traded on an open market.
The Company has 14,372,027 and 12,698,113 shares of Common Stock outstanding as
of December 31, 1998 and 1997, respectively.
F-10
<PAGE> 36
2. ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements reflect the accounts of the Company, the
OP and their 60 wholly-owned and majority owned subsidiaries after elimination
of all material intercompany transactions.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term, highly liquid investments with
maturities at the date of purchase of three months or less.
RESTRICTED CASH
Restricted cash consists of a security deposit from a tenant that is not
available for operating purposes.
RENT RECOGNITION
Rent revenues and expenses under operating leases are recognized on a
straight-line basis. Contingent rent is recognized as revenue after the related
lease sales targets are achieved.
In May 1998, the Financial Accounting Standards Board's Emerging Issues Task
Force issued EITF 98-9, "Accounting for Contingent Rent in Interim Financial
Periods," (EITF 98-9), which provides guidance on recognition of rental income
during interim periods for leases which provide for contingent rents (commonly
referred to as "percentage rents"). In accordance with the initial consensus
reached in EITF 98-9, the Company revised its method of accounting for
contingent rent on a prospective basis effective May 21, 1998. Using the
historical basis of accounting, net income before extraordinary item, net income
and basic and diluted net income per share amounts would have been $8,255,000,
$8,065,000, $0.07 and $0.07, respectively, for the twelve month period ended
December 31, 1998.
The pro forma information below was prepared based on management's estimate for
the effects of EITF 98-9 since it is impracticable to calculate the actual
amount on a retroactive basis precisely. Management of the Company believes that
the estimate is not materially different from what actual results would have
been under EITF 98-9. Following is the pro forma information for the twelve
months ended December 31, 1998, 1997 and 1996 as if the EITF 98-9 were in effect
as of January 1, 1996:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
------------------------------------------
(In thousands, except per share amounts) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income (loss) before extraordinary item as reported $ 6,107 $ (9,393) $ 7,473
Add: Adjustment for change in accounting policy on recognition of
contingent lease rent 1,981 39 (994)
---------- ---------- ----------
Income (loss) before extraordinary item as adjusted $ 8,088 $ (9,354) $ 6,479
========== ========== ==========
Net income (loss) as adjusted $ 7,898 $ (9,354) $ 6,479
========== ========== ==========
Net income (loss) available to common stockholders as adjusted $ 796 $ (10,222) $ 6,351
========== ========== ==========
Income (loss) per share - Basic:
Before extraordinary item, less dividends on Preferred
Stock/General Partner's interest as reported $ (0.07) $ (0.88) $ 0.82
Adjustment for effect of change in accounting policy 0.15 -- (0.11)
---------- ---------- ----------
Income (loss) before extraordinary item, less dividends on Preferred
Stock/General Partner's interest as adjusted $ 0.08 $ (0.88) $ 0.71
========== ========== ==========
</TABLE>
F-11
<PAGE> 37
<TABLE>
<S> <C> <C> <C>
Net income (loss) available to common stockholders as reported $ (0.09) $ (0.88) $ 0.82
Adjustment for effect of change in accounting policy 0.15 -- (0.11)
---------- ---------- ----------
Net income (loss) available to common stockholders as adjusted $ 0.06 $ (0.88) $ 0.71
========== ========== ==========
Income (loss) per share - Diluted:
Before extraordinary item, less dividends on Preferred
Stock/General Partner's interest as reported $ (0.07) $ (0.88) $ 0.80
Adjustment for effect of change in accounting policy 0.15 -- (0.11)
---------- ---------- ----------
Income (loss) before extraordinary item, less dividends on
Preferred Stock/General Partner's interest as adjusted $ 0.08 $ (0.88) $ 0.69
========== ========== ==========
Net income (loss) available to common stockholders as reported $ (0.09) $ (0.88) $ 0.80
Adjustment for effect of change in accounting policy 0.15 -- (0.11)
---------- ---------- ----------
Net income (loss) available to common stockholders as adjusted $ 0.06 $ (0.88) $ 0.69
========== ========== ==========
</TABLE>
DEPRECIATION AND AMORTIZATION
Depreciation is computed using the straight-line method over estimated useful
lives of 6 to 20 years for financial reporting purposes. Deferred financing
costs are amortized using the straight-line method over the life of the loans (1
to 6 years).
USE OF ESTIMATES
The preparation of consolidated financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect reported amounts of certain assets, liabilities,
revenues and expenses as of and for the reporting periods. Actual results may
differ from such estimates.
CONSTRUCTION IN PROGRESS
The Company's construction in progress consist of land and improvements for the
development of restaurant, service station and other service retail properties.
The Company currently accumulates costs to develop new retail properties as
construction in progress. These developed properties are transferred from
construction in progress to land, building and improvements once complete and
accounted for under the Company's current property depreciation policies. In
addition, the Company capitalizes interest during the period of time required to
get the retail properties ready for their intended use. During 1998, the Company
capitalized $493,000 and no interest was capitalized in 1997 or 1996.
LONG-LIVED ASSETS
Long-lived assets include real estate, direct financing leases, and intangibles
which are evaluated on an individual asset basis. The Company's management
routinely reviews its investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
An intangible asset was recorded for the excess of cost over the net investment
in direct financing leases in 1986. This intangible asset is being amortized on
a straight-line basis over 40 years. The Company's management routinely reviews
the carrying amount of intangibles based on projected cash flows. Based on the
Company's policy for evaluating impairment of intangibles, no valuation
allowance was recorded for the years ended December 31, 1998, 1997 or 1996.
F-12
<PAGE> 38
ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF RISK
The Company continues to decrease their concentration of risk by diversifying
the number of restaurant concepts operating on their properties, with no one
concept except Burger King (24%) accounting for more than 10% of the Company's
total properties. The properties are further diversified by the number of
tenants, with no tenant operating more than 10% of the Company's total
properties. Geographically, the company has properties located in 48 states,
with no state except Texas (32%) accounting for more than 8% of the Company's
properties.
INCOME TAXES
Prior to October 15, 1997 no federal or, in most cases, state income taxes are
reflected in the consolidated financial statements because USRP was not a
taxable entity. The partners reported their allocable shares of taxable income
or loss in their individual income tax returns. The Company elected to be taxed
as a REIT for Federal income tax purposes effective October 15, 1997 as provided
under the Internal Revenue Code of 1986, as amended. As a result, the Company
generally will not be subject to Federal income taxation if it distributes 95%
of its REIT taxable income to its stockholders and satisfies certain other
requirements. The Company believes it qualified as a REIT for the taxable period
ended December 31, 1998 and anticipates that its method of operations will
enable it to continue to satisfy the requirements for such qualification.
INVESTMENTS
The Company records its investments in debt and equity securities at their fair
value, except for debt securities that the Company intends to hold to maturity
or equity securities that are accounted for under the equity or cost method. The
Company has classified all debt securities as available for sale. The difference
between cost and fair market value of these securities is recorded as a
component of other comprehensive income.
The equity method is used to account for investments in equity securities in
which the Company has significant influence but does not have controlling
interest, including those investments in which the Company's ownership may be
less than 20%. Investments in equity securities in which the Company has a minor
interest and does not exercise significant influence are accounted for using the
cost method.
EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share are computed based upon the weighted average number of
common shares outstanding. Diluted earnings per share reflects the dilutive
effect of stock options and stock on which the price is guaranteed ("Guaranteed
Stock") when appropriate. Such options and Guaranteed Stock were antidilutive in
1998 and 1997. In addition, convertible preferred stock and OP units were
antidilutive in 1998 and 1997 (See Note 6 and 11).
F-13
<PAGE> 39
ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE OF COMMON STOCK (CONTINUED)
A reconciliation of net income (loss) per share and the weighted average shares
outstanding for calculating basic and diluted net income (loss) per share is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
(In thousands, except per share amounts) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) before extraordinary item $ 6,107 $ (9,393) $ 7,473
Loss on extinguishment of debt (190) -- --
-------- -------- --------
Net income (loss) $ 5,917 $ (9,393) $ 7,473
Dividends/distributions on preferred stock/General
partner interest (7,102) (868) (148)
-------- -------- --------
Net income (loss) applicable to share/unitholders $ (1,185) $(10,261) $ 7,325
======== ======== ========
Net income (loss) per share/unit - Basic
Before extraordinary item less preferred stock/
general partner interest $ (0.08) $ (0.88) $ 0.82
Extraordinary loss on extinguishment of debt (0.01) -- --
-------- -------- --------
Net income (loss) allocable to common stockholders $ (0.09) $ (0.88) $ 0.82
======== ======== ========
Net income (loss) per share/unit - Diluted
Before extraordinary item
less preferred stock/ general partner interest $ (0.08) $ (0.88) $ 0.80
Extraordinary loss on extinguishment of debt (0.01) -- --
-------- -------- --------
Net income (loss) allocable to common stockholders $ (0.09) $ (0.88) $ 0.80
======== ======== ========
Basic
Weighted average shares/units outstanding 13,325 11,693 8,984
Diluted
Weighted average shares outstanding - Basic 13,325 11,693 8,984
Dilutive effect of outstanding options -- -- 198
Dilutive effect of Guaranteed Stock -- -- 8
-------- -------- --------
Weighted average shares/units outstanding-Dilutive 13,325 11,693 9,190
======== ======== ========
</TABLE>
EQUITY-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No 123 establishes a method
of accounting whereby recognized option pricing models are used to estimate the
fair value of equity based compensation, including options. This Statement also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. Those transactions must be
accounted for based on the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
The Company has elected, as provided by SFAS 123, not to recognize compensation
expense for employee equity based compensation as calculated under SFAS 123, but
will recognize any related expense in accordance with the provisions of APB
Opinion No. 25. Disclosure of amounts required by SFAS 123 are included in Note
6.
F-14
<PAGE> 40
ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
In June, 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," was issued, effective for fiscal years beginning after
December 15, 1997. Other comprehensive income items are revenues, expenses,
gains and losses that under generally accepted accounting principles are
excluded from current period net income and reflected as a component of equity.
The Company has included a Statement of Comprehensive Operations herein.
MINORITY INTEREST
Minority interest is recorded for the 1,148,418 OP units not owned by the
Company that were issued in conjunction with the conversion to a REIT and the
termination of the management contract (See Note 1). The units are recorded at
carryover basis for the 1% General Partner interest of QSV in the OP and the
fair value of the units ($19.00 based on the market value of a share of Common
Stock) for the additional units issued for the termination of the management
contract (See Note 10). In addition, minority interest is recorded for the
14,254 OP units issued in 1998 in conjunction with certain property
acquisitions. These units were recorded at the fair value of the units on the
date of the transaction based on the market value of a share of Common Stock.
SEGMENT REPORTING
In June, 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information," was issued, effective
for fiscal years beginning after December 15, 1997. This Statement requires that
public business enterprises report financial and descriptive information about
their reportable operating segments. The Company operates solely in the real
estate industry with retail properties (restaurant and gas stations) under lease
on a triple net basis. The Company's real estate assets are operated with the
same long-term objectives and therefore are viewed as a single operating
segment. The Company has no operations outside of the United States, its country
of domicile, information related to geographical operations is not presented.
ENVIRONMENTAL REMEDIATION COSTS
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remediation feasibility study. Such
accruals are adjusted as further information develops or circumstances change.
Recoveries of environmental remediation costs from other parties are recorded as
assets when their receipt is deemed probable. Under the Company's standard lease
agreement the tenant is responsible for environmental remediation and is
required to maintain standard environmental insurance as part of their lease
agreement. The Company's management is not aware of any environmental
remediation obligations which would materially affect the operations, financial
position or cash flows of the Company as of December 31, 1998.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
F-15
<PAGE> 41
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued. This statement establishes new accounting and reporting
standards for derivative financial instruments and must be adopted no later than
2000. The Company is currently evaluating the effect of this statement and does
not expect it to have a material effect on its results of operations, financial
position or cash flows.
3. PROPERTY
ACQUISITIONS
During 1998, the Company completed the purchase of 286 restaurants and gas
station/convenience store properties for an aggregate price of $214,909,000
included the value of 24,768 shares of Common Stock ($600,000) and the value of
14,254 OP Units ($355,000) issued as part of the aggregate purchase price. In
addition, the aggregate purchase price included $17,757,000 representing
property that was under construction at the time of acquisition. The 14,254 OP
Units issued in seven of these transactions have guaranteed values (See Note 6).
During 1997, the Company completed the purchase of 277 restaurant properties for
an aggregate purchase price of $182,396,000 including the value of 680,696
shares of Common Stock ($13,796,000) issued as part of the aggregate purchase
price. The 680,696 shares of Common Stock issued in two of these transactions
have guaranteed values (See Note 6).
During 1996, the Company completed the purchase of 184 restaurant properties for
an aggregate purchase price of $105,336,000 including the value of 577,254
shares of Common Stock ($7,912,000) issued as part of the aggregate purchase
price. The 577,254 shares of Common Stock issued in four of these transactions
have guaranteed values (See Note 6).
DISPOSITIONS
During 1998, the Company sold or disposed of 12 restaurant properties for cash
of $6,679,000, net of closing costs resulting in a gain of $403,000. In
addition, one restaurant property was sold for cash of $73,000, net of closing
costs and a note receivable of $675,000. In accordance with Statement of
Financial Accounting Standards No. 66, "Accounting for Real Estate Sales", the
Company recorded a deferred gain on the sale resulting in a deferred gain of
$85,000. The note earns interest at 8.50% with payments of principal and
interest due monthly through July 2012.
During 1997, the Company sold five restaurant properties for cash of $3,960,000,
net of closing costs resulting in a gain of $801,000. In addition, three
restaurant properties were sold for cash of $147,000, net of closing costs and
notes receivable of $1,661,000. One note of $972,000 earns interest at 9.25%
with interest only payments due monthly through June 1, 2000, when it matures
and one note of $689,000 earns interest at 9.75% with interest only payments due
monthly through September 1, 2001, when it matures. Each note receivable
requires all unpaid principal balances to be paid on the dates indicated herein.
The Company recorded a deferred gain of $52,000 for the year ended December 31,
1997 as a result of the non-cash property sales.
During 1996, the Company sold one restaurant property for $815,000. The Company
received cash of $72,000 and a note from the buyer of $743,000. This note earned
interest at 9.25% with interest only payments due monthly through November 1,
1998 when it matured. This note was paid in full during 1998 and the recorded
deferred gain of $171,000 was recognized.
F-16
<PAGE> 42
PROPERTY CHARACTERISTICS
As of December 31, 1998 and 1997, there were 843 and 587 Company restaurant
sites respectively, in operation, and there were 22 and four closed sites,
respectively. The Company continues to seek suitable tenants for the
non-operating sites. Based on the Company's policy for reviewing impairment of
long-lived assets, a charge of $127,000 was recorded for the year ended December
31, 1998 and no valuation allowance was recorded for the years ended December
31, 1997 or 1996.
In the normal course of business, the Company may sign purchase agreements to
acquire restaurant properties. Such agreements become binding obligations upon
the completion of a due diligence period ranging usually from 15 - 30 days.
4. OTHER BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(in thousands) 1998 1997
-------- --------
<S> <C> <C>
RENT AND OTHER RECEIVABLES, NET
Accounts receivable and other $ 7,320 $ 2,913
Deferred rent receivable 4,564 2,048
Less allowance for doubtful accounts (1,067) (170)
-------- --------
$ 10,817 $ 4,791
======== ========
INTANGIBLES AND OTHER ASSETS, NET
Intangibles $ 26,894 $ 26,607
Less accumulated amortization (16,098) (15,662)
-------- --------
$ 10,796 $ 10,945
======== ========
ACCOUNTS PAYABLE AND OTHER ACCRUED PAYABLES
Accounts payable and accrued payables $ 6,313 $ 2,781
Accrued interest expense 3,005 938
Unearned income 2,174 474
-------- --------
$ 11,492 $ 4,193
======== ========
</TABLE>
NOTES AND MORTGAGE LOANS RECEIVABLES
During 1998 and 1997, the Company acquired mortgage loans receivable secured by
first mortgages of $18,450,000 and $6,000,000, respectively. As of December 31,
1998, the maturity of all notes receivable and mortgage loan receivable for the
next five years is as follows (in thousands):
<TABLE>
<CAPTION>
NOTES MORTGAGE LOANS
RECEIVABLE RECEIVABLE
---------- --------------
<S> <C> <C>
1999 ......................... $ 2,101 $ 760
2000 ......................... 1,891 964
2001 ......................... 979 1,089
2002 ......................... 259 1,229
2003 ......................... 270 1,389
Later ........................ 2,728 18,501
-------- --------
$ 8,228 $ 23,932
Less: commitment fees ........ (3) (657)
-------- --------
$ 8,225 $ 23,275
======== ========
</TABLE>
F-17
<PAGE> 43
Purchase deposits of $8,829,000 and $521,000 at December 31, 1998 and 1997,
respectively, including $20,000 and $285,000 of non-refundable deposits,
respectively, are included in prepaid expenses and purchase deposits in the
accompanying balance sheet. These amounts will be included in the allocation of
the purchase price of the respective properties once acquired or reduced once
the deposit is returned. Non-refundable deposits are expensed once it becomes
unlikely that the property will be acquired.
5. INVESTMENTS
As of December 31, the Company's investment in debt and equity securities
consist of the following:
<TABLE>
<CAPTION>
(In thousands)
1998 1997
---------- ----------
<S> <C> <C>
Debt securities $ 1,704 $ --
Equity method investments 439 --
Cost method investments 914 23
---------- ----------
Total Investments $ 3,057 $ 23
========== ==========
</TABLE>
As of December 31, 1998 and 1997, the Company's cost method investments
consisted of restricted stock options and equity investments as a limited
partner in real estate partnerships with ownership percentages of generally less
than one percent. The Company's investment in real estate partnerships is so
minor that the Company has virtually no influence over the partnerships
operating and financial polices, and, accordingly is accounting for these
investments under the cost method. The Company's equity investments consisted
primarily of the following:
<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP
DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
Equity investments
U.S. Restaurant Lending GP, Inc. (a) 95% 0%
U.S. Restaurant Lending LP, Inc. (a) 95% 0%
The Anz Company, LLC (b) 15% 0%
</TABLE>
(a) The Company owns 5% of the voting stock and 100% of the nonvoting stock of
U.S Restaurant Lending GP, Inc. (the "General Partner") and U.S. Restaurant
Lending LP, Inc. (the "Limited Partner"). The Company is entitled to
receive dividends and distributions equally with the voting stockholders.
For the year ended December 31, 1998 the Company recorded 95% of the loss
of the General Partner and Limited Partner in 1998 (See Note 10).
(b) The Company issued 23,725 shares of Common Stock for a 15% ownership of The
Anz Company, LLC ("Anz") on March 11, 1998. The Company's stock is
guaranteed to have a market value of $26.18 two years from the issue date
(See Note 6). The Company has significant influence but does not have a
controlling interest in Anz. During the period March 12, 1998 through
December 31, 1998 the Company recorded 15% of the income of Anz.
A summary of financial information as reported by Anz, Limited Partner and
General Partner as of, and for the year ended December 31 were as follows (In
thousands):
<TABLE>
<CAPTION>
1998
-----
<S> <C>
Total assets $ 693
Notes payable 640
Total liabilities 932
Total equity (deficit) (239)
Net income (loss)(1) 287
</TABLE>
(1) Net income shown is for period of ownership only.
F-18
<PAGE> 44
Investments in debt securities are recorded at fair value in accordance with
SFAS No. 115. The aggregate cost basis and net unrealized loss for these
investments were as follows (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------
COST UNREALIZED FAIR
BASIS LOSS VALUE
----------- ----------- -----------
<S> <C> <C> <C>
Debt securities $ 2,501 $ (797) $ 1,704
</TABLE>
6. STOCK OPTIONS AND GUARANTEED STOCK PRICE
GUARANTEED STOCK
<TABLE>
<CAPTION>
OP UNITS OR YEAR YEAR GUARANTEE NUMBER OF SHARE PRICE
COMMON STOCK ISSUED EXPIRES SHARES/UNITS GUARANTEE
------------------ ------ -------------- ------------ -----------
<S> <C> <C> <C> <C>
OP units 1998 2000 2,545 $ 30.00
OP units 1998 2000 667 $ 29.99
OP units 1998 2000 4,215 $ 28.00
OP units 1998 2000 6,827 $ 27.93
Common Stock 1998 2000 23,725 $ 26.18
Common Stock 1997 1999 502,827 $ 24.00
Common Stock 1996 1999 42,392 $ 15.33
</TABLE>
During 1998, 14,254 OP units were used to purchase seven properties in seven
separate transactions. These properties were recorded at the guaranteed value of
the OP units or Common Stock discounted to reflect the present value on the date
the OP units were issued. OP units were valued based on the market value of the
Company's Common Stock since each OP unit is exchangeable on a one-to-one basis
(See Note 11). In addition, the Company issued 23,725 shares of Common Stock in
1998 for an equity ownership in The Anz Company LLC. The Company's OP units and
Common stock guarantees can cause more OP units or Common Stock to be issued to
affect the guarantee if the guarantee price is higher than the market value of
the stock according to the provisions of each guarantee agreement.
During 1997, 680,696 shares of Common Stock were used to purchase 29 properties
in two separate transactions. These properties were recorded at the guaranteed
value of the Common Stock discounted to reflect the present value on the date
the shares of Common Stock were issued. The guarantee on 177,869 shares of
Common stock issued in 1997 has terminated under provisions in the guarantee
agreement without issuance of additional shares.
During 1996, 577,254 shares of Common Stock were used to purchase 18 properties
in four separate transactions. As of December 31, 1998, the guarantee on 534,862
shares of Common Stock issued in 1996 have expired without issuance of
additional shares. The guarantee on 42,392 shares of Common Stock expired in
January 1999 without issuance of additional shares.
Based upon the expiration of prior Common Stock price guarantees without the
issuance of additional shares or payment of cash, the Company does not believe
that additional shares of stock will be issued or cash paid as a result of the
guaranteed stock prices outstanding. Accordingly, no accrual has been recorded
for the additional shares of stock or units that could be issued under the
guarantees.
F-19
<PAGE> 45
FIXED STOCK OPTION PLAN
Under the fixed stock plan USRP limited partners on March 17, 1995 granted QSV
options to acquire up to 600,000 shares of Common Stock of the Company, subject
to certain adjustments under anti-dilution provisions. The exercise price of
each option is $10.33 which is the average closing price of the security on the
New York Stock Exchange for the five trading days immediately after the date of
grant. The options are non-transferable except by operation of law and vest and
became exercisable in March 1996. The term of the options expire in March 2005.
As of December 31, 1998, QSV has exercised 490,000 stock options at the option
price of $10.33 for a total purchase price of $5,061,700.
In accordance with SFAS 123, the fair value of each option is estimated on the
date of grant using the binomial option-pricing model with the following
weighted-average assumptions: dividend yield of 7.3 percent for all years;
expected volatility of 17.8 percent, risk free interest rate of 5.7 percent for
the options; and expected lives of 4 years for the plan options.
As of March 17, 1995, the 600,000 options which are described above had a fair
value as of the grant date of $724,000 representing a value per option of $1.21.
Under the fixed option plan, if these options were considered as compensation,
net income would have been $7,292,000 as of December 31, 1996 as compared to net
income of $7,473,000 reported. No compensation would have been recognized in
1998 and 1997. Basic net income per share would have been $0.81 and diluted
income per share would have been $0.80 as of December 31, 1996.
FLEXIBLE INCENTIVE PLAN
Under the Flexible Incentive Plan ("Incentive Plan") adopted in 1998, the
Company may grant stock options to purchase Common Stock of the Company.
Pursuant to this Incentive Plan stock options may be granted at any time and the
aggregate outstanding options that can be granted shall be at an amount equal to
or less than 4.9% of the Company's issued and outstanding shares of Common stock
at the date of grant. Stock options can be granted only at the fair market value
of the stock at the date of grant. As of December 31, 1998 the Company has
granted 622,000 stock options to key employees, non-employee directors and
consultants as defined in the Incentive Plan. These options have an exercise
price of $22.00 per share which was equal to the market price of a share of
Common Stock on the date of grant. Outstanding options in the amount of 311,000
become vested on December 18, 2000 and the remaining 311,000 options become
vested on December 18, 2001. The stock options expire no later than ten years
from the grant date or December 18, 2007. Options may be exercised through
either the payment of cash or the transfer of shares of the Company's Common
Stock owned by the optionee. As of December 31, 1998, 78,000 stock options were
granted to non-employees of the Company. The fair value of these non-employee
options are being expensed over the vesting period. For the year ended December
31, 1998 the total amount of expense incurred by the Company was approximately
$65,000. During 1998, no options were exercised, canceled or expired. Options
outstanding at December 31, 1998 had a weighted average remaining contractual
life of 8.95 years.
In accordance with SFAS 123, the fair value of each option is estimated on the
date of grant using the binominal option - pricing model with the following
weighted-average assumptions: dividend yield of 6.6 percent for all years;
expected volatility of 18.33 percent, risk free interest rate of 5.24 percent
for the options; and expected lives of 4.5 years for the 622,000 granted options
under the Incentive Plan.
The 622,000 outstanding options under the Incentive Plan had a fair market value
as of the grant date of approximately $1,630,000 representing a value per option
of $2.62.
F-20
<PAGE> 46
Under the Incentive Plan, if all options were considered as compensation, net
income would have been $5,510,000 for the year ended December 31, 1998 as
compared to net income of $5,917,000 reported. Basic and diluted net loss per
share would have been $(0.12) as of December 31, 1998.
7. LINES OF CREDIT AND NOTES PAYABLE
The Company's debt consisted of the following (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Revolving line of credit facilities $136,000 $ 89,196
======== ========
Notes payable
7 Year fixed rate 7.15 % senior unsecured notes $111,000 $ --
Fixed rate 8.22% senior unsecured notes 47,500 --
Series A fixed rate 8.06% senior unsecured notes 27,500 27,500
Series B fixed rate 8.30% senior unsecured notes 12,500 12,500
Secured variable rate note payable 6,550 --
-------- --------
Total notes payable $205,050 $ 40,000
======== ========
Mortgage note payable $ 1,062 $ --
======== ========
</TABLE>
LINES OF CREDIT
On January 17, 1998, the OP entered into a credit agreement with a syndicate of
banks for an unsecured revolving credit line of $175 million. This credit
agreement replaced the Company's then existing line of credit. As of December
31, 1998, the Company has approximately $39 million available under the new
credit agreement. The Company may request advances under this credit agreement
to finance the acquisition of restaurant properties, to repair and update
restaurant properties and for working capital. The banks will also issue standby
letters of credit for the account of the Company under this line of credit. This
credit agreement expires on January 15, 2001 and provides that borrowings
thereunder bear interest at the then current LIBOR plus a margin spread of
either 1.05%, 1.20% or 1.35%, dependent on a leverage ratio formula. As of
December 31, 1998, the margin spread was 1.20% resulting in an effective rate of
6.52%. There is an unused line of credit fee of 0.25% per annum on the unused
portion of the credit agreement. The line of credit requires the Company to
maintain a minimum equity value of $200 million, total adjusted outstanding
indebtedness not to exceed 60% of capitalization value, secured indebtedness not
to exceed 15% of capitalization value, debt yield of not less than 16% and
maintain certain other financial covenants as defined in the line of credit
agreement.
On December 15, 1998 the Company entered into a short term secured borrowing
facility ("PAC Facility") for $20 million. This PAC Facility will be used to
acquire property. As of December 31, 1998, the Company had not borrowed on this
Facility.
On December 31, 1997, $62,996,000 had been drawn on the Company's previous line
of credit. On January 17, 1998, the outstanding balance on this secured credit
facility was repaid with funds from the new unsecured credit agreement and the
facility was terminated. In connection with the termination of the facility the
related unamortized deferred financing costs were written off and recorded as an
extraordinary loss of $190,000.
F-21
<PAGE> 47
On August 15, 1997, a wholly-owned subsidiary of the Company entered into a
short term borrowing facility (the "Pacific Mutual Facility") for $30 million
which matured on May 20, 1998. This revolving credit facility was paid in full
during 1998.
NOTES PAYABLE
On February 26, 1997, the Company issued $40,000,000 in privately placed debt
which consists of $12,500,000 Series A Senior Secured Guaranteed Notes with a
8.06% interest rate, due January 31, 2000; and $27,500,000 Series B Senior
Secured Guaranteed Notes with a 8.30% interest rate, due January 31, 2002. In
January, 1998, the note holders agreed to release the collateral for these
notes.
On May 12, 1998 the Company issued $111 million of 7 year fixed rate senior
unsecured notes payable in a private placement. The notes bear interest at the
rate of 7.15% per annum and are due May 1, 2005. The net proceeds of the notes
were used to repay a portion of the revolving credit agreement and for general
corporate purposes. In conjunction with the notes payable agreement the
underwriters and the Company entered into a rate lock agreement for the purpose
of setting the interest rate on these notes payable. The fee paid to lock in the
rate on these notes payable was approximately $424,000 and is being amortized
over the term of the notes as an adjustment to interest expense.
On November 13, 1998, the Company issued $47,500,000 in senior notes payable in
a private placement. The notes bear interest at the rate of 8.22% per annum and
are due August 1, 2003. The net proceeds were used to repay a portion of the
revolving credit agreement and for general corporate purposes. In conjunction
with the notes payable agreement, the underwriters and the Company entered into
a rate lock agreement for the purpose of setting the interest rate on these
notes payable. The fee paid to lock in the rate on these notes payable was
approximately $406,000 and is being amortized over the term of the notes as an
adjustment to interest expense.
On August 10, 1998, the Company assumed a mortgage note payable as part of an
office building acquisition. The mortgage bears interest at a rate of 8.00% per
annum with payments of principal and interest due monthly through June 2007. As
of December 31, 1998 the balance is $1,062,000.
On December 30, 1998 the Company financed part of a property acquisition with
the seller in the amount of $6,550,000. The note bears interest at the rate of
prime plus 1% per annum (8.75% as of December 31, 1998) and is due in two
installments of $3,275,000 plus accrued interest on June 15, 1999 and December
30, 1999. This note is secured by 18 properties.
The Company is in compliance with all covenants associated with its debt and
credit facilities as of December 31, 1998.
PRINCIPAL DEBT MATURITIES
Lines of credit and notes payable principal debt maturities for the next five
years at December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999 .................... $ 6,574
2000 .................... 12,528
2001 .................... 136,031
2002 .................... 27,533
2003 .................... 47,536
Later ................... 111,910
--------
Total ................... $342,112
========
</TABLE>
F-22
<PAGE> 48
8. INVESTMENTS AND COMMITMENTS AS LESSOR
The Company leases land and buildings to a variety of national and regional fast
food chain and casual dining restaurants. The building portion of these leases
on 98 of these properties, which are leased by BKC franchisees, is accounted for
as direct financing leases while the land portion is accounted for as an
operating lease. These leases generally provide for a term of 20 years from the
opening of the related restaurant, and do not contain renewal options. The
Company, however, has agreed to renew a franchise lease if BKC or any of the
other franchise chains renews or extends the lessee's franchise agreement.
As of December 31, 1998, the remaining lease terms of all leases ranged from one
to 25 years and include various renewal options. The leases provide for minimum
rents and contingent rents based on a percentage of each restaurant's sales, and
require the franchisee to pay executory costs.
<TABLE>
<CAPTION>
DIRECT OPERATING
FINANCING LEASES LEASES
---------------- ----------
<S> <C> <C>
MINIMUM FUTURE LEASE RECEIPTS FOR YEARS ENDING DECEMBER 31
ARE AS FOLLOWS (IN THOUSANDS):
1999 $ 2,875 $ 59,922
2000 1,950 59,543
2001 1,267 58,381
2002 760 57,482
2003 269 55,550
Later 208 624,473
--------- ---------
TOTAL $ 7,329 $ 915,351
========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
NET INVESTMENT IN DIRECT FINANCING LEASES (IN THOUSANDS):
Minimum future lease receipts $ 7,329 $ 10,810
Estimated unguaranteed residual values 5,051 6,920
Unearned amount representing interest (2,702) (3,966)
--------- ---------
TOTAL $ 9,678 $ 13,764
========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
RENTAL INCOME (IN THOUSANDS):
Minimum rental income $49,750 $27,570 $11,022
Contingent rental income 4,751 5,355 5,324
------- ------- -------
TOTAL $54,501 $32,925 $16,346
======= ======= =======
</TABLE>
If Burger King properties are not adequately maintained during the term of the
tenant leases of which there are 208, such properties may have to be rebuilt
before the leases can be renewed, either by the Company as it considers
necessary or pursuant to Burger King's successor policy. The successor policy,
which is subject to change from time to time at Burger King's discretion, is
intended to encourage the reconstruction, expansion, or other improvement of
older Burger King restaurants and generally affects properties that are more
than ten years old or are the subject of a franchise agreement that will expire
within five years.
F-23
<PAGE> 49
Under the current OP agreement, Burger King can require that a restaurant
property be rebuilt. If the tenant does not elect to undertake the rebuilding,
the Company would be required to make the required improvement itself. However,
as a condition to requiring the Company to rebuild, Burger King would be
required to pay the Company its percentage share ("Burger King's Percentage
Share") of the rebuilding costs. Such percentage share would be equal to (i) the
average franchise royalty fee percentage rate payable to Burger King with
respect to such restaurant, divided by (ii) the aggregate of such average
franchise royalty fee percentage rate and the average percentage rate payable to
the Partnership with respect to such restaurant property. The Company believes
that Burger King's Percentage Share of the rebuilding costs would typically be
29% for a restaurant property.
Management believes it is unlikely that any material amount of rebuilding of
Burger King restaurant properties will be required in the next several years, if
ever.
To encourage the early renewal of existing leases/subleases, the Company
recently established an "early renewal program" whereby the Company has offered
to certain tenants the right to renew existing leases/subleases for up to an
additional 20 years in consideration for remodeling financing. The purpose of
this program is to extend the term of existing leases/subleases prior to the end
of the lease term and enhance the value of the underlying property to the
Company. As of December 31, 1998, the Company has extended the lease term on 69
leases/subleases as a result of remodel grants and lease riders. One lease in
1997 and two leases in 1996, respectively were renewed with loans. During 1998
and 1997, the Company paid remodeling costs of $488,000 and $888,000
respectively in conjunction with this Program.
9. COMMITMENTS
The land at 92 restaurant properties and the land and buildings at 38 restaurant
properties are leased by the Company from third party lessors. The building
portions of the leases are generally capital leases while the land portions are
operating leases. These leases provide for an original term of 20 years and most
are renewable at the Company's option. As of December 31, 1998, the remaining
lease terms (excluding renewal option terms) expire from one to 12 years. If all
renewal options are taken into account, the terms expire from one to 33 years.
Rents payable may escalate during the original lease and renewal terms. For
eight properties, the leases provide for contingent rent based on each
restaurant's sales.
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------- ---------------
(IN THOUSANDS) (IN THOUSANDS)
<C> <C> <C>
MINIMUM FUTURE LEASE OBLIGATIONS FOR YEARS ENDING DECEMBER 31
ARE AS FOLLOWS:
1999 $ 60 $ 3,113
2000 4 2,889
2001 1 2,477
2002 -- 2,145
2003 -- 1,629
Later -- 4,077
---------- ------------
Total minimum obligations (a) 65 $ 16,330
============
Amount representing interest (2)
----------
Present value of minimum obligations $ 63
==========
</TABLE>
(a) Minimum lease obligations have not been reduced by minimum sublease
rentals.
F-24
<PAGE> 50
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
------------- ------------- -------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
RENTAL EXPENSE
Minimum rental expense $ 3,057 $ 2,434 $ 1,992
Contingent rental expense 101 54 88
------------- ------------- -------------
TOTAL $ 3,158 $ 2,488 $ 2,080
============= ============= =============
</TABLE>
On October 15, 1997, the Company entered into four-year employment agreements
with its two executive officers for which the aggregate compensation of the two
executive officers is $500,000 per year. Under such agreements, the Company is
liable for the compensation benefits for three years of the agreements if an
executive officer were to be terminated without cause, as defined. As of
December 31, 1998, the remaining unearned compensation under the employment
agreements was $896,000.
The Company has entered into commitments for development of certain restaurant,
gas station/convenience store properties. As of December 31, 1998, the Company
had commitments totaling approximately $13,000,000 representing construction
contract costs not yet incurred.
The Company is subject to various legal proceedings in the ordinary course of
business. The resolution of these matters cannot be predicted with any
certainty, management believes the final outcome of such matters will not have a
material effect on the financial position, results of operations or cash flows
of the Company.
10. RELATED PARTY TRANSACTIONS
Prior to October 15, 1997, the Managing General Partner of USRP was responsible
for managing the business and affairs of USRP. USRP paid the Managing General
Partner a non-accountable annual allowance (adjusted annually to reflect
increases in the Consumer Price Index and additions to the property portfolio),
plus reimbursement of out-of-pocket costs incurred to other parties for services
rendered to USRP. The allowance for the period ended October 15, 1997 and the
year ended December 31, 1996 was $1,826,000 and $1,175,000 respectively. The
Company's accounts payable balance includes $121,000 for this allowance as of
December 31, 1997. The Managing General Partner paid no out-of-pocket costs to
other parties on behalf of USRP during 1997 and 1996.
USRP compensated the Managing General Partner for its efforts and increased
internal expenses with respect to additional properties acquired. USRP paid the
Managing General Partner, with respect to each additional property purchased:
(i) a one-time acquisition fee equal to one percent of the purchase price for
such property and (ii) an annual fee equal to one percent of the purchase price
for such property, adjusted for increases in the Consumer Price Index. For 1997
and 1996, the one-time acquisition fee equaled $1,401,000 and $1,043,000,
respectively, which was capitalized, and the increase in the non-accountable
annual fee equaled $498,000 and $495,000 respectively. In addition, if the Rate
of Return (as defined) on the Partnership's equity on all additional properties
exceeded 12 percent per annum for any fiscal year, the Managing General Partner
was paid an additional fee equal to 25 percent of the cash flow received with
respect to such additional properties in excess of the cash flow representing a
12 percent Rate of Return thereon. For 1996, this additional fee equaled $93,000
and there was no fee paid in 1997. These fees were discontinued with the
termination of the management contract between QSV and USRP on October 15, 1997
(See Note 11).
F-25
<PAGE> 51
The Managing General Partner of Arkansas Restaurants #10 L.P.(Ark #10) is owned
by an officer of the Company who receives no compensation for this role. The
Managing General Partner owns 90% of the outstanding equity interest in Ark #10.
As of December 31, 1998 and 1997, notes receivable of $454,000 and $261,000 were
due from Ark #10, respectively. The notes receivable are due on September 1,
1999 ($394,000) and November 2, 1999 ($60,000) and have an interest rate of 9.0%
per annum. At December 31, 1998 and 1997, tenant and other receivables from Ark
#10 were $678,000 and $158,000, respectively. During 1997, the Company paid
remodeling costs of $53,000 on behalf of Ark #10 for three restaurants operated
by Ark #10 under the Company's early-renewal program for Burger King restaurant
properties (See Note 8). In addition, Ark #10 has an agreement to reimburse the
Company for overhead incurred on its behalf, which amounted $52,000 in 1998.
The Managing General Partner of Southeast Fast Food Partners, L.P.(SFF) is owned
by another officer of the Company. The Managing General Partner owns
approximately 9.8% of the outstanding equity interest of SFF. As of December 31,
1998 and 1997, notes receivable of $1,070,000 were due from SFF. The notes
receivable are due on July 1, 1999 and have an interest rate of 9.0% per annum.
As of December 31, 1998 and 1997, notes receivable of $136,000 are due from the
owners of SFF one of which is an officer of the Company. These notes receivable
are due on July 1, 1999 and have an interest rate of 9.0% per annum. At December
31, 1998 and 1997, tenant and other receivables from SFF were $979,000 and
$362,000, respectively.
The Company is currently in negotiations with Ark #10 and SFF to modify their
current lease and note agreements with the Company.
During 1996, the Company agreed to make available to U.S. Restaurant Properties
Development Company, LP (Development Co.) a revolving line of credit in the
principal amount of $5,000,000, to be used solely for paying for the acquisition
and development of restaurant properties, which were to be purchased by the
Company upon completion of development. The line of credit was secured by the
development properties and had an annual interest rate of 9.0%. At December 31,
1997, the outstanding balance was $3,920,000.
In April 1998, the line of credit to Development Co. was increased to
$15,000,000 with interest only payments due on November 1, 1998, and on each
anniversary thereof throughout the term of the note with all outstanding
principal and accrued but unpaid interest due on October 31, 2001, when it
matured. The assets of Development Co. were acquired during 1998 in settlement
of the outstanding note and the revolving line of credit was terminated.
As of April 29, 1998, two affiliates of the Company, U.S. Restaurant Lending GP,
Inc. (the "General Partner") and U.S. Restaurant Lending LP, Inc. (the "Limited
Partner") (See Note 5) entered into joint venture and limited partnership
agreements with MLQ Investors, L.P., an affiliate of Goldman, Sachs & Co., to
form two limited partnerships. The two limited partnerships engage in lending
activities to owners and operators of quick service franchises and gas
station/convenience store outlets. The Company has indirect ownership interests
(through the General Partner and Limited Partner interests it owns) of 71.25%
and 47.5%, respectively, in these two partnerships. As of December 31, 1998, the
Company had other receivables from the two lending partnerships of $306,000 and
a note receivable of $640,000 from the General Partner and Limited Partner.
Officers of the Company own 95% of the voting stock of the General Partner and
the Limited Partner.
F-26
<PAGE> 52
As of March 11, 1998, the Company issued 23,725 shares of common stock for a 15%
ownership interest in The Anz Company, LLC (ANZ). During 1998, ANZ provided
services for the Company. These services represented approximately 9% of ANZ's
total revenues.
In 1998, eleven restaurant properties were acquired from Apple South, Inc., a
Georgia corporation. The operations on these properties were purchased by an
entity which is owned by a director of the Company. The Company has entered into
a lease agreement with this director's entity that purchased the operations on
these 11 properties. In 1997, two sale/leaseback transactions were completed by
the Company with Carlos O'Kelly's, Inc. Carlos O'Kelly's, Inc. is owned by a
director of the Company. As of December 31, 1998 no balances were outstanding
from this related party.
11. STOCKHOLDERS' EQUITY, MINORITY INTEREST AND PARTNERS' CAPITAL
COMMON STOCK
On October 15, 1997, the Company effected the conversion of USRP into a
self-administered and self-managed REIT. As a result of the Merger, USRP became
a subsidiary of the Company and, at the effective time of the Merger, all
holders of units of beneficial interest of USRP became stockholders of the
Company. Accordingly, information contained in these consolidated financial
statements related to the equity ownership of USRP following October 15, 1997 is
presented as ownership of shares of Common Stock of the Company. On October 30,
1997 the Company effected a three-for-two stock split. All of the historical
Units and per unit information has been restated to reflect this stock split and
conversion of the units to Common Stock.
MINORITY INTEREST
In connection with the conversion to a REIT, the management contract between QSV
and USRP was terminated. The contract termination and QSV's partnership
interests in USRP were converted to 126,582 shares of Common Stock of the
Company and 1,148,418 units of the OP. The OP units represent a minority
interest in the OP of the REIT. Each OP unit participates in any income (loss)
of the OP based on the percent ownership in the OP and receives a cash dividend
in an amount equivalent to a share of Common Stock. Each OP unit may be
exchanged by the holder thereof for one share of Common Stock of the Company.
With each exchange of outstanding OP units for Common Stock, the Company's
percentage ownership interest in the OP, directly or indirectly, will increase.
An additional 825,000 shares of Common Stock of the Company or its equivalent in
OP units may be issued to QSV if certain earnings targets are met by the year
2000. These earnings targets are based upon what QSV would have received under
their prior management contract. As of December 31, 1998, the Company has
accrued approximately $12,047,000 (based on the market value of a share of the
Company's Common Stock at December 31, 1998) representing 495,509 OP units based
on earnings targets that have been met. The 495,509 OP units have not been
issued and will not participate in any income (loss) or receive any
distributions from the OP until such units are issued. In addition to the OP
units and Common Stock issued in 1997 relating to the termination of the
management contract, the Company also issued 14,254 OP units for the purchase of
property during the twelve months ended December 31, 1998. The OP units
outstanding of 1,162,672 represent the minority interest.
F-27
<PAGE> 53
Minority interest in the OP consists of the following at December 31, 1998 and
1997 (in thousands):
<TABLE>
<S> <C>
Termination of management contract and
issuance of original 1,148,418 OP units
on October 15, 1997 $ 19,749
Distributions paid (415)
Income allocated to minority interest 202
---------------
Balance December 31, 1997 $ 19,536
Market value of contingent shares earned 12,047
OP units issued for property 355
Distributions paid (1,813)
Distributions declared (500)
Loss allocated to minority interest (58)
---------------
Balance at December 31, 1998 $ 29,567
===============
</TABLE>
SHELF REGISTRATION
On August 22, 1997, the Company filed a shelf registration statement to register
shares of Common or Preferred Stock for sale in the amount of $150,000,000. The
amount of securities available for sale under this shelf registration statement
at December 31, 1998 is $25,025,000.
On October 30, 1998, the Company filed a shelf registration for $175,000,000 to
register shares of Common and Preferred Stock for sale. This registration
statement has not been declared effective as of the date of this Form 10-K.
PREFERRED STOCK
On November 12, 1997, the Company sold 3,680,000 shares of Series A Cumulative
Convertible Preferred Stock ("Series A") with a liquidation preference of $25.00
per share under the August 22, 1997 shelf registration statement. Shares of
Series A are convertible, in whole or in part, at the option of the holder at
any time, unless previously redeemed, into shares of Common Stock at a
conversion price of $26.64 per share of Common Stock (equivalent to a conversion
rate of .9384 shares of Common Stock). Distributions on Series A are cumulative
and are equal to the greater of (i) $1.93 per annum or (ii) the cash
distribution paid or payable on the number of shares of Common Stock into which
a share of Series A is convertible. As of December 31, 1998, 62 Series A shares
have been converted into Common Stock. Holders of Preferred Stock are entitled
to receive dividends in preference to any dividends to Common Stockholders or OP
unit holders.
DISTRIBUTIONS TO COMMON AND PREFERRED STOCKHOLDERS
For the year ended December 31, 1998, the Company paid distributions of
$22,824,000 to its Common Stockholders and the minority interests (or $1.5725
per share of Common Stock), of which 36% represented a return of capital and 64%
represented ordinary taxable dividend income. As of December 31, 1998,
$8,456,000 dividends have been declared to be paid on Preferred and Common Stock
outstanding to stockholders and minority interests OP unitholders of record on
March 1, 1999.
F-28
<PAGE> 54
DISTRIBUTIONS AND ALLOCATIONS AS UNITHOLDERS
Under the amended USRP partnership agreement, cash flow from operations and net
proceeds from capital transactions of USRP each year were distributed 98.02% to
the unitholders and 1.98% to the general partners for the period January 1, 1996
through October 15, 1997 (date of REIT conversion).
All operating income and loss of USRP for each year generally was allocated
among the partners in the same aggregate ratio as cash flow was distributed for
that year. Gain and loss from a capital transaction was generally allocated
among the partners in the same aggregate ratio as proceeds of the capital
transactions were distributed except to the extent necessary to reflect capital
account adjustments. For the period ended October 15, 1997 and for the year
ended December 31, 1996, distributions to USRP unitholders amounted to
$12,016,000 and $11,392,000, respectively.
12. SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended December 31, 1998 the Company had the following additional
non-cash investing activities related to the purchase of net assets of U.S.
Restaurant Properties Development, L.P.:
<TABLE>
<CAPTION>
1998
-------------
(in thousands)
<S> <C>
Rent and other receivables $ 193
Prepaid and other assets 524
Property 5,716
Accounts payable (52)
-------------
Non-cash note receivable $ 6,381
=============
</TABLE>
13. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is necessary to interpret market data and develop
the related estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized upon
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash and cash equivalents, receivables (including deferred rent receivable) and
accounts payable (including deferred rent payable) are carried at amounts that
approximate their fair value based on their short term, highly liquid nature.
The line of credit is carried at an amount that approximates fair value because
it represents short term variable rate debt.
The fair value of notes and mortgage loan receivables totaling $31,500,000 and
$14,665,000 as of December 31, 1998 and 1997, respectively, have a fair value of
$34,211,000 and $12,973,000, respectively, based upon interest rates for notes
with similar terms and remaining maturities.
The fair value of cost method investments totaling $914,000 as of December 31,
1998 have a fair value of $849,000 based on publicly traded share prices for
publicly traded investments and prices recently paid by the Company and/or
published market values if available for private investments.
F-29
<PAGE> 55
The fair value of notes and mortgage loan payables totaling $206,112,000 and
$40,000,000 as of December 31, 1998 and 1997, respectively, have a fair value of
$214,988,000 and $41,250,000, respectively based upon interest rates for notes
with similar terms and remaining maturities.
The fair value estimates presented herein are based on information available to
management as of December 31, 1998 and 1997. Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
consolidated financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
14. EMPLOYEE BENEFIT PLAN
Effective October 15, 1997, the U.S. Restaurant Properties, Inc. 401(k) plan
(the "Plan") was established as a savings plan for the Company's employees. The
Plan is a voluntary defined contribution plan. Employees are eligible to
participate in the Plan on the earlier of January 1, April 1, July 1 and October
1 immediately following the later of the (i) six months after their first day of
employment with the Company or (ii) the date an employee attains the age of 21,
as defined. Each participant may make contributions to the Plan by means of a
pre-tax salary deferral in an amount up to 15% of the participant's annual
compensation (not to exceed $10,000 per annum for 1998). The Company will match
up to 25% of participating annual employee contributions. The Company's matching
contributions are made in Company stock, which is purchased by the Plan on the
open market, and are subject to specified years-of-service for vesting of the
Company's portion of contributions to the Plan. Employer contributions of
approximately $25,000 and $7,000 have been paid or accrued for the year ended
December 31, 1998 and December 31, 1997, respectively.
15. PRO FORMA (UNAUDITED)
The following pro forma information was prepared by adjusting the actual
consolidated results of the Company for the years ended December 31, 1998 and
1997 for the effects of:
a. the purchase of 286 restaurant and gas stations and convenience properties
on various dates during 1998 for an aggregate purchase price of
$214,909,000 including the value of 24,768 shares of Common Stock and
14,254 OP Units issued to sellers; and the sale of 12 restaurant properties
for $8,174,000 and other related financing transactions including the sale
of 1,359,063 shares of Common Stock for $32,407,000 and the repurchase and
retirement of 33,700 shares of Common Stock for $842,000; and.
b. the purchase of 277 restaurant properties on various dates during 1997 for
an aggregate purchase price of $182,396,000 including the value of 680,696
shares of Common Stock issued to sellers; the loan of $6,000,000 on a
secured mortgage; and the sale of eight restaurant properties for
$5,822,000; the Preferred Stock dividends required and the reduction of
interest expense as a result of the Preferred Stock offering proceeds used
to reduce the total debt outstanding by $87,622,000; the three-for-two
stock split on October 30, 1997; and other related financing transactions,
including the sale of 1,434,831 shares of Common Stock for $25,000,000.
F-30
<PAGE> 56
These pro forma results are not necessarily indicative of what the actual
results of operations of the Company would have been assuming all of the
restaurant properties were acquired as of January 1, 1997 and they do not
include gains on property dispositions and they do not purport to represent the
results of operations for future periods.
<TABLE>
<CAPTION>
(In thousands) YEAR ENDED DECEMBER 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
TOTAL REVENUES $ 72,629 $ 70,772
======== ========
NET INCOME (LOSS) $ 6,709 $ (2,450)
Dividends on Preferred Stock/General Partner interest (7,102) (7,102)
-------- --------
Net income (loss) allocable to
Common shareholders/unit holders $ (393) $ (9,552)
======== ========
Net income (loss) per share/unit
Basic $ (0.03) $ (0.68)
Diluted $ (0.03) $ (0.68)
Weighted average shares/units outstanding
Basic 14,297 14,005
Diluted 14,297 14,005
</TABLE>
F-31
<PAGE> 57
16. SUMMARY BY QUARTER (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------------ TOTAL
FIRST SECOND THIRD FOURTH YEAR
---------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
1998
Revenues $ 13,221 $ 14,195 $ 14,506 $ 16,608 $ 58,530
Net income (loss) 4,404 4,862 (653)(a) (2,696)(a) 5,917(a)
Income (loss) allocable to
Common stockholders 2,628 3,086 (2,429) (4,470) (1,185)
Earnings (loss) per common share (c)
Basic net income (loss) per share $ 0.20 $ 0.24 $ (0.18) $ (0.31) $ (0.09)
Diluted net income (loss) per share $ 0.20 $ 0.23 $ (0.18) $ (0.31) $ (0.09)
1997
Revenues $ 6,265 $ 8,556 $ 9,775 $ 10,988 $ 35,584
Net income (loss) 1,952 2,147 2,532 (16,024)(b) (9,393)(b)
Income (loss ) allocable to
Common stockholders 1,913 2,105 2,482 (16,761) (10,261)
Earnings (loss) per common share (c)
Basic net income (loss) per share $ 0.18 $ 0.18 $ 0.20 $ (1.30) $ (0.88)
Diluted net income (loss) per share $ 0.18 $ 0.18 $ 0.20 $ (1.30) $ (0.88)
</TABLE>
(a) Includes $4,991, $7,056, and $12,047 in the third and fourth quarter and
year, respectively, relating to the contingent shares of Common Stock or OP
units the Company will have to issue in 2001 based upon transactions to
date for the termination of the management contract with QSV.
(b) Includes $19,220 relating to the termination of the management contract
with QSV.
(c) Due to the significant variances between quarters in net income and
weighted average shares outstanding, the combined quarterly income (loss)
per share does not equal the reported income (loss) per share for 1997 or
1998.
F-32
<PAGE> 58
U.S. RESTAURANT PROPERTIES, INC.
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY AND
GROSS AMOUNT AT DECEMBER 31, 1998
-------------------------------------------------------------
NO. OF
STORE TYPE PROPERTIES LAND BUILDINGS EQUIPMENT TOTAL
- ------------------------ -------------- ----------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C>
APPLEBEE'S 12 $ 1,939 $ 9,962 $ -- $ 11,901
ARBY'S 87 11,591 41,283 -- 52,874
BRUEGGER'S BAGEL 17 2,422 9,478 -- 11,900
BURGER KING 208 35,465 61,261 242 96,968
CHEVRON 2 352 1,046 -- 1,398
CHILI'S 8 4,101 7,769 -- 11,870
CITGO 9 2,319 4,982 -- 7,301
CONOCO 27 6,958 22,076 -- 29,034
DAIRY QUEEN 41 2,908 8,628 875 12,411
DENNY'S 6 853 2,440 109 3,402
EL CHICO 22 8,500 19,685 -- 28,185
EMBERS 8 904 2,248 447 3,599
FINA 53 5,070 15,518 -- 20,588
GRANDY'S 30 12,758 -- -- 12,758
HARDEE'S 27 2,990 17,247 2,099 22,336
KETTLE 19 688 1,663 -- 2,351
KFC 5 1,979 4,529 -- 6,508
MOBIL 4 2,389 3,046 66 5,501
PHILLIP 66 10 1,775 1,758 1,667 5,200
PIZZA HUT 20 1,943 6,215 -- 8,158
POPEYE'S 20 3,369 8,707 -- 12,076
SCHLOTZSKY'S 28 8,310 14,734 -- 23,044
TACO BELL 5 560 1,034 -- 1,594
WENDY'S 8 1,360 2,949 54 4,363
OTHER BRANDS 172 50,652 74,428 2,498 127,578
-------------- ----------- ------------ --------------- -----------
848 $ 172,155 $ 342,686 $ 8,057 $ 522,898
============== =========== ============ =============== ===========
<CAPTION>
ACCUMULATED DEPRECIATION
AT DECEMBER 31, 1998
------------------------------------------------
STORE TYPE BUILDINGS EQUIPMENT TOTAL
- ------------------------ ------------- ---------------- -----------
<S> <C> <C> <C>
APPLEBEE'S $ 191 $ -- $ 191
ARBY'S 3,182 -- 3,182
BRUEGGER'S BAGEL 818 -- 818
BURGER KING 8,313 80 8,393
CHEVRON 49 -- 49
CHILI'S 970 -- 970
CITGO 70 -- 70
CONOCO 46 -- 46
DAIRY QUEEN 1,352 333 1,685
DENNY'S 25 -- 25
EL CHICO 957 -- 957
EMBERS 150 85 235
FINA 32 -- 32
GRANDY'S -- -- --
HARDEE'S 2,623 657 3,280
KETTLE 112 -- 112
KFC 238 -- 238
MOBIL 39 8 47
PHILLIP 66 43 70 113
PIZZA HUT 631 -- 631
POPEYE'S 444 -- 444
SCHLOTZSKY'S 935 -- 935
TACO BELL 73 -- 73
WENDY'S 188 8 196
OTHER BRANDS 4,816 400 5,216
------------- ---------------- -----------
$ 26,297 $ 1,641 $ 27,938
============= ================ ===========
</TABLE>
S-1
<PAGE> 59
(1) Substantially all property is restaurant property.
(2) Substantially all property is unsecured except for 18 gas station
properties which are secured by a $6,550,000 note payable and one office
building that is secured by a $1,062,000 mortgage note payable.
(3) Depreciation is computed over the estimated useful life of 15 to 20 years
for the restaurant buildings and improvements and 7 years for the
restaurant equipment.
(4) Burger King restaurant properties include the land values of 98 restaurant
properties in which the building and improvements are accounted for as
direct financing leases.
(5) Transactions in real estate and equipment and accumulated depreciation
during 1998 and 1997 are summarized below.
(6) The 848 properties include the 865 (854 core business properties, 10
billboard properties and one office building) less 17 properties currently
under development.
<TABLE>
<CAPTION>
COST DEPRECIATION
--------- ------------
<S> <C> <C>
Balance, December 31, 1996 $ 145,112 $ 5,453
Acquisitions 183,686 --
Cost of real estate sold (3,270) (245)
Depreciation expense -- 8,230
--------- ------------
Balance, December 31, 1997 325,528 13,438
Acquisitions 204,944 --
Cost of real estate sold (7,447) (325)
Depreciation expense -- 14,825
Asset impairment (127) --
--------- ------------
Balance, December 31, 1998 $ 522,898 $ 27,938
========= ============
</TABLE>
S-2
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
- -------
<S> <C>
2.1 Agreement and Plan of Merger dated October 14, 1997 by and among U.S.
Restaurant Properties Master L.P., U.S. Restaurant Properties, Inc., USRP
Acquisition, L.P., USRP Managing, Inc., and QSV Properties, Inc.(1)
10.1 Withdrawal Agreement dated October 15, 1997 by and among U.S. Restaurant
Properties, Inc., U.S. Restaurant Properties Master L.P., U.S. Restaurant
Properties Operating L.P. and QSV Properties, Inc.(2)
10.2 Fourth Amended and Restated Agreement of Limited Partnership of U.S.
Restaurant Properties Operating L.P.(3)
10.3 Amendment to Revolving Credit Agreement dated January 9, 1998 among U.S.
Restaurant Properties Operating L.P., the institutions from time to time
party thereto as Lenders and as Co-agents and Union Bank of Switzerland
10.4 Employment Agreement dated October 15, 1997 by and between U.S. Restaurant
Properties, Inc. and Robert J. Stetson(4)
10.5 Employment Agreement dated October 15, 1997 by and between U.S. Restaurant
Properties, Inc. and Fred H. Margolin(5)
10.6 Note Purchase Agreement dated May 1, 1998 for $111,000,000, 7.15% Senior
Notes due May 1, 2005 between U.S. Restaurant Properties Operating L.P.,
U.S. Restaurant Properties, Inc. and the purchasers
10.7 Note Purchase Agreement dated October 15, 1998 for $47,500,000, 8.22%
Senior Notes due August 1, 2003 between U.S. Restaurant Properties
Operating L.P., U.S. Restaurant Properties, Inc. and the purchasers
12.1 Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends
21.1 U.S. Restaurant Properties, Inc. List of Subsidiaries as of December 31,
1998
23.1 Independent Auditors' Consent letter dated March 29, 1999 from Deloitte &
Touche LLP
27.1 Financial Data Schedule
</TABLE>
(1) Previously filed as Exhibit 2.5 to the registrant's Form 10-K for the
fiscal year ended December 31, 1997 and incorporated herein by reference.
(2) Previously filed as Exhibit 10.1 to the registrant's Form 10-K for the
fiscal year ended December 31, 1997 and incorporated herein by reference.
(3) Previously filed as Exhibit 10.2 to the registrant's Form 10-K for the
fiscal year ended December 31, 1997 and incorporated herein by reference.
(4) Previously filed as Exhibit 10.4 to the registrant's Form 10-K for the
fiscal year ended December 31, 1997 and incorporated herein by reference.
(5) Previously filed as Exhibit 10.5 to the registrant's Form 10-K for the
fiscal year ended December 31, 1997 and incorporated herein by reference.
E-1
<PAGE> 1
EXHIBIT 10.3
AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made as of May
__, 1998, by and among U.S. RESTAURANT PROPERTIES OPERATING L.P., a Delaware
limited partnership (the "Borrower"), the BANKS listed on the signature pages
hereof, and UNION BANK OF SWITZERLAND, NEW YORK BRANCH, as Agent.
W I T N E S S E T H:
WHEREAS, the Borrower and the Banks have entered into that certain
Revolving Credit Agreement, as of January 9, 1998 (the "Credit Agreement"); and
WHEREAS, the parties desire to modify the Credit Agreement upon the
terms and conditions set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Definitions. All capitalized terms not otherwise defined herein
shall have the same meanings ascribed to them in the Credit Agreement.
2. Guarantee. The following clause (f) is hereby added to the end of
the first sentence of Section 10.1 of the Credit Agreement: "and (f)
Indebtedness in connection with the delivery of the Guarantee, dated as of May
__, 1998, by the Borrower in favor of U.S. Restaurant Lending Group I, L.P. and
MLQ Investors, L.P. (the "Mortgage Guarantee"), in the maximum amount of
$20,000,000.00".
3. Nonrecourse Debt. Clause (y) of the definition of "Nonrecourse Debt"
is hereby deleted and the following substituted in its place: "the property of
any Subsidiary securing such Indebtedness or the assets of any such Subsidiary,
provided, however, that in such case, all of the assets of such Subsidiary shall
be deemed to be subject to "Nonrecourse Debt", but is not recourse to the
Borrower, the General Partner or the Guarantor (provided that the Borrower, the
General Partner and the Guarantor may pledge, on a nonrecourse basis, their
interests in any such Subsidiary, in which event the assets or such Subsidiary
shall be deemed to be subject to "Nonrecourse Debt")."
AMENDMENT TO CREDIT AGREEMENT - Page 1
<PAGE> 2
4. Miscellaneous. For the avoidance of doubt, the Borrower hereby
confirms that the Closing Date was January 9, 1998, and the Initial Funding Date
was January 9, l998. In addition, all reference in the Credit Agreement to the
"Maturity Date" shall be deemed to refer to the Revolving Credit Termination
Date, and that clause (i) of the definition of Revolving Credit Termination Date
shall be deemed to refer to January 9, 2001.
5. Effective Date. This Amendment shall become effective upon receipt
by the Agent of counterparts hereof signed by the Borrower (the date of such
receipt being deemed the "Effective Date")
6. Entire Agreement. This Amendment constitutes the entire and final
agreement among the parties hereto with respect to the subject matter hereof and
there are no other agreements, understandings, undertakings, representations or
warranties among the parties hereto with respect to the subject matter hereof
except as set forth herein.
7. Governing Law. This Amendment shall be governed by, construed in
accordance with, the law of the State of New York.
8. Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
9. Headings, Etc. Section or other headings contained in this Amendment
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Amendment.
10. No Further Modifications. Except as modified herein, all of the
terms and conditions of the Credit Agreement, as modified hereby shall remain in
full force and effect and, as modified hereby, the Borrower confirms and
ratifies all of the terms, covenants and conditions of the Credit Agreement in
all respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
Borrower: U.S. RESTAURANT PROPERTIES OPERATING L.P.
By: USRP Managing, Inc.
its general partner
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
AMENDMENT TO CREDIT AGREEMENT - Page 2
<PAGE> 3
Bank/Agent: UNION BANK OF SWITZERLAND,
NEW YORK BRANCH as a Bank and as
Agent
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Banks: GUARANTY FEDERAL BANK, F.S.B.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
COMPASS BANK
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
AMENDMENT TO CREDIT AGREEMENT - Page 3
<PAGE> 1
EXHIBIT 10.6
Draft of May 11, 1998
================================================================================
U.S. RESTAURANT PROPERTIES OPERATING L.P.
$111,000,000 7.15% Senior Notes due May 1, 2005
--------------------------------
NOTE PURCHASE AGREEMENT
--------------------------------
Dated as of May 1, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. AUTHORIZATION OF NOTES................................................................................1
SECTION 2. SALE AND PURCHASE OF NOTES............................................................................1
SECTION 3. CLOSING...............................................................................................2
SECTION 4. CONDITIONS TO CLOSING.................................................................................2
Section 4.1. Guaranty Agreements...............................................................................2
Section 4.2. Representations and Warranties....................................................................3
Section 4.3. Performance; No Default...........................................................................3
Section 4.4. Compliance Certificates...........................................................................3
Section 4.5. Opinions of Counsel...............................................................................4
Section 4.6. Purchase Permitted by Applicable Law, Etc.........................................................4
Section 4.7. Sale of Other Notes...............................................................................4
Section 4.8. Payment of Special Counsel Fees...................................................................4
Section 4.9. Private Placement Number..........................................................................4
Section 4.10. Changes in Organizational Structure...............................................................4
Section 4.11. Funding Instructions..............................................................................5
Section 4.12. Proceedings and Documents.........................................................................5
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE CONSTITUENT COMPANIES...........................................5
Section 5.1. Organization; Power and Authority.................................................................5
Section 5.2. Authorization, Etc................................................................................5
Section 5.3. Disclosure........................................................................................6
Section 5.4. Organization and Ownership of Equity Interests of Subsidiaries;
Affiliates........................................................................................6
Section 5.5. Financial Statements..............................................................................7
Section 5.6. Compliance with Laws, Other Instruments, Etc......................................................7
Section 5.7. Governmental Authorizations, Etc..................................................................8
Section 5.8. Litigation; Observance of Agreements, Statutes and Orders.........................................8
Section 5.9. REIT Status; Taxes................................................................................8
Section 5.10. Title to Property; Leases.........................................................................9
Section 5.11. Licenses, Permits, Etc............................................................................9
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.12. Compliance with ERISA.............................................................................9
Section 5.13. Private Offering.................................................................................10
Section 5.14. Use of Proceeds; Margin Regulations..............................................................10
Section 5.15. Existing Indebtedness; Future Liens..............................................................11
Section 5.16. Foreign Assets Control Regulations, Etc..........................................................11
Section 5.17. Status under Certain Statutes....................................................................11
Section 5.18. Obligations Rank Pari Passu; Credit Rating.......................................................11
Section 5.19. Environmental Matters............................................................................12
SECTION 6. REPRESENTATIONS OF THE PURCHASER.....................................................................12
Section 6.1. Purchase for Investment..........................................................................12
Section 6.2. Source of Funds..................................................................................13
SECTION 7. INFORMATION AS TO THE TRUST..........................................................................14
Section 7.1. Financial and Business Information...............................................................14
Section 7.2. Officer's Certificate............................................................................17
Section 7.3. Inspection.......................................................................................17
SECTION 8. PREPAYMENT OF THE NOTES..............................................................................18
Section 8.1. Required Prepayments.............................................................................18
Section 8.2. Optional Prepayments with Make-Whole Amount......................................................18
Section 8.3. Change in Control................................................................................18
Section 8.4. Allocation of Partial Prepayments................................................................21
Section 8.5. Maturity; Surrender, Etc.........................................................................21
Section 8.6. Purchase of Notes................................................................................21
Section 8.7. Make-Whole Amount................................................................................21
SECTION 9. AFFIRMATIVE COVENANTS................................................................................23
Section 9.1. Compliance with Law..............................................................................23
Section 9.2. Insurance........................................................................................23
Section 9.3. Maintenance of Properties........................................................................23
Section 9.4. Payment of Taxes and Claims......................................................................23
Section 9.5. Legal Existence, Maintenance of REIT Status......................................................24
Section 9.6. Nature of Business...............................................................................24
Section 9.7. Obligations to Rank Pari Passu...................................................................24
Section 9.8. Additional Subsidiary Guarantors.................................................................25
Section 9.9. Additional Notices...............................................................................26
SECTION 10. NEGATIVE COVENANTS...................................................................................26
Section 10.1. Incurrence of Indebtedness.......................................................................26
Section 10.2. Unencumbered Asset Coverage......................................................................27
Section 10.3. Merger, Consolidation, Etc.......................................................................27
Section 10.4. Guaranties.......................................................................................28
Section 10.5. Transactions with Affiliates.....................................................................28
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 10.6. Termination of Pension Plans.....................................................................28
SECTION 11. EVENTS OF DEFAULT....................................................................................28
SECTION 12. REMEDIES ON DEFAULT, ETC.............................................................................31
Section 12.1. Acceleration.....................................................................................31
Section 12.2. Other Remedies...................................................................................31
Section 12.3. Rescission.......................................................................................32
Section 12.4. No Waivers or Election of Remedies, Expenses, Etc................................................32
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES........................................................32
Section 13.1. Registration of Notes............................................................................32
Section 13.2. Transfer and Exchange of Notes...................................................................33
Section 13.3. Replacement of Notes.............................................................................33
SECTION 14. PAYMENTS ON NOTES....................................................................................34
Section 14.1. Place of Payment.................................................................................34
Section 14.2. Home Office Payment..............................................................................34
SECTION 15. EXPENSES, ETC........................................................................................34
Section 15.1. Transaction Expenses.............................................................................34
Section 15.2. Survival.........................................................................................35
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.........................................35
SECTION 17. AMENDMENT AND WAIVER.................................................................................35
Section 17.1. Requirements.....................................................................................35
Section 17.2. Solicitation of Holders of Notes.................................................................36
Section 17.3. Binding Effect, Etc..............................................................................36
Section 17.4. Notes held by Constituent Company, Etc...........................................................36
SECTION 18. NOTICES..............................................................................................37
SECTION 19. REPRODUCTION OF DOCUMENTS............................................................................37
SECTION 20. CONFIDENTIAL INFORMATION.............................................................................38
SECTION 21. SUBSTITUTION OF PURCHASER............................................................................39
SECTION 22. MISCELLANEOUS........................................................................................39
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 22.1. Successors and Assigns...........................................................................39
Section 22.2. Payments due on Non-Business Days................................................................39
Section 22.3. Severability.....................................................................................39
Section 22.4. Construction.....................................................................................39
Section 22.5. Counterparts.....................................................................................40
Section 22.6. Governing Law....................................................................................40
Signature.......................................................................................................................41
</TABLE>
-iv-
<PAGE> 6
ATTACHMENTS TO THE NOTE PURCHASE AGREEMENT:
<TABLE>
<S> <C>
SCHEDULE A -- Information Relating to Purchasers
SCHEDULE B -- Defined Terms
SCHEDULE 4.10 -- Changes in Organizational Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Trust and Ownership of Equity Interests
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
SCHEDULE 5.11 -- Patents, Etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness
EXHIBIT 1 -- Form of 7.15% Senior Note due May 1, 2005
EXHIBIT 2 -- Form of Guaranty Agreement
EXHIBIT 3 -- Form of Subsidiary Guaranty Agreement
EXHIBIT 4.5(a) -- Form of Opinion of Special Counsel for the Constituent Companies
EXHIBIT 4.5(b) -- Form of Opinion of Special Counsel for the Purchasers
</TABLE>
-v-
<PAGE> 7
U.S. RESTAURANT PROPERTIES OPERATING L.P.
U.S. RESTAURANT PROPERTIES, INC.
5310 HARVEST HILL ROAD, SUITE 270
DALLAS, TEXAS 75230
7.15% Senior Notes due May 1, 2005
Dated as of
May 1, 1998
TO THE PURCHASER LISTED IN THE
ATTACHED SCHEDULE A WHO IS A
SIGNATORY HERETO:
Ladies and Gentlemen:
U.S. RESTAURANT PROPERTIES OPERATING L.P., a Delaware limited
partnership, and U.S. RESTAURANT PROPERTIES, INC., a Maryland corporation
(respectively, the "Operating Partnership" and the "Trust," collectively, the
"Constituent Companies" and individually a "Constituent Company"), jointly and
severally agree with you as follows:
SECTION 1. AUTHORIZATION OF NOTES.
The Operating Partnership will authorize the issue and sale of
$111,000,000 aggregate principal amount of its 7.15% Senior Notes due May 1,
2005 (the "Notes," such term to include any such notes issued in substitution
therefor pursuant to SECTION 13 of this Agreement or the Other Agreements (as
hereinafter defined)). The Notes shall be substantially in the form set out in
EXHIBIT 1, with such changes therefrom, if any, as may be approved by you and
the Operating Partnership. Certain capitalized terms used in this Agreement are
defined in SCHEDULE B; references to a "Schedule" or an "Exhibit" are, unless
otherwise specified, to a Schedule or an Exhibit attached to this Agreement.
SECTION 2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Operating
Partnership will issue and sell to you and you will purchase from the Operating
Partnership, at the Closing provided for in SECTION 3, Notes in the principal
amount specified opposite your name in SCHEDULE A at the purchase price of 100%
of the principal amount thereof. Contemporaneously with entering into this
Agreement, the Constituent Companies are entering into separate Note Purchase
Agreements (the "Other Agreements") identical with this Agreement with each of
the other purchasers named in SCHEDULE A (the "Other Purchasers"), providing for
the sale at such Closing to each of the Other Purchasers of Notes
<PAGE> 8
in the principal amount specified opposite its name in SCHEDULE A. Your
obligation hereunder, and the obligations of the Other Purchasers under the
Other Agreements, are several and not joint obligations, and you shall have no
obligation under any Other Agreement and no liability to any Person for the
performance or nonperformance by any Other Purchaser thereunder.
The obligations of the Operating Partnership hereunder and under the
Other Agreements and the Notes are unconditionally guaranteed by the Trust
pursuant to that certain Guaranty Agreement dated as of the date hereof (the
"Guaranty Agreement") substantially in the form of EXHIBIT 2 and by USRP
(Consolidating), LLC, a Texas limited liability company, USRP (West Virginia)
Partners, L.P., a Texas limited partnership, Restaurant Renovation Partners,
L.P., a Texas limited partnership, U.S. Restaurant Properties Development L.P.,
a Texas limited partnership, USRP (Lincoln), Ltd., a Texas limited partnership,
USRP (Norman) Ltd., a Texas limited partnership, and USRP (Carolina), Ltd., a
Texas limited partnership (collectively, the "Subsidiary Guarantors") pursuant
to that certain Subsidiary Guaranty Agreement dated as of the date hereof (the
"Subsidiary Guaranty Agreement") substantially in the form of EXHIBIT 3.
SECTION 3. CLOSING.
The sale and purchase of the Notes to be purchased by you and the Other
Purchasers shall occur at the offices of Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603, at 10:00 a.m. Chicago time, at a closing on May
12, 1998 (the "Closing"). At the Closing, the Operating Partnership will deliver
to you the Notes to be purchased by you in the form of a single Note (or such
greater number of Notes in denominations of at least $100,000 as you may
request) dated the date of the Closing and registered in your name (or in the
name of your nominee), against delivery by you to the Operating Partnership or
its order of immediately available funds in the amount of the purchase price
therefor by wire transfer of immediately available funds for the account of the
Operating Partnership to account number 7611017455 at Comerica Bank - Texas,
1508 West Mockingbird Lane, Dallas, Texas 75265-0282, ABA number 111000753. If
at the Closing the Operating Partnership shall fail to tender such Notes to you
as provided above in this SECTION 3, or any of the conditions specified in
SECTION 4 shall not have been fulfilled to your satisfaction, you shall, at your
election, be relieved of all further obligations under this Agreement, without
thereby waiving any rights you may have by reason of such failure or such
nonfulfillment.
SECTION 4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
Section 4.1. Guaranty Agreements. (a) The Guaranty Agreement shall have
been executed and delivered by the Trust.
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(b) The Subsidiary Guaranty Agreement shall have been executed and
delivered by the Subsidiary Guarantors.
Section 4.2. Representations and Warranties. (a) The representations
and warranties of the Constituent Companies in this Agreement shall be correct
when made and at the time of the Closing.
(b) The representations and warranties of each Subsidiary Guarantor
in the Subsidiary Guaranty Agreement shall be correct when made at the time of
the Closing.
Section 4.3. Performance; No Default. The Constituent Companies shall
have performed and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by them prior to or at the
Closing, and after giving effect to the issue and sale of the Notes (and the
application of the proceeds thereof as contemplated by SCHEDULE 5.14), no
Default or Event of Default shall have occurred and be continuing. Neither
Constituent Company nor any Subsidiary shall have entered into any transaction
since the date of the Memorandum that would have been prohibited by SECTION 10
hereof have such Section applied since such date.
Section 4.4. Compliance Certificates.
(a) Officer's Certificate. (1) Each Constituent Company shall have
delivered to you an Officer's Certificate, dated the date of the Closing,
certifying that the conditions specified in SECTIONS 4.2, 4.3 and 4.10 have been
fulfilled.
(2) Each Subsidiary Guarantor shall have delivered to you a
certificate of an authorized officer, dated the date of the Closing, certifying
that the conditions specified in SECTION 4.1(B) and 4.2(B) have been satisfied.
(b) Secretary's Certificate. (1) Each Constituent Company shall have
delivered to you a certificate certifying as to the resolutions attached thereto
and other proceedings relating to the authorization, execution and delivery of,
this Agreement and, as applicable, the Notes and the Guaranty Agreement.
(2) Each Subsidiary Guarantor shall have delivered to you a
certificate certifying as to the resolutions attached thereto and other
proceedings relating to the authorization, execution and delivery of the
Subsidiary Guaranty Agreement.
(c) ERISA Certificate. If you shall have made the disclosures
referred to in SECTION 6.2(b), (c) or (e), you shall have received from each
Constituent Company the certificates described in the penultimate paragraph of
SECTION 6.2 and each such certificate shall state that (1) such Constituent
Company is neither a "party in interest" nor a "disqualified person" (as defined
in Section 4975(e)(2) of the Code), with respect to any plan identified pursuant
to SECTION 6.2(b) or (e) or (2) with respect to any plan, identified pursuant to
SECTION 6.2(c), neither such Constituent Company nor any "affiliate" (as defined
in
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Section V(c) of the QPAM Exemption) of such Constituent Company has, at such
time or during the immediately preceding one year, exercised the authority to
appoint or terminate the QPAM as manager of the assets of any plan identified in
writing pursuant to SECTION 6.2(c) or to negotiate the terms of said QPAM's
management agreement on behalf of any such identified plans.
Section 4.5. Opinions of Counsel. You shall have received opinions in
form and substance satisfactory to you, dated the date of the Closing (a) from
Middleberg, Riddle & Gianna, counsel for the Constituent Companies and the
Subsidiary Guarantors, covering the matters set forth in EXHIBIT 4.5(a) and
covering such other matters incident to the transactions contemplated hereby as
you or your counsel may reasonably request (and the Constituent Companies hereby
instruct their counsel to deliver such opinion to you) and (b) from Chapman and
Cutler, your special counsel in connection with such transactions, substantially
in the form set forth in EXHIBIT 4.5(b) and covering such other matters incident
to such transactions as you may reasonably request.
Section 4.6. Purchase Permitted by Applicable Law, Etc. On the date of
the Closing, your purchase of Notes shall (a) be permitted by the laws and
regulations of each jurisdiction to which you are subject, without recourse to
provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting
limited investments by insurance companies without restriction as to the
character of the particular investment, (b) not violate any applicable law or
regulation (including, without limitation, Regulation T, U or X of the Board of
Governors of the Federal Reserve System) and (c) not subject you to any tax,
penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date hereof. If requested by
you, you shall have received an Officer's Certificate certifying as to such
matters of fact as you may reasonably specify to enable you to determine whether
such purchase is so permitted.
Section 4.7. Sale of Other Notes. Contemporaneously with the Closing,
the Operating Partnership shall sell to the Other Purchasers, and the Other
Purchasers shall purchase, the Notes to be purchased by them at the Closing as
specified in SCHEDULE A.
Section 4.8. Payment of Special Counsel Fees. Without limiting the
provisions of SECTION 15.1, the Operating Partnership shall have paid on or
before the Closing the fees, charges and disbursements of your special counsel
referred to in SECTION 4.5 to the extent reflected in a statement of such
counsel rendered to the Operating Partnership at least one Business Day prior to
the Closing.
Section 4.9. Private Placement Number. A Private Placement Number
issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the
Securities Valuation Office of the National Association of Insurance
Commissioners) shall have been obtained for the Notes.
Section 4.10. Changes in Organizational Structure. Except as specified
in SCHEDULE 4.10, neither Constituent Company shall have changed its
jurisdiction of
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organization or been a party to any merger or consolidation and shall not have
succeeded to all or any substantial part of the liabilities of any other entity,
at any time following the date of the most recent financial statements referred
to in SCHEDULE 5.5.
Section 4.11. Funding Instructions. At least three Business Days prior
to the date of the Closing, you shall have received written instructions
executed by a Responsible Officer of the Operating Partnership directing the
manner of the payment of funds and setting forth (a) the name and address of the
transferee bank, (b) such transferee bank's ABA number, (c) the account name and
number into which the purchase price for the Notes is to be deposited and (d)
the name and telephone number of the account representative responsible for
verifying receipt of such funds.
Section 4.12. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
satisfactory to you and your special counsel, and you and your special counsel
shall have received all such counterpart originals or certified or other copies
of such documents as you or they may reasonably request.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE CONSTITUENT COMPANIES.
Each Constituent Company represents and warrants to you that:
Section 5.1. Organization; Power and Authority. (a) The Trust is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Trust
has the corporate power and authority to own or hold under lease the properties
it purports to own or hold under lease, to transact the business it transacts
and proposes to transact, to execute and deliver this Agreement, the Other
Agreements and the Guaranty Agreement and to perform the provisions hereof and
thereof. The Trust is owner and holder of all of the outstanding capital stock
of USRP Managing, Inc., a Delaware corporation (the "General Partner"), the sole
general partner of the Operating Partnership.
(b) The Operating Partnership is a limited partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and is duly qualified as a foreign entity and is
in good standing in each jurisdiction in which such qualification is required by
law, other than those jurisdictions as to which the failure to be so qualified
or in good standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Operating Partnership has the
power and authority to own or hold under lease the properties it purports to own
or hold under lease, to transact the business it transacts, to execute and
deliver this Agreement, the Other Agreements and the Notes and to perform the
provisions hereof and thereof.
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Section 5.2. Authorization, Etc. (a) This Agreement, the Other
Agreements and the Guaranty Agreement have been duly authorized by all corporate
action on the part of the Trust, and this Agreement, the Other Agreements and
the Guaranty Agreement constitute legal, valid and binding obligations of the
Trust enforceable against the Trust in accordance with their respective terms,
except as such enforceability may be limited by (1) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (2) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(b) This Agreement, the Other Agreements and the Notes have been duly
authorized by all necessary action on the part of the General Partner on behalf
of the Operating Partnership, and this Agreement and the Other Agreements
constitute, and upon execution and delivery thereof each Note will constitute,
legal, valid and binding obligations of the Operating Partnership enforceable
against the Operating Partnership in accordance with their respective terms,
except as such enforceability may be limited by (1) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (2) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
Section 5.3. Disclosure. The Trust, through its agent, Salomon Smith
Barney, has delivered to you and each Other Purchaser a copy of a Private
Placement Memorandum, dated March 1998 (the "Memorandum"), relating to the
transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Trust and its Subsidiaries. Except as disclosed in SCHEDULE 5.3, this
Agreement, the Memorandum, the documents, certificates or other writings
delivered to you by or on behalf of the Constituent Companies in connection with
the transactions contemplated hereby and the financial statements listed in
SCHEDULE 5.5, taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made. Except as disclosed in the Memorandum or as expressly described in
SCHEDULE 5.3, or in one of the documents, certificates or other writings
identified therein, or in the financial statements listed in SCHEDULE 5.5, since
December 31, 1997, there has been no change in the financial condition,
operations, business, properties or prospects of the Trust or any Subsidiary
except changes that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. There is no fact known to either
Constituent Company that could reasonably be expected to have a Material Adverse
Effect that has not been set forth herein or in the Memorandum or in the other
documents, certificates and other writings delivered to you by or on behalf of
either Constituent Company specifically for use in connection with the
transactions contemplated hereby.
Section 5.4. Organization and Ownership of Equity Interests of
Subsidiaries; Affiliates. (a) SCHEDULE 5.4 contains (except as noted therein)
complete and correct lists (1) of the Trust's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its organization, and
the percentage of shares of each class of its capital stock or similar equity
interests outstanding owned by the Trust and each other Subsidiary, (2) of the
Trust's Affiliates, other than Subsidiaries, and (3) of the Trust's directors
and senior officers.
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(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in SCHEDULE 5.4 as being owned by the Trust
and its Subsidiaries have been validly issued, are fully paid and nonassessable
and are owned by the Trust or another Subsidiary free and clear of any Lien
(except as otherwise disclosed in SCHEDULE 5.4).
(c) Each Subsidiary identified in SCHEDULE 5.4 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Subsidiary has the corporate or other power and
authority to own or hold under lease the properties it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to, any legal
restriction or any agreement (other than the agreements listed on SCHEDULE 5.4
and customary limitations imposed by corporate law statutes) restricting the
ability of such Subsidiary to pay dividends out of profits or make any other
similar distributions of profits to the Trust or any of its Subsidiaries that
owns outstanding shares of capital stock or similar equity interests of such
Subsidiary.
Section 5.5. Financial Statements. The Trust has delivered to each
Purchaser copies of the financial statements of the Trust and its Subsidiaries
listed on SCHEDULE 5.5. All of said financial statements (including in each case
the related schedules and notes) fairly present in all material respects the
consolidated financial position of the Trust and its Subsidiaries or U.S.
Restaurant Properties Master L.P. and its Subsidiaries, as applicable, as of the
respective dates specified in such financial statements and the consolidated
results of their operations and cash flows for the respective periods so
specified and have been prepared in accordance with GAAP consistently applied
throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to normal year-end
adjustments).
Section 5.6. Compliance with Laws, Other Instruments, Etc. (a) The
execution, delivery and performance by the Trust of this Agreement, the Other
Agreements and the Guaranty Agreement will not (1) contravene, result in any
breach of, or constitute a default under, or result in the creation of any Lien
in respect of any property of the Trust or any Subsidiary under, any indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate
charter, by-law, partnership agreement or any other agreement or instrument to
which the Trust or any Subsidiary is bound or by which the Trust or any
Subsidiary or any of their respective properties may be bound or affected, (2)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to the Trust or any Subsidiary or (3) violate
any provision of any statute or other rule or regulation of any Governmental
Authority applicable to the Trust or any Subsidiary.
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(b) The execution, delivery and performance by the Operating
Partnership of this Agreement, the Other Agreements and the Notes will not (1)
contravene, result in any breach of, or constitute a default under, or result in
the creation of any Lien in respect of any property of the Operating Partnership
or any of its Subsidiaries under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, charter, by-law, partnership agreement or
any other agreement or instrument to which the Operating Partnership or any of
its Subsidiaries is bound or by which the Operating Partnership or any of its
Subsidiaries or any of their respective properties may be bound or affected, (2)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to the Operating Partnership or any of its
Subsidiaries or (3) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Operating Partnership
or any of its Subsidiaries.
Section 5.7. Governmental Authorizations, Etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by (a) the Trust of this Agreement, the Other Agreements or the Guaranty
Agreement or (b) the Operating Partnership of this Agreement, the Other
Agreements or the Notes.
Section 5.8. Litigation; Observance of Agreements, Statutes and Orders.
(a) Except as disclosed in SCHEDULE 5.8, there are no actions, suits or
proceedings pending or, to the knowledge of the Trust, threatened against or
affecting the Trust or any Subsidiary or any property of the Trust or any
Subsidiary in any court or before any arbitrator of any kind or before or by any
Governmental Authority that, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.
(b) Neither the Trust nor any Subsidiary is in default under any term
of any agreement or instrument to which it is a party or by which it is bound,
or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
Section 5.9. REIT Status; Taxes. (a) The Trust has made or will make
all filings necessary to qualify as a real estate investment trust under the
Code for the taxable year of the Trust ended December 31, 1997. Each corporate
Subsidiary of the Trust is a "qualified REIT subsidiary" within the meaning of
Section 856(i) of the Code.
(b) The Trust and its Subsidiaries have filed all tax returns that
are required to have been filed in any jurisdiction, and have paid all taxes
shown to be due and payable on such returns and all other taxes and assessments
levied upon them or their properties, assets, income or franchises, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent, except for any taxes and assessments (a) the amount
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of which is not individually or in the aggregate Material or (b) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Trust or a Subsidiary, as
applicable, has established adequate reserves in accordance with GAAP. Neither
Constituent Company knows of any basis for any other tax or assessment that
could reasonably be expected to have a Material Adverse Effect. The charges,
accruals and reserves on the books of the Trust and its Subsidiaries in respect
of Federal, state or other taxes for all fiscal periods are adequate. For all
taxable years ending on or prior to December 31, 1993, the Federal income tax
liability of the Trust and its Subsidiaries has been satisfied and either the
period of limitations on assessment of additional Federal income tax has expired
or the Trust and its Subsidiaries have entered into an agreement with the
Internal Revenue Service closing conclusively the total tax liability for the
taxable year.
Section 5.10. Title to Property; Leases. The Trust and its Subsidiaries
have good and sufficient title to their respective properties that individually
or in the aggregate are Material, including all such properties reflected in the
most recent audited balance sheet referred to in SECTION 5.5 or purported to
have been acquired by the Trust or any Subsidiary after said date (except as
sold or otherwise disposed of in the ordinary course of business). All leases
that individually or in the aggregate are Material are valid and subsisting and
are in full force and effect in all material respects.
Section 5.11. Licenses, Permits, Etc. Except as disclosed in SCHEDULE
5.11,
(a) the Trust and its Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, service marks,
trademarks and trade names, or rights thereto, that individually or in the
aggregate are Material, without known conflict with the rights of others;
(b) to the best knowledge of the Trust, no product of the Trust or
any Subsidiary infringes in any Material respect any license, permit, franchise,
authorization, patent, copyright, service mark, trademark, trade name or other
right owned by any other Person; and
(c) to the best knowledge of the Trust, there is no Material
violation by any Person of any right of the Trust or any of its Subsidiaries
with respect to any patent, copyright, service mark, trademark, trade name or
other right owned or used by the Trust or any of its Subsidiaries.
Section 5.12. Compliance with ERISA. (a) The Constituent Companies and
each of their ERISA Affiliates have operated and administered each Plan in
compliance with all applicable laws except for such instances of noncompliance
as have not resulted in and could not reasonably be expected to result in a
Material Adverse Effect. Neither Constituent Company nor any of their ERISA
Affiliates has incurred any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the incurrence
of any such liability by either Constituent Company or any of their ERISA
Affiliates, or in the imposition of any Lien
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on any of the rights, properties or assets of either Constituent Company or any
of their ERISA Affiliates, in either case pursuant to Title I or IV of ERISA or
to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the
Code, other than such liabilities or Liens as would not be individually or in
the aggregate Material.
(b) The present value of the aggregate benefit liabilities under each
of the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities. The term "benefit liabilities" has the
meaning specified in Section 4001 of ERISA and the terms "current value" and
"present value" have the meaning specified in Section 3 of ERISA.
(c) The Constituent Companies and each of their ERISA Affiliates have
not incurred withdrawal liabilities (and are not subject to contingent
withdrawal liabilities) under Section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are Material.
(d) The expected post-retirement benefit obligation (determined as of
the last day of the Trust's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by Section 4980B of
the Code) of the Trust and its Subsidiaries is not Material.
(e) The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction that is subject to
the prohibitions of Section 406 of ERISA or in connection with which a tax could
be imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code. The representation
by the Constituent Companies in the first sentence of this SECTION 5.12(e) is
made in reliance upon and subject to the accuracy of your representation in
SECTION 6.2 as to the sources of the funds used to pay the purchase price of the
Notes to be purchased by you.
Section 5.13. Private Offering. Neither Constituent Company nor anyone
acting on their behalf has offered the Notes, the Guaranty Agreement, the
Subsidiary Guaranty Agreement or any similar securities for sale to, or
solicited any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, any Person other than you, the Other
Purchasers and not more than 110 other Institutional Investors, each of which
has been offered the Notes, the Guaranty Agreement and the Subsidiary Guaranty
Agreement at a private sale for investment. Neither Constituent Company nor
anyone acting on their behalf has taken, or will take, any action that would
subject the issuance or sale of the Notes or the delivery of the Guaranty
Agreement or the Subsidiary Guaranty Agreement to the registration requirements
of Section 5 of the Securities Act.
Section 5.14. Use of Proceeds; Margin Regulations. The Operating
Partnership will apply the proceeds of the sale of the Notes as set forth in
SCHEDULE 5.14. No part of the proceeds from the sale of the Notes hereunder will
be used, directly or indirectly, for the purpose of buying or carrying any
margin stock within the meaning of Regulation U of the
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Board of Governors of the Federal Reserve System (12 CFR 221), or for the
purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Trust or any Subsidiary in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 5% of the value of the consolidated assets of the Trust and
its Subsidiaries and the Constituent Companies do not have any present intention
that margin stock will constitute more than 10% of the value of such assets. As
used in this Section, the terms "margin stock" and "purpose of buying or
carrying" shall have the meanings assigned to them in said Regulation U.
Section 5.15. Existing Indebtedness; Future Liens. (a) Except as
described therein, SCHEDULE 5.15 sets forth a complete and correct list of all
outstanding Indebtedness of the Trust and its Subsidiaries as of April 30, 1998,
since which date there has been no Material change in the amounts, interest
rates, sinking funds, installment payments or maturities of the Indebtedness of
the Trust or its Subsidiaries. Neither the Trust nor any Subsidiary is in
default and no waiver of default is currently in effect, in the payment of any
principal or interest on any Indebtedness of the Trust or such Subsidiary and no
event or condition exists with respect to any Indebtedness of the Trust or any
Subsidiary that would permit (or that with notice or the lapse of time, or both,
would permit) one or more Persons to cause such Indebtedness to become due and
payable before its stated maturity or before its regularly scheduled dates of
payment.
(b) Except as disclosed in SCHEDULE 5.15, neither the Trust nor any
Subsidiary has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property, whether now owned
or hereafter acquired, to be subject to a Lien not permitted by this Agreement.
Section 5.16. Foreign Assets Control Regulations, Etc. Neither the sale
of the Notes by the Operating Partnership hereunder nor its use of the proceeds
thereof will violate the Trading with the Enemy Act, as amended, or any of the
foreign assets control regulations of the United States Treasury Department (31
CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive
order relating thereto.
Section 5.17. Status under Certain Statutes. Neither the Trust nor any
Subsidiary is an "investment company" registered or required to be registered
under the Investment Company Act of 1940, as amended, or is subject to
regulation under the Public Utility Holding Company Act of 1935, as amended, the
ICC Termination Act of 1995 or the Federal Power Act, as amended.
Section 5.18. Obligations Rank Pari Passu; Credit Rating (a) The
obligations of the Trust under this Agreement, the Other Agreements and the
Guaranty Agreement rank at least pari passu in right of payment with all other
senior unsecured Indebtedness (actual or contingent) of the Trust, including,
without limitation, all senior unsecured Indebtedness of the Trust described in
SCHEDULE 5.15 hereto.
(b) The obligations of the Operating Partnership under this
Agreement, the Other
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Agreements and the Notes rank at least pari passu in right of payment with all
other senior unsecured Indebtedness (actual or contingent) of the Operating
Partnership including, without limitation, all senior unsecured Indebtedness of
the Operating Partnership described in SCHEDULE 5.15 hereto.
(c) The long-term senior unsecured indebtedness of the Operating
Partnership is rated at least "BBB-" by Duff & Phelps Rating Co.
Section 5.19. Environmental Matters. Neither the Trust nor any
Subsidiary has knowledge of any claim or has received any notice of any claim,
and no proceeding has been instituted raising any claim against the Trust or any
of its Subsidiaries or any of their respective real properties now or formerly
owned, leased or operated by any of them or other assets, alleging any damage to
the environment or violation of any Environmental Laws, except, in each case,
such as could not reasonably be expected to result in a Material Adverse Effect.
Except as otherwise disclosed to you in writing:
(a) neither the Trust nor any Subsidiary has knowledge of any
facts which would give rise to any claim, public or private, of
violation of Environmental Laws or damage to the environment emanating
from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets or
their use, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect;
(b) neither the Trust nor any of its Subsidiaries has stored
any Hazardous Materials on real properties now or formerly owned,
leased or operated by any of them or has disposed of any Hazardous
Materials in a manner contrary to any Environmental Laws in each case
in any manner that could reasonably be expected to result in a Material
Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Trust or any of its Subsidiaries are in compliance with
applicable Environmental Laws, except where failure to comply could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 6. REPRESENTATIONS OF THE PURCHASER.
Section 6.1. Purchase for Investment. You represent that you are
purchasing the Notes for your own account or for one or more separate accounts
maintained by you or for the account of one or more pension or trust funds and
not with a view to the distribution thereof; provided that the disposition of
your or their property shall at all times be within your or their control. You
understand that the Notes have not been registered under the Securities Act and
may be resold only if registered pursuant to the provisions of the Securities
Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law, and that the Operating Partnership is not required to register the
Notes.
Section 6.2. Source of Funds. You represent that at least one of the
following
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statements is an accurate representation as to each source of funds (a "Source")
to be used by you to pay the purchase price of the Notes to be purchased by you
hereunder:
(a) the Source is an "insurance company general account"
within the meaning of Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee
benefit plan, treating as a single plan, all plans maintained by the
same employer or employee organization, with respect to which the
amount of the general account reserves and liabilities for all
contracts held by or on behalf of such plan, exceed 10% of the total
reserves and liabilities of such general account (exclusive of separate
account liabilities) plus surplus, as set forth in the NAIC Annual
Statement filed with your state of domicile; or
(b) the Source is either (1) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (2) a bank collective investment fund, within the meaning of
the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed
to the Constituent Companies in writing pursuant to this paragraph (b),
no employee benefit plan or group of plans maintained by the same
employer or employee organization beneficially owns more than 10% of
all assets allocated to such pooled separate account or collective
investment fund; or
(c) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part l(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a Person controlling
or controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in
either Constituent Company and (1) the identity of such QPAM and (2)
the names of all employee benefit plans whose assets are included in
such investment fund have been disclosed to the Constituent Companies
in writing pursuant to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Constituent
Companies in writing pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
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If you or any subsequent transferee of the Notes indicates that you or
such transferee are relying on any representation contained in paragraph (b),
(c) or (e) above, each Constituent Company shall deliver on the date of the
Closing or on the date of transfer, as applicable, a certificate, which shall
state whether (i) it is a party in interest or a "disqualified person" (as
defined in Section 4975(e)(2) of the Code), with respect to any plan identified
pursuant to paragraphs (b) or (e) above, or (ii) with respect to any plan
identified pursuant to paragraph (c) above, whether it or any "affiliate" (as
defined in Section V(c) of the QPAM Exemption) has at such time, and during the
immediately preceding one year, exercised the authority to appoint or terminate
said QPAM as manager of any plan identified in writing pursuant to paragraph (c)
above or to negotiate the terms of said QPAM's management agreement on behalf of
any such identified plan.
As used in this SECTION 6.2, the terms "employee benefit plan,"
"governmental plan," "party in interest" and "separate account" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.
SECTION 7. INFORMATION AS TO THE TRUST.
Section 7.1. Financial and Business Information. The Trust shall
deliver to each holder of Notes that is an Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Trust (other
than the last quarterly fiscal period of each such fiscal year),
duplicate copies of:
(1) a consolidated balance sheet of the Trust and its
Subsidiaries as at the end of such quarter, and
(2) consolidated statements of income, stockholders'
equity and cash flows of the Trust and its Subsidiaries for
such quarter and (in the case of the second and third
quarters) for the portion of the fiscal year ending with such
quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer of the Trust as fairly presenting, in
all material respects, the financial position of the companies being reported on
and their results of operations and cash flows, subject to changes resulting
from year-end adjustments; provided that delivery within the time period
specified above of copies of the Trust's Quarterly Report on Form 10-Q prepared
in compliance with the requirements therefor and filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this SECTION
7.1(a);
(b) Annual Statements -- within 105 days after the end of each
fiscal year of the Trust, duplicate copies of,
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(1) a consolidated balance sheet of the Trust and its
Subsidiaries, as at the end of such year, and
(2) consolidated statements of income, stockholders'
equity and cash flows of the Trust and its Subsidiaries, for
such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by:
(i) an opinion thereon of independent certified
public accountants of recognized national standing,
which opinion shall state that such financial
statements present fairly, in all material respects,
the financial position of the companies being
reported upon and their results of operations and
cash flows and have been prepared in conformity with
GAAP, and that the examination of such accountants in
connection with such financial statements has been
made in accordance with generally accepted auditing
standards, and that such audit provides a reasonable
basis for such opinion in the circumstances, and
(ii) a certificate of such accountants stating
that they have reviewed this Agreement and stating
further whether, in making their audit, they have
become aware of any condition or event that then
constitutes a Default or an Event of Default, and, if
they are aware that any such condition or event then
exists, specifying the nature and period of the
existence thereof (it being understood that such
accountants shall not be liable, directly or
indirectly, for any failure to obtain knowledge of
any Default or Event of Default unless such
accountants should have obtained knowledge thereof in
making an audit in accordance with generally accepted
auditing standards or did not make such an audit),
provided that the delivery within the time period specified above of
the Trust's Annual Report on Form 10-K for such fiscal year (together
with the Trust's annual report to shareholders, if any, prepared
pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance
with the requirements therefor and filed with the Securities and
Exchange Commission, together with the accountant's certificate
described in clause (2) above, shall be deemed to satisfy the
requirements of this SECTION 7.1(b);
(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (1) each financial statement, report, notice or
proxy statement sent by the Trust or any Subsidiary to public
securities holders generally, and (2) each regular or periodic report,
each registration statement (without exhibits except as expressly
requested by such holder), and each prospectus and all amendments
thereto filed by the Trust or any Subsidiary with the Securities and
Exchange Commission and of all press releases and other statements made
available generally by the Trust or any Subsidiary to the public
concerning developments that are Material;
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(d) Notice of Default or Event of Default -- promptly, and in
any event within five days after a Responsible Officer becoming aware
of the existence of any Default or Event of Default or that any Person
has given any notice or taken any action with respect to a claimed
default hereunder or that any Person has given any notice or taken any
action with respect to a claimed default of the type referred to in
SECTION 11(f), a written notice specifying the nature and period of
existence thereof and what action the Trust is taking or proposes to
take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within five
days after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the applicable Constituent Company or its ERISA
Affiliate proposes to take with respect thereto:
(1) with respect to any Plan, any reportable event,
as defined in Section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date hereof;
or
(2) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by either Constituent Company or any of their ERISA
Affiliates of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such
Multiemployer Plan; or
(3) any event, transaction or condition that could
result in the incurrence of any liability by either
Constituent Company or any of their ERISA Affiliates pursuant
to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, or
in the imposition of any Lien on any of the rights, properties
or assets of either Constituent Company or any of their ERISA
Affiliates pursuant to Title I or IV of ERISA or such penalty
or excise tax provisions, if such liability or Lien, taken
together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material
Adverse Effect;
(f) Notices from Governmental Authority -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to
the Trust or any Subsidiary from any Federal or state Governmental
Authority relating to any order, ruling, statute or other law or
regulation that could reasonably be expected to have a Material Adverse
Effect; and
(g) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Trust or any
of its Subsidiaries or relating to the ability of the Constituent
Companies or any Subsidiary Guarantor to perform their respective
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obligations hereunder, under the Guaranty Agreement, or under the
Subsidiary Guaranty Agreement or under the Notes as from time to time
may be reasonably requested by any such holder of Notes, including
without limitation, such information as is required by SEC Rule 144A
under the Securities Act to be delivered to the prospective transferee
of the Notes.
Section 7.2. Officer's Certificate. Each set of financial statements
delivered to a holder of Notes pursuant to SECTION 7.1(a) or SECTION 7.1(b)
hereof shall be accompanied by a certificate of a Senior Financial Officer of
the Trust setting forth:
(a) Covenant Compliance -- the information (including
detailed calculations) required in order to establish whether the Trust
was in compliance with the requirements of SECTION 10.1 and 10.2 hereof
during the quarterly or annual period covered by the statements then
being furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as the case may be, permissible under the terms of such and
the calculation of the amount, ratio or percentage then in existence);
and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Trust and its Subsidiaries from the beginning of the
quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or
event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Trust or
any Subsidiary to comply with any Environmental Law), specifying the
nature and period of existence thereof and what action the Trust shall
have taken or proposes to take with respect thereto.
Section 7.3. Inspection. The Trust shall permit the representatives of
each holder of Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Trust, to visit the principal executive office of the Trust, to
discuss the affairs, finances and accounts of the Trust and its
Subsidiaries with the Trust's officers, and (with the consent of the
Trust, which consent will not be unreasonably withheld) its independent
public accountants, and (with the consent of the Trust, which consent
will not be unreasonably withheld) to visit the other offices and
properties of the Trust and each Subsidiary, all at such reasonable
times and as often as may be reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Constituent Companies, to visit and inspect any
of the offices or properties of the Trust or any Subsidiary, to examine
all their respective books of account, records,
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<PAGE> 24
reports and other papers, to make copies and extracts therefrom, and to
discuss their respective affairs, finances and accounts with their
respective officers and independent public accountants (and by this
provision the Trust authorizes said accountants to discuss the affairs,
finances and accounts of the Trust and its Subsidiaries), all at such
times and as often as may be requested.
SECTION 8. PREPAYMENT OF THE NOTES.
Section 8.1. Required Prepayments. No regularly scheduled prepayments
of principal of the Notes are required prior to the maturity thereof.
Section 8.2. Optional Prepayments with Make-Whole Amount. The Operating
Partnership may, at its option, upon notice as provided below, prepay at any
time all, or from time to time any part of, the Notes, in an amount not less
than $1,000,000 of the aggregate principal amount of the Notes then outstanding
in the case of a partial prepayment, at 100% of the principal amount so prepaid,
together with interest accrued thereon to the date of such prepayment, plus the
Make-Whole Amount determined for the prepayment date with respect to such
principal amount. The Operating Partnership will give each holder of Notes
written notice of each optional prepayment under this SECTION 8.2 not less than
30 days and not more than 60 days prior to the date fixed for such prepayment.
Each such notice shall specify such date, the aggregate principal amount of the
Notes to be prepaid on such date, the principal amount of each Note held by such
holder to be prepaid (determined in accordance with SECTION 8.4), and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid, and shall be accompanied by a certificate of a Senior Financial
Officer of the Operating Partnership as to the estimated Make-Whole Amount due
in connection with such prepayment (calculated as if the date of such notice
were the date of the prepayment), setting forth the details of such computation.
Two Business Days prior to such prepayment, the Operating Partnership shall
deliver to each holder of Notes a certificate of a Senior Financial Officer of
the Operating Partnership specifying the calculation of such Make-Whole Amount
as of the specified prepayment date.
Section 8.3. Change in Control. (a) Notice of Change in Control or
Control Event. The Constituent Companies will, within five Business Days after
any Responsible Officer has knowledge of the occurrence of any Change in Control
or Control Event, give written notice of such Change in Control or Control Event
to each holder of Notes unless notice in respect of such Change in Control (or
the Change in Control contemplated by such Control Event) shall have been given
pursuant to subparagraph (b) of this Section. If a Change in Control has
occurred, such notice shall contain and constitute an offer to prepay Notes as
described in subparagraph (c) of this Section and shall be accompanied by the
certificate described in subparagraph (g) of this Section.
(b) Condition to Constituent Company Action. Neither Constituent
Company will take any action that consummates or finalizes a Change in Control
unless (1) at least 30 days prior to such action the Operating Partnership shall
have given to each holder of Notes written notice containing and constituting an
offer to prepay Notes as described in
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subparagraph (c) of this Section, accompanied by the certificate described in
subparagraph (g) of this Section, and (2) contemporaneously with such action,
the Operating Partnership prepays all Notes required to be prepaid in accordance
with this Section.
(c) Offer to Prepay Notes. The offer to prepay Notes contemplated by
subparagraphs (a) and (b) of this Section shall be an offer to prepay, in
accordance with and subject to this Section, all, but not less than all, the
Notes held by each holder (in this case only, "holder" in respect of any Note
registered in the name of a nominee for a disclosed beneficial owner shall mean
such beneficial owner) on a date specified in such offer (the "Proposed
Prepayment Date"). If such Proposed Prepayment Date is in connection with an
offer contemplated by subparagraph (a) of this Section, such date shall be not
less than 30 days and not more than 120 days after the date of such offer (if
the Proposed Prepayment Date shall not be specified in such offer, the Proposed
Prepayment Date shall be the first Business Day after the 60th day after the
date of such offer).
(d) Acceptance. A holder of Notes may accept the offer to prepay made
pursuant to this Section by causing a notice of such acceptance to be delivered
to the Operating Partnership not later than 15 days after receipt by such holder
of the most recent offer of prepayment. A failure by a holder of Notes to
respond to an offer to prepay made pursuant to this Section shall be deemed to
constitute a rejection of such offer by such holder.
(e) Prepayment. Prepayment of the Notes to be prepaid pursuant to
this Section shall be at 100% of the principal amount of such Notes, together
with interest on such Notes accrued to the date of prepayment, but without
Make-Whole Amount or other premium. The prepayment shall be made on the Proposed
Prepayment Date except as provided in subparagraph (f) of this Section.
(f) Deferral Pending Change in Control. The obligation of the
Operating Partnership to prepay Notes pursuant to the offers required by
subparagraph (b) and accepted in accordance with subparagraph (d) of this
Section is subject to the occurrence of the Change in Control in respect of
which such offers and acceptances shall have been made. In the event that such
Change in Control has not occurred on the Proposed Prepayment Date in respect
thereof, the prepayment shall be deferred until, and shall be made on, the date
on which such Change in Control occurs. The Operating Partnership shall keep
each holder of Notes reasonably and timely informed of (1) any such deferral of
the date of prepayment, (2) the date on which such Change in Control and the
prepayment are expected to occur, and (3) any determination by either
Constituent Company that efforts to effect such Change in Control have ceased or
been abandoned (in which case the offers and acceptances made pursuant to this
Section in respect of such Change in Control shall be deemed rescinded).
(g) Officer's Certificate. Each offer to prepay the Notes pursuant to
this Section shall be accompanied by a certificate, executed by a Senior
Financial Officer of the Operating Partnership and dated the date of such offer,
specifying: (1) the Proposed Prepayment Date; (2) that such offer is made
pursuant to this SECTION 8.3; (3) the principal amount of each Note offered to
be prepaid; (4) the interest that would be due on each Note offered to be
prepaid, accrued to the Proposed Prepayment Date; (5) that the conditions of
this Section have been
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fulfilled; and (6) in reasonable detail, the nature and date or proposed date of
the Change in Control.
(h) "Change in Control" Defined. Change in Control means, at any
time:
(1) the acquisition, holding or control, directly or
indirectly, by any person (as such term is used in Section 13(d) and
Section 14(d)(2) of the Exchange Act as in effect on the date of the
Closing) or related Persons constituting a group (as such term is used
in Rule 13d-5 under the Exchange Act as in effect on the date of the
Closing), other than a Permitted Management Transferee, of more than
50% of the Voting Equity Interests of the Trust; or
(2) the acquisition, holding or control, directly or
indirectly, by any person (as such term is used in Section 13(d) and
Section 14(d)(2) of the Exchange Act as in effect on the date of the
Closing) or related Persons constituting a group (as such term is used
in Rule 13d-5 under the Exchange Act as in effect on the date of the
Closing), other than the Trust or a Permitted Management Transferee, of
more than 50% of the Voting Equity Interests of the General Partner; or
(3) the acquisition, holding or control, directly or
indirectly, by any person (as such term is used in Section 13(d) and
Section 14(d)(2) of the Exchange Act as in effect on the date of the
Closing) or related Persons constituting a group (as such term is used
in Rule 13d-5 under the Exchange Act as in effect on the date of the
Closing), other than the Trust, the General Partner, a Permitted
Management Transferee or a wholly-owned Subsidiary of the Trust or a
Permitted Management Transferee, of more than 50% of the Voting Equity
Interests of the Operating Partnership.
(i) "Control Event" Defined. Control Event means:
(1) the execution by the Trust or a Permitted Management
Transferee or any of their respective Subsidiaries or Affiliates of any
agreement or letter of intent with respect to any proposed transaction
or event or series of transactions or events which, individually or in
the aggregate, may reasonably be expected to result in a Change in
Control, or
(2) the execution of any written agreement which, when fully
performed by the parties thereto, would result in a Change in Control.
(j) "Permitted Management Transferee" Defined. Permitted Management
Transferee means, with respect to the Trust, (1) each of Robert J. Stetson and
Fred H. Margolin or (2) related Persons constituting a Group (as such term is
used in Rule 13d-5 under the Exchange Act as in effect on the date of the
Closing) which includes, and is controlled by, Robert J. Stetson and/or Fred H.
Margolin.
(k) All calculations contemplated in this SECTION 8.3 involving the
Voting Equity Interests of any Person, shall be made with the assumption that
all convertible securities of such Person then outstanding and all convertible
securities issuable upon the exercise of any
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warrants, options and other rights outstanding at such time were converted at
such time and that all options, warrants and similar rights to acquire Voting
Equity Interests of such Person were exercised at such time.
Section 8.4. Allocation of Partial Prepayments. In the case of each
partial prepayment of the Notes pursuant to SECTION 8.2, the principal amount of
the Notes to be prepaid shall be allocated among all of the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore called for prepayment. All partial
prepayments made pursuant to SECTION 8.3 shall be applied only to the Notes of
the holders who have elected to participate in such prepayment.
Section 8.5. Maturity; Surrender, Etc. In the case of each prepayment
of Notes pursuant to this SECTION 8, the principal amount of each Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such date
and the applicable Make-Whole Amount, if any. From and after such date, unless
the Operating Partnership shall fail to pay such principal amount when so due
and payable, together with the interest and Make-Whole Amount, if any, as
aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid or prepaid in full shall be surrendered to the Operating Partnership and
cancelled and shall not be reissued, and no Note shall be issued in lieu of any
prepaid principal amount of any Note.
Section 8.6. Purchase of Notes. The Operating Partnership will not and
will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire,
directly or indirectly, any of the outstanding Notes except upon the payment or
prepayment of the Notes in accordance with the terms of this Agreement and the
Notes. The Operating Partnership will promptly cancel all Notes acquired by it
or any Affiliate pursuant to any payment, prepayment or purchase of Notes
pursuant to any provision of this Agreement and no Notes may be issued in
substitution or exchange for any such Notes.
Section 8.7. Make-Whole Amount. The term "Make-Whole Amount" means,
with respect to any Note, an amount equal to the excess, if any, of the
Discounted Value of the Remaining Scheduled Payments with respect to the Called
Principal of such Note over the amount of such Called Principal; provided that
the Make-Whole Amount may in no event be less than zero. For the purposes of
determining the Make-Whole Amount, the following terms have the following
meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to SECTION 8.2 or
has become or is declared to be immediately due and payable pursuant to
SECTION 12.1, as the context requires.
"Discounted Value" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
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Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of any Note, 0.50% over the yield to maturity implied by (a)
the yields reported, as of 10:00 a.m. (New York City time) on the
second Business Day preceding the Settlement Date with respect to such
Called Principal, on the display designated as "Page PX1" or other
appropriate page of the Bloomberg Financial Markets Services Screen (or
such other display as may replace Page PX1 or other appropriate page of
the Bloomberg Financial Markets Services Screen) for actively traded
U.S. Treasury securities having a maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date, or
(b) if such yields are not reported as of such time or the yields
reported as of such time are not ascertainable, the Treasury Constant
Maturity Series Yields reported, for the latest day for which such
yields have been so reported as of the second Business Day preceding
the Settlement Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15(519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (1) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted
financial practice and (2) interpolating linearly between (i) the
actively traded U.S. Treasury security with the average life closest to
and greater than the Remaining Average Life and (ii) the actively
traded U.S. Treasury security with the average life closest to and less
than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (a) such Called Principal into (b) the sum
of the products obtained by multiplying (1) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (2) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date; provided that if such
Settlement Date is not a date on which interest payments are due to be
made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to SECTION 8.2 or 12.1.
"Settlement Date" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to SECTION 8.2 or has become or is declared to be immediately
due and payable pursuant to SECTION 12.1, as the context requires.
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SECTION 9. AFFIRMATIVE COVENANTS.
The Constituent Companies covenant that so long as any of the Notes are
outstanding:
Section 9.1. Compliance with Law. The Constituent Companies will, and
will cause each Subsidiary to, comply with all laws, ordinances or governmental
rules or regulations to which each of them is subject, including, without
limitation, ERISA and all Environmental Laws, and will obtain and maintain in
effect all licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 9.2. Insurance. The Constituent Companies will, and will cause
each Subsidiary to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.
Section 9.3. Maintenance of Properties. The Constituent Companies will,
and will cause each Subsidiary to, maintain and keep, or cause to be maintained
and kept, their respective properties in good repair, working order and
condition (other than ordinary wear and tear), so that the business carried on
in connection therewith may be properly conducted at all times; provided that
this Section shall not prevent either Constituent Company or any Subsidiary from
discontinuing the operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the Trust has
concluded that such discontinuance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Section 9.4. Payment of Taxes and Claims. The Constituent Companies
will, and will cause each Subsidiary to, file all tax returns required to be
filed in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent and all claim for which sums have become
due and payable that have or might become a Lien on properties or assets of
either Constituent Company or any Subsidiary; provided that neither Constituent
Company nor any Subsidiary need pay any such tax or assessment or claims if (a)
the amount, applicability or
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validity thereof is contested by such Constituent Company or such Subsidiary on
a timely basis in good faith and in appropriate proceedings, and such
Constituent Company or a Subsidiary has established adequate reserves therefor
in accordance with GAAP on the books of such Constituent Company or such
Subsidiary or (b) the nonpayment of all such taxes and assessments in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
Section 9.5. Legal Existence, Maintenance of REIT Status. (a) The
Constituent Companies will at all times preserve and keep in full force and
effect their legal existence. Subject to SECTION 10.3, the Constituent Companies
will at all times preserve and keep in full force and effect the corporate or
other legal existence of each Subsidiary (unless merged into a Constituent
Company or a Subsidiary) and all rights and franchises of the Constituent
Companies and each Subsidiary unless, in the good faith judgment of the Trust,
the termination of or failure to preserve and keep in full force and effect such
legal existence, right or franchise could not, individually or in the aggregate,
have a Material Adverse Effect.
(b) The Trust will qualify as a real estate investment trust under
the Code for the taxable year of the Trust ended December 31, 1997 and will
maintain its qualification as a real estate investment trust under the Code and
the applicability to the Trust and its stockholders of the method of taxation
provided for in Section 857(b) of the Code (and any successor provision
thereto).
(c) The General Partner will at all times be the sole general partner
of the Operating Partnership.
Section 9.6. Nature of Business. Neither Constituent Company nor any
Subsidiary will engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be engaged in by
such Constituent Company and its Subsidiaries would be substantially changed
from the general nature of the business engaged in by such Constituent Company
and its Subsidiaries on the date of this Agreement.
Section 9.7. Obligations to Rank Pari Passu. (a) All obligations under
this Agreement and the Guaranty Agreement of the Trust are and at all times
shall remain direct and unsecured obligations of the Trust ranking pari passu as
against the assets of the Trust and pari passu with all other present and future
unsecured Indebtedness (actual or contingent) of the Trust which is not
expressed to be subordinate or junior in rank to any other unsecured
Indebtedness of the Trust.
(b) The Notes and all other obligations under this Agreement of the
Operating Partnership are and at all times shall remain direct and unsecured
obligations of the Operating Partnership ranking pari passu as against the
assets of the Operating Partnership with all other Notes from time to time
issued and outstanding hereunder without any preference among themselves and
pari passu with all other present and future unsecured Indebtedness (actual or
contingent) of the Operating Partnership which is not expressed to be
subordinate or junior in rank to any other unsecured Indebtedness of the
Operating Partnership.
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Section 9.8. Additional Subsidiary Guarantors. (a) Concurrently with
any Subsidiary entering into a guaranty in respect of any Debt of either
Constituent Company, the Constituent Companies shall cause such Subsidiary to
execute and deliver a supplement to the Subsidiary Guaranty Agreement in the
form of Exhibit A to the Subsidiary Guaranty Agreement.
(b) Concurrently with the execution and delivery by a Subsidiary of a
supplement to the Subsidiary Guaranty Agreement, the Constituent Companies shall
cause such Subsidiary to deliver to each holder of Notes (1) such documents and
evidence with respect to such Subsidiary as any holder may reasonably request in
order to establish the existence and good standing of such Subsidiary and
evidence that the Board of Directors or similar group of persons of such
Subsidiary has adopted resolutions authorizing the execution and delivery of a
supplement to the Subsidiary Guaranty Agreement, (2) evidence of compliance with
such Subsidiary's outstanding debt instruments in the form of (i) a compliance
certificate from such Subsidiary to the effect that such Subsidiary has complied
with all terms and conditions of its outstanding debt instruments, (ii) consents
or approvals of the holder or holders of any evidence of Indebtedness or
security, and/or (iii) amendments of agreements pursuant to which any evidence
of Indebtedness or security may have been issued, all as may be reasonably
deemed necessary by the holders of Notes to permit the execution and delivery of
a supplement to the Subsidiary Guaranty Agreement by such Subsidiary, (3) an
opinion of counsel to the effect that (i) such Subsidiary is a corporation or
other business entity, duly organized, validly existing and in good standing, if
applicable, under the laws of its jurisdiction of organization, has the power
and the authority to execute and deliver a supplement to the Subsidiary Guaranty
Agreement and to perform the Subsidiary Guaranty Agreement, (ii) the execution
and delivery of a supplement to the Subsidiary Guaranty Agreement and
performance of the Subsidiary Guaranty Agreement has been duly authorized by all
necessary action on the part of such Subsidiary, a supplement to the Subsidiary
Guaranty Agreement has been duly executed and delivered by such Subsidiary and
the Subsidiary Guaranty Agreement constitutes the legal, valid and binding
contract of such Subsidiary enforceable against such Subsidiary in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent conveyance or
similar laws affecting creditors' rights generally, and general principles of
equity (regardless of whether the application of such principles is considered
in a proceeding in equity or at law), (iii) the execution and delivery of a
supplement to the Subsidiary Guaranty Agreement and the performance by such
Subsidiary of the Subsidiary Guaranty Agreement do not conflict with or result
in any breach of any of the provisions of or constitute a default under or
result in the creation of a Lien upon any of the property of such Subsidiary
pursuant to the provisions of its charter documents or any agreement or other
instrument known to such counsel to which such Subsidiary is a party to or by
which such Subsidiary may be bound and (iv) no approval, consent or withholding
of objection on the part of, or filing, registration or qualification with, any
Governmental Authority, Federal or state, is necessary in connection with the
lawful execution and delivery of a supplement to the Subsidiary Guaranty
Agreement by such Subsidiary or the performance of the Subsidiary Guaranty
Agreement by such Subsidiary, which opinion may contain such assumptions and
qualifications as are reasonably acceptable to the Required Holders, and (4) all
other documents and showings reasonably requested by the holders of
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Notes in connection with the execution and delivery of a supplement to the
Subsidiary Guaranty Agreement, which documents shall be satisfactory in form and
substance to such holders and their special counsel, and each holder of Notes
shall have received a copy (executed or certified as may be appropriate) of all
of the foregoing legal documents.
Section 9.9. Additional Notices. The Constituent Companies will deliver
to each holder of the Notes promptly, and in any event within five days after a
Responsible Officer becoming aware of the occurrence thereof, or aware of the
reasonable likelihood of the occurrence thereof, a written notice describing the
facts and circumstances set forth in any notice delivered under Article II of
the Intercreditor Agreement.
SECTION 10. NEGATIVE COVENANTS.
The Trust covenants that so long as any of the Notes are outstanding:
Section 10.1. Incurrence of Indebtedness. The Trust will not, and will
not permit any Subsidiary to, directly or indirectly, create, incur, assume,
guarantee, or otherwise become directly or indirectly liable with respect to,
any Indebtedness, other than Indebtedness owing to either Constituent Company or
any Wholly-Owned Subsidiary, unless on the date the Trust or such Subsidiary
becomes liable with respect to any such Indebtedness and immediately after
giving effect thereto, to the application of the proceeds thereof and the
concurrent retirement of any other Indebtedness,
(a) no Default or Event of Default exists,
(b) Consolidated Indebtedness does not exceed an amount equal
to 60% of Consolidated Total Capitalization,
(c) Consolidated Income Available for Debt Service for the
four consecutive fiscal quarter period of the Trust then most recently
ended shall have been at least 1.5 times the amount of Annual Service
Charge for such four consecutive fiscal quarter period, and
(d) in the case of the incurrence of Priority Debt, Priority
Debt does not exceed an amount equal to 40% of the sum of (1)
Consolidated Total Assets as at the end of the fiscal quarter of the
Trust then most recently ended, (2) the purchase price of real estate
assets and mortgage loan receivables acquired by the Trust or any
Subsidiary since the end of such fiscal quarter and (3) the amount of
any proceeds received from the issuance and sale of any securities or
the incurrence of any Indebtedness by the Trust or any Subsidiary
(other the amount of any such proceeds used to acquire real estate
assets or mortgage loan receivables or applied to repay outstanding
Indebtedness of the Trust or any Subsidiary) since the end of such
fiscal quarter.
For the purposes of this SECTION 10.1, there shall be excluded (i) from any
determination of Indebtedness, all Indebtedness that is at the date of such
determination non-recourse to the Trust, the Operating Partnership and the
General Partner and (ii) from any determination of
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Consolidated Total Assets, all assets related to such non-recourse Indebtedness.
Additionally, for the purposes of this SECTION 10.1, any Person becoming a
Subsidiary after the date hereof shall be deemed, at the time it becomes a
Subsidiary, to have incurred all of its then outstanding Indebtedness, and any
Person extending or renewing any Indebtedness, or, in the case of any refunding
of Indebtedness if the maturity date thereof has been extended, then such
Indebtedness shall be deemed to have been incurred at the time of such
extension, renewal or refunding.
Section 10.2. Unencumbered Asset Coverage. The Trust will not at any
time permit Total Unencumbered Assets to be less than 150% of Unsecured
Indebtedness.
Section 10.3. Merger, Consolidation, Etc. Neither Constituent Company
will consolidate with or merge with or into any other corporation or convey,
transfer or lease substantially all of its assets in a single transaction or
series of transactions to any Person, except
(a) in the case of any such transaction involving the Trust,
(1) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by
conveyance, transfer or lease substantially all of the assets
of the Trust as an entirety, as the case may be (the
"Successor Corporation"), shall be a solvent Person organized
and existing under the laws of the United States of America,
any State thereof or the District of Columbia; and
(2) if either the Trust or the Operating Partnership is
not the Successor Corporation, such Person shall have executed
and delivered to each holder of Notes its assumption of the
due and punctual performance and observance of each covenant
and condition of this Agreement and the Guaranty Agreement
(pursuant to such agreements and instruments as shall be
reasonably satisfactory to the Required Holders), such Person
shall have caused to be delivered to each holder of Notes an
opinion of nationally recognized independent counsel, or other
independent counsel reasonably satisfactory to the Required
Holders, to the effect that all agreements or instruments
effecting such assumption are enforceable in accordance with
their terms and comply with the terms hereof and each
Subsidiary Guarantor shall have delivered to each holder of
the Notes a certificate whereby such Subsidiary Guarantor
shall have reaffirmed its obligations under the Subsidiary
Guaranty Agreement,
(b) in the case of any such transaction involving the
Operating Partnership, either the Trust or the Operating Partnership is
the survivor or successor of such merger or consolidation,
(c) immediately after giving effect to such transaction, no
Default or Event of Default would exist, and
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(d) the Successor Corporation would be permitted by the
provisions of SECTION 10.1 hereof to incur at least $1.00 of additional
Indebtedness owing to a Person other than a Subsidiary of the Successor
Corporation.
Section 10.4. Guaranties. The Constituent Companies will not, and will
not permit any Subsidiary to, become or be liable in respect of any Guaranty
except (a) Guaranties existing on the date of the Closing and described on
SCHEDULE 5.15 hereto, (b) the Guaranty Agreement and the Subsidiary Guaranty
Agreement and (c) Guaranties by a Constituent Company which are limited in
amount to a stated maximum dollar exposure or which constitute Guaranties of
obligations incurred by any Subsidiary in compliance with the provisions of this
Agreement.
Section 10.5. Transactions with Affiliates. The Constituent Companies
will not, and will not permit any Subsidiary to, enter into or be a party to any
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except in the ordinary course of and pursuant
to the reasonable requirements of such Constituent Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
such Constituent Company or such Subsidiary than would be obtained in a
comparable arm's-length transaction with a Person other than an Affiliate.
Section 10.6. Termination of Pension Plans. The Constituent Companies
will not and will not permit any Subsidiary to withdraw from any Multiemployer
Plan or permit any employee benefit plan maintained by it to be terminated if
such withdrawal or termination could result in withdrawal liability (as
described in Part 1 of Subtitle E of Title IV of ERISA) or the imposition of a
Lien on any property of either Constituent Company or any Subsidiary pursuant to
Section 4068 of ERISA.
SECTION 11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) the Operating Partnership defaults in the payment of any
principal or Make-Whole Amount, if any, on any Note when the same
becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise; or
(b) the Operating Partnership defaults in the payment of any
interest on any Note for more than five Business Days after the same
becomes due and payable; or
(c) either Constituent Company defaults in the performance of
or compliance with any term contained in SECTION 7.1(d) or SECTIONS
10.1 through 10.3, both inclusive; or
(d) either Constituent Company defaults in the performance of
or compliance with any term contained herein (other than those referred
to in paragraphs (a), (b) and
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(c) of this SECTION 11) and such default is not remedied within 30 days
after the earlier of (1) a Responsible Officer obtaining actual
knowledge of such default and (2) such Constituent Company receiving
written notice of such default from any holder of a Note (any such
written notice to be identified as a "notice of default" and to refer
specifically to this paragraph (d) of SECTION 11); or
(e) any representation or warranty made in writing by or on
behalf of either Constituent Company or any Subsidiary Guarantor or by
any officer of either Constituent Company or any Subsidiary Guarantor
in this Agreement, the Guaranty Agreement, the Subsidiary Guaranty
Agreement or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect
in any material respect on the date as of which made; or
(f) (1) the Trust or any Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness that is outstanding in an aggregate principal amount of at
least $10,000,000 beyond any period of grace provided with respect
thereto, or (2) the Trust or any Subsidiary is in default in the
performance of or compliance with any term of any evidence of any
Indebtedness in an aggregate outstanding principal amount of at least
$10,000,000 or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such
default or condition such Indebtedness has become, or has been declared
(or one or more Persons are entitled to declare such Indebtedness to
be), due and payable before its stated maturity or before its regularly
scheduled dates of payment, or (3) as a consequence of the occurrence
or continuation of any event or condition (other than the passage of
time or the right of the holder of Indebtedness to convert such
Indebtedness into equity interests), (i) the Trust or any Subsidiary
has become obligated to purchase or repay Indebtedness before its
regular maturity or before its regularly scheduled dates of payment in
an aggregate outstanding principal amount of at least $10,000,000, or
(ii) one or more Persons have the right to require the Trust or any
Subsidiary so to purchase or repay such Indebtedness; or
(g) (1) the Guaranty Agreement or the Subsidiary Guaranty
Agreement shall prove to be unenforceable or invalid or the Trust or
any Subsidiary Guarantor shall deny or disaffirm its obligations under
the Guaranty Agreement or the Subsidiary Guaranty Agreement,
respectively, or (2) default shall occur in the observance or
performance by the Trust or any Subsidiary Guarantor of any provision
of the Guaranty Agreement or the Subsidiary Guaranty Agreement,
respectively, which is not remedied within five Business Days after the
earlier of (i) a Responsible Officer of the Trust or such Subsidiary
Guarantor obtaining actual knowledge of such default and (ii) the Trust
or such Subsidiary Guarantor receiving written notice of such default
from any holder of a Note; or
(h) the Trust or any Subsidiary (1) is generally not paying,
or admits in writing its inability to pay, its debts as they become
due, (2) files, or consents
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by answer or otherwise to the filing against it of, a petition for
relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy,
insolvency, reorganization, moratorium or other similar law of any
jurisdiction, (3) makes an assignment for the benefit of its creditors,
(4) consents to the appointment of a custodian, receiver, trustee or
other officer with similar powers with respect to it or with respect to
any substantial part of its property, (5) is adjudicated as insolvent
or to be liquidated, or (6) takes corporate action for the purpose of
any of the foregoing; or
(i) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Trust
or any of its Subsidiaries, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief
or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of the Trust or any of its
Subsidiaries, or any such petition shall be filed against the Trust or
any of its Subsidiaries and such petition shall not be dismissed within
60 days; or
(j) a final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 (excluding for purposes of such
determination such amount of any insurance proceeds paid by or on
behalf of the Trust or any of its Subsidiaries in respect of such
judgment or judgments or unconditionally acknowledged in writing to be
payable by the insurance carrier that issued the related insurance
policy) are rendered against one or more of the Trust and its
Subsidiaries and which judgments are not, within 60 days after entry
thereof, bonded, discharged or stayed pending appeal, or are not
discharged within 60 days after the expiration of such stay; or
(k) if (1) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under Section 412 of the Code, (2) a notice of intent
to terminate any Plan shall have been or is reasonably expected to be
filed with the PBGC or the PBGC shall have instituted proceedings under
ERISA Section 4042 to terminate or appoint a trustee to administer any
Plan or the PBGC shall have notified either Constituent Company or any
of their ERISA Affiliates that a Plan may become a subject of any such
proceedings, (3) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of Section 4001(a)(18) of ERISA) under all Plans,
determined in accordance with Title IV of ERISA, shall exceed
$1,000,000, (4) either Constituent Company or any of their ERISA
Affiliates shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (5)
either Constituent Company or any of their ERISA Affiliates withdraws
from any Multiemployer Plan, or (6) the Trust or any Subsidiary
establishes or amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would increase the
liability of the Trust or any Subsidiary thereunder; and any such event
or events described in clauses (1) through (6) above,
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either individually or together with any other such event or events,
could reasonably be expected to have a Material Adverse Effect.
As used in SECTION 11(k), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
SECTION 12. REMEDIES ON DEFAULT, ETC.
Section 12.1. Acceleration. (a) If an Event of Default with respect to
a Constituent Company described in paragraph (h) or (i) of SECTION 11 (other
than an Event of Default described in clause (1) of paragraph (h) or described
in clause (6) of paragraph (h) by virtue of the fact that such clause
encompasses clause (1) of paragraph (h)) has occurred, all the Notes then
outstanding shall automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing, any
holder or holders of more than 33-1/3% in principal amount of the Notes at the
time outstanding may at any time at its or their option, by notice or notices to
either Constituent Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of
SECTION 11 has occurred and is continuing, any holder or holders of Notes at the
time outstanding affected by such Event of Default may at any time, at its or
their option, by notice or notices to either Constituent Company, declare all
the Notes held by it or them to be immediately due and payable.
Upon any Note's becoming due and payable under this SECTION 12.1,
whether automatically or by declaration, such Note will forthwith mature and the
entire unpaid principal amount of such Note, plus (1) all accrued and unpaid
interest thereon and (2) the Make-Whole Amount determined in respect of such
principal amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. Each Constituent
Company acknowledges, and the parties hereto agree, that each holder of a Note
has the right to maintain its investment in the Notes free from repayment by the
Operating Partnership (except as herein specifically provided for), and that the
provision for payment of a Make-Whole Amount by the Operating Partnership in the
event that the Notes are prepaid or are accelerated as a result of an Event of
Default, is intended to provide compensation for the deprivation of such right
under such circumstances.
Section 12.2. Other Remedies. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under SECTION 12.1, the holder of
any Note at the time outstanding may proceed to protect and enforce the rights
of such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any Note, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law or otherwise.
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Section 12.3. Rescission. At any time after any Notes have been
declared due and payable pursuant to clause (b) or (c) of SECTION 12.1, the
holders of not less than 67% in principal amount of the Notes then outstanding,
by written notice to the Constituent Companies, may rescind and annul any such
declaration and its consequences if (a) the Operating Partnership has paid all
overdue interest on the Notes, all principal of and Make-Whole Amount, if any,
on any Notes that are due and payable and are unpaid other than by reason of
such declaration, and all interest on such overdue principal and Make-Whole
Amount, if any, and (to the extent permitted by applicable law) any overdue
interest in respect of the Notes, at the Default Rate, (b) all Events of Default
and Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
SECTION 17, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Notes. No rescission and annulment
under this SECTION 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.
Section 12.4. No Waivers or Election of Remedies, Expenses, Etc. No
course of dealing and no delay on the part of any holder of any Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Constituent Companies under SECTION 15,
the Constituent Companies will pay to the holder of each Note on demand such
further amount as shall be sufficient to cover all costs and expenses of such
holder incurred in any enforcement or collection under this SECTION 12,
including, without limitation, reasonable attorneys' fees, expenses and
disbursements.
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
Section 13.1. Registration of Notes. The Operating Partnership shall
keep at its principal executive office a register for the registration and
registration of transfers of Notes. The name and address of each holder of one
or more Notes, each transfer thereof and the name and address of each transferee
of one or more Notes shall be registered in such register. Prior to due
presentment for registration of transfer, the Person in whose name any Note
shall be registered shall be deemed and treated as the owner and holder thereof
for all purposes hereof, and the Operating Partnership shall not be affected by
any notice or knowledge to the contrary. The Operating Partnership shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
Section 13.2. Transfer and Exchange of Notes. Upon surrender of any
Note at the principal executive office of the Operating Partnership for
registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of such Note or its
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attorney duly authorized in writing and accompanied by the address for notices
of each transferee of such Note or part thereof), the Operating Partnership
shall execute and deliver, at the Operating Partnership's expense (except as
provided below), one or more new Notes (as requested by the holder thereof) in
exchange therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Note. Each such new Note shall be payable to
such Person as such holder may request and shall be substantially in the form of
EXHIBIT 1. Each such new Note shall be dated and bear interest from the date to
which interest shall have been paid on the surrendered Note or dated the date of
the surrendered Note if no interest shall have been paid thereon. The Operating
Partnership may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $100,000; provided that
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $100,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
SECTION 6.2, provided, however, that, such transferee will not be deemed to have
chosen the options set forth in SECTION 6.2(b), (c) or (e) unless such
transferee shall have made the disclosures referred to therein at least five
Business Days prior to its acceptance of such Note and shall have received prior
to such acceptance of such Note the certificate provided for in the penultimate
paragraph of SECTION 6.2 and such certificate shall contain the statement set
forth in either SECTION 4.3(c)(1) or (2), as applicable; and provided, further,
that, such transferee will not be deemed to have chosen an option set forth in
SECTION 6.2(a), (b) or (d) unless the applicable Class Exemption referred to
therein remains in effect at that time or another similar Class Exemption is
then available. The Constituent Companies shall exercise reasonable due
diligence as is necessary to respond to any such disclosure, provided that, if
either Constituent Company shall not respond within five Business Days following
receipt of any such disclosure, such Constituent shall be deemed to have made
the statement set forth in either Section 4.3(c)(1) or (2), as applicable.
Section 13.3. Replacement of Notes. Upon receipt by the Operating
Partnership of evidence reasonably satisfactory to it of the ownership of and
the loss, theft, destruction or mutilation of any Note (which evidence shall be,
in the case of an Institutional Investor, notice from such Institutional
Investor of such ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original Purchaser or another holder of a
Note with a minimum net worth of at least $50,000,000, such Person's
own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and
cancellation thereof,
the Operating Partnership at its own expense shall execute and deliver, in lieu
thereof, a new Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest shall
have been paid thereon.
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SECTION 14. PAYMENTS ON NOTES.
Section 14.1. Place of Payment. Subject to SECTION 14.2, payments of
principal, Make-Whole Amount, if any, and interest becoming due and payable on
the Notes shall be made in the Borough of Manhattan, City and State of New York
at the principal office of Citibank, N.A. in such jurisdiction. The Operating
Partnership may at any time, by notice to each holder of a Note, change the
place of payment of the Notes so long as such place of payment shall be either
the principal office of the Operating Partnership in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.
Section 14.2. Home Office Payment. So long as you or your nominee shall
be the holder of any Note, and notwithstanding anything contained in SECTION
14.1 or in such Note to the contrary, the Operating Partnership will pay all
sums becoming due on such Note for principal, Make-Whole Amount, if any, and
interest by the method and at the address specified for such purpose below your
name in SCHEDULE A, or by such other method or at such other address as you
shall have from time to time specified to the Operating Partnership in writing
for such purpose, without the presentation or surrender of such Note or the
making of any notation thereon, except that upon written request of the
Operating Partnership made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Operating
Partnership at its principal executive office or at the place of payment most
recently designated by the Operating Partnership pursuant to SECTION 14.1. Prior
to any sale or other disposition of any Note held by you or your nominee you
will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Operating Partnership in exchange for a new Note or Notes
pursuant to SECTION 13.2. The Operating Partnership will afford the benefits of
this SECTION 14.2 to any Institutional Investor that is the direct or indirect
transferee of any Note purchased by you under this Agreement and that has made
the same agreement relating to such Note as you have made in this SECTION 14.2.
SECTION 15. EXPENSES, ETC.
Section 15.1. Transaction Expenses. Whether or not the transactions
contemplated hereby are consummated, the Constituent Companies will pay all
costs and expenses (including reasonable attorneys' fees of a special counsel
and, if reasonably required, local or other counsel) incurred by you and each
Other Purchaser or holder of a Note in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of this
Agreement, the Guaranty Agreement, the Subsidiary Guaranty Agreement or the
Notes (whether or not such amendment, waiver or consent becomes effective),
including, without limitation: (a) the costs and expenses incurred in enforcing
or defending (or determining whether or how to enforce or defend) any rights
under this Agreement, the Guaranty Agreement, the Subsidiary Guaranty Agreement
or the Notes or in responding to
-34-
<PAGE> 41
any subpoena or other legal process or informal investigative demand issued in
connection with this Agreement, the Guaranty Agreement, the Subsidiary Guaranty
Agreement or the Notes, or by reason of being a holder of any Note or the
beneficiary of the Guaranty Agreement or the Subsidiary Guaranty Agreement, and
(b) the costs and expenses, including financial advisors' fees, incurred in
connection with the insolvency or bankruptcy of either Constituent Company or
any Subsidiary or in connection with any work-out or restructuring of the
transactions contemplated hereby, by the Guaranty Agreement, by the Subsidiary
Guaranty Agreement and by the Notes. The Constituent Companies will pay, and
will save you and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses, if any, of brokers and finders (other
than those retained by you).
Section 15.2. Survival. The obligations of the Constituent Companies
under this SECTION 15 will survive the payment or transfer of any Note, the
enforcement, amendment or waiver of any provision of this Agreement, the
Guaranty Agreement, the Subsidiary Guaranty Agreement or the Notes, and the
termination of this Agreement, the Guaranty Agreement or the Subsidiary Guaranty
Agreement.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of either Constituent Company pursuant to this
Agreement shall be deemed representations and warranties of such Constituent
Company under this Agreement. Subject to the preceding sentence, this Agreement,
the Guaranty Agreement, the Subsidiary Guaranty Agreement and the Notes embody
the entire agreement and understanding between you and the Constituent Companies
and supersede all prior agreements and understandings relating to the subject
matter hereof.
SECTION 17. AMENDMENT AND WAIVER.
Section 17.1. Requirements. This Agreement and the Notes may be
amended, and the observance of any term hereof or of the Notes may be waived
(either retroactively or prospectively), with (and only with) the written
consent of the Constituent Companies and the Required Holders, except that (a)
no amendment or waiver of any of the provisions of SECTION 1, 2, 3, 4, 5, 6 or
21 hereof, or any defined term (as it is used therein), will be effective as to
you unless consented to by you in writing, and (b) no such amendment or waiver
may, without the written consent of the holder of each Note at the time
outstanding affected thereby, (1) subject to the provisions of SECTION 12
relating to acceleration or rescission, change the amount or time of any
prepayment or payment of principal of, or reduce the rate or change the time of
payment or method of computation of interest or of the Make-Whole Amount on, the
Notes, (2) change the percentage of the principal amount of the Notes the
holders of which are required to consent to any such amendment or waiver, or (3)
amend any of SECTIONS 8, 11(a), 11(b), 12, 17 or 20.
-35-
<PAGE> 42
Section 17.2. Solicitation of Holders of Notes.
(a) Solicitation. The Constituent Companies will provide each holder
of the Notes (irrespective of the amount of Notes then owned by it) with
sufficient information, sufficiently far in advance of the date a decision is
required, to enable such holder to make an informed and considered decision with
respect to any proposed amendment, waiver or consent in respect of any of the
provisions hereof or of the Notes. The Constituent Companies will deliver
executed or true and correct copies of each amendment, waiver or consent
effected pursuant to the provisions of this SECTION 17 to each holder of
outstanding Notes promptly following the date on which it is executed and
delivered by, or receives the consent or approval of, the requisite holders of
Notes.
(b) Payment. The Constituent Companies will not directly or
indirectly pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, or grant any security, to
any holder of Notes as consideration for or as an inducement to the entering
into by any holder of Notes of any waiver or amendment of any of the terms and
provisions hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
Section 17.3. Binding Effect, Etc. Any amendment or waiver consented to
as provided in this SECTION 17 applies equally to all holders of Notes and is
binding upon them and upon each future holder of any Note and upon the
Constituent Companies without regard to whether such Note has been marked to
indicate such amendment or waiver. No such amendment or waiver will extend to or
affect any obligation, covenant, agreement, Default or Event of Default not
expressly amended or waived or impair any right consequent thereon. No course of
dealing between the Constituent Companies and the holder of any Note nor any
delay in exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any holder of such Note. As used herein, the term "this
Agreement" and references thereto shall mean this Agreement as it may from time
to time be amended or supplemented.
Section 17.4. Notes held by Constituent Company, Etc. Solely for the
purpose of determining whether the holders of the requisite percentage of the
aggregate principal amount of Notes then outstanding approved or consented to
any amendment, waiver or consent to be given under this Agreement or the Notes,
or have directed the taking of any action provided herein or in the Notes to be
taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by either Constituent Company or any of their Affiliates shall
be deemed not to be outstanding.
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<PAGE> 43
SECTION 18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telefacsimile if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(1) if to you or your nominee, to you or it at the address
specified for such communications in SCHEDULE A, or at such other
address as you or it shall have specified to the Trust in writing,
(2) if to any other holder of any Note, to such holder at
such address as such other holder shall have specified to the Trust in
writing, or
(3) if to either Constituent Company, to the Trust at its
address set forth at the beginning hereof to the attention of the
Treasurer and Secretary, or at such other address as the Trust shall
have specified to the holder of each Note in writing.
Notices under this SECTION 18 will be deemed given only when actually received.
SECTION 19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating hereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. Each
Constituent Company agrees and stipulates that, to the extent permitted by
applicable law, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you in
the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
SECTION 19 shall not prohibit either Constituent Company or any other holder of
Notes from contesting any such reproduction to the same extent that it could
contest the original, or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.
SECTION 20. CONFIDENTIAL INFORMATION.
For the purposes of this SECTION 20, "Confidential Information" means
information delivered to you by or on behalf of the Trust or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified in writing when received by you as being
confidential information of the Trust or such Subsidiary; provided that such
term does not include information that (a) was publicly known or
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<PAGE> 44
otherwise known to you prior to the time of such disclosure, (b) subsequently
becomes publicly known through no act or omission by you or any Person acting on
your behalf, (c) otherwise becomes known to you other than through disclosure by
the Trust or any Subsidiary or (d) constitutes financial statements delivered to
you under SECTION 7.1 that are otherwise publicly available. You will maintain
the confidentiality of such Confidential Information in accordance with
procedures adopted by you in good faith to protect confidential information of
third parties delivered to you; provided that you may deliver or disclose
Confidential Information to (1) your directors, trustees, officers, employees,
agents, attorneys and affiliates (to the extent such disclosure reasonably
relates to the administration of the investment represented by your Notes), (2)
your financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this SECTION 20, (3) any other holder of any Note, (4) any
Institutional Investor to which you sell or offer to sell such Note or any part
thereof or any participation therein (if such Person has agreed in writing prior
to its receipt of such Confidential Information to be bound by the provisions of
this SECTION 20), (5) any Person from which you offer to purchase any security
of either Constituent Company (if such Person has agreed in writing prior to its
receipt of such Confidential Information to be bound by the provisions of this
SECTION 20), (6) any Federal or state regulatory authority having jurisdiction
over you, (7) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access to
information about your investment portfolio or (8) any other Person to which
such delivery or disclosure may be necessary or appropriate (i) to effect
compliance with any law, rule, regulation or order applicable to you, (ii) in
response to any subpoena or other legal process, (iii) in connection with any
litigation to which you are a party or (iv) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this Agreement, the
Guaranty Agreement or the Subsidiary Guaranty Agreement. Each holder of a Note,
by its acceptance of a Note, will be deemed to have agreed to be bound by and to
be entitled to the benefits of this SECTION 20 as though it was a party to this
Agreement. On reasonable request by the Trust in connection with the delivery to
any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Trust embodying the provisions of this SECTION 20.
SECTION 21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as
the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Trust, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in SECTION 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this SECTION 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to
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<PAGE> 45
you all of the Notes then held by such Affiliate, upon receipt by the Trust of
notice of such transfer, wherever the word "you" is used in this Agreement
(other than in this SECTION 21), such word shall no longer be deemed to refer to
such Affiliate, but shall refer to you, and you shall have all the rights of an
original holder of the Notes under this Agreement.
SECTION 22. MISCELLANEOUS.
Section 22.1. Successors and Assigns. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent holder of a Note) whether so
expressed or not.
Section 22.2. Payments due on Non-Business Days. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of or Make-Whole Amount or interest on any Note that is due on a date other than
a Business Day shall be made on the next succeeding Business Day without
including the additional days elapsed in the computation of the interest payable
on such next succeeding Business Day.
Section 22.3. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
Section 22.4. Construction. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the requirements
of this Agreement.
Section 22.5. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
Section 22.6. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of New York, excluding choice-of-law principles of the law
of such State that would require the application of the laws of a jurisdiction
other than such State.
* * * * *
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<PAGE> 46
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Constituent Companies, whereupon the foregoing shall become a binding agreement
between you and the Constituent Companies.
Very truly yours,
U.S. RESTAURANT PROPERTIES OPERATING L.P.
By: USRP Managing, Inc.,
Its General Partner
By
----------------------------------
Its
------------------------------
U.S. RESTAURANT PROPERTIES, INC.
By
----------------------------------
Its
------------------------------
Accepted as of May 1, 1998.
[VARIATION]
By
----------------------------------
Its
------------------------------
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<PAGE> 47
SCHEDULE A
(to Note Purchase Agreement)
INFORMATION RELATING TO PURCHASERS
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA $10,000,000
c/o AEGON USA Investment Management, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-5335
Attention: Director of Private Placements
Fax Number: (319) 369-2666
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, premium or interest") to:
Citibank, N.A. (ABA #021000089)
111 Wall Street
New York, New York 10043
DDA #36112805
ABA #021000089
DDA #36112805
for credit to: Life Investors Insurance Company of America
Custody Account Number 847658
Notices
All notices of payment on or in respect of the Notes and written confirmation of
each such payment to:
Life Investors Insurance Company of America
c/o AEGON USA Investment Management, Inc.
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499-5215
Attention: Michael Meese
All notices and communications, other than notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 42-0191090
<PAGE> 48
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
PEOPLES SECURITY LIFE INSURANCE COMPANY $10,000,000
c/o AEGON USA Investment Management, Inc.
400 West Market Street
Louisville, Kentucky 40202
Attention: Securities Department - 10th Floor
Fax Number: (502) 560-2030
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, premium or interest") to:
Bankers - NYC (ABA #021-001-033)
Account No. 99-911-145
for further credit to: Peoples Security Life Insurance Company
Account No. 099312
Notices
Contemporaneous with the above wire transfer, an advice setting forth (1) the
full name, interest rate and maturity date of the bond or note; (2) allocation
of payment between principal and interest; and (3) name and address of bank from
which wire transfer was sent, should be mailed to:
Attention: Securities Processing - 10th Floor
Peoples Security Life Insurance Company
c/o AEGON USA Investment Management, Inc.
400 West Market Street
Louisville, Kentucky 40202
Fax Number: (502) 560-2068
All notices and communications other than those in respect to payment to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number for Peoples Security Life Insurance Company: 56-0267250
A-2
<PAGE> 49
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
THE CANADA LIFE ASSURANCE COMPANY $1,500,000
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Attention: U.S. Private Placements, SP-11
Brian Lynch, Treasurer, U.S.
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:
Chase Manhattan Bank
ABA #021-000-021
A/C #900-9-000200
Trust Account No. G52708, The Canada Life Assurance Company
Attention: Bond Interest
reference: name of issuer, rate, maturity date, type of security,
whether principal and/or interest and due date
Notices
All notices and communications to be addressed as first provided above, except
notice with respect to payment, and written confirmation of each such payment,
to be addressed:
Chase Manhattan Bank
North America Insurance
3 Chase MetroTech Centre - 6th Floor
Brooklyn, New York 11245
Attention: Ms. Doll Balbadar
with a copy to:
The Canada Life Assurance Company
330 University Avenue, SP-12
Toronto, Ontario, Canada M5G 1R8
Attention: Supervisor, Securities Accounting
Name of Nominee in which Notes are to be issued: J. Romeo & Co.
Taxpayer I.D. Number: 38-0397420
A-3
<PAGE> 50
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
CANADA LIFE INSURANCE COMPANY OF AMERICA $3,000,000
c/o The Canada Life Assurance Company
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Attention: U.S. Private Placements, SP-11
Brian Lynch, Treasurer, U.S.
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:
Chase Manhattan Bank
ABA #021-000-021
Account #900-9-000200
Trust Account No. G52709, Canada Life Insurance Company of America
Attention: Ms. Doll Balbadar
reference: name of issuer, rate, maturity date, type of security,
whether principal and/or interest and due date
Notices
All notices and communications to be addressed as first provided above, except
notice with respect to payment, and written confirmation of each such payment,
to be addressed:
Chase Manhattan Bank
North America Insurance
3 Chase MetroTech Centre - 6th Floor
Brooklyn, New York 11245
Attention: Ms. Doll Balbadar
with a copy to:
The Canada Life Assurance Company
330 University Avenue, SP-12
Toronto, Ontario, Canada M5G 1R8
Attention: Supervisor, Securities Accounting
Name of Nominee in which Notes are to be issued: J. Romeo & Co.
Taxpayer I.D. Number: 38-2816473
A-4
<PAGE> 51
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
CANADA LIFE INSURANCE COMPANY OF NEW YORK $500,000
c/o The Canada Life Assurance Company
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Attention: U.S. Private Placements, SP-11
Brian Lynch, Treasurer, U.S.
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:
Chase Manhattan Bank
ABA #021-000-021
Account #900-9-000200
Trust Account No. G52685, Canada Life Insurance Company of New York
Attention: Bond Interest
reference: name of issuer, rate, maturity date, type of security,
whether principal and/or interest and due date
Notices
All notices and communications to be addressed as first provided above, except
notice with respect to payment, and written confirmation of each such payment,
to be addressed:
Chase Manhattan Bank
North America Insurance
3 Chase MetroTech Centre - 6th Floor
Brooklyn, New York 11245
Attention: Ms. Doll Balbadar
with a copy to:
The Canada Life Assurance Company
330 University Avenue, SP-12
Toronto, Ontario, Canada M5G 1R8
Attention: Supervisor, Securities Accounting
Name of Nominee in which Notes are to be issued: J. Romeo & Co.
Taxpayer I.D. Number: 13-2690792
A-5
<PAGE> 52
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
GE CAPITAL EDISON LIFE INSURANCE COMPANY $8,000,000
c/o GE Financial Assurance
Two Union Square, 601 Union Street
Seattle, Washington 98101
Attention: Investment Accounting - 14th Floor
Telephone No.: (206) 516-2871
Fax No.: (206) 516-4740
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, premium or interest") to:
Bankers Trust Company (ABA #021001033)
16 Wall Street
New York, New York 10015
Acct: 00154093
FCC #501551253
Notices
All notices and communications with respect to payments and written confirmation
of each such payment to be addressed as first provided above. All other
communications to be addressed:
GE Capital Edison Life Insurance Company
c/o GE Financial Assurance
Two Union Square, 601 Union Street
Seattle, WA 98101
Attn: Investment Dept., VP Private Placements
Telephone No.: (206) 516-2894
Fax No.: (206) 516-4998
Name of Nominee in which Notes are to be issued: AUER & CO.
Taxpayer I.D. Number: 16-1202227
A-6
<PAGE> 53
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
FIRST COLONY LIFE INSURANCE COMPANY $5,000,000
c/o GE Financial Assurance
Two Union Square, 601 Union Street
Seattle, WA 98101
Attn: Investment Dept., Nancy McFadden
Telephone No.: (206) 516-2894
Fax No.: (206) 916-4863
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal or interest") to:
Bankers Trust Company
16 Wall Street
New York, NY 10015
ABA #021001033
Acct: 99-911-145
FCC #098069
Notices
All notices with respect to payments and written confirmation of each such
payment to be addressed:
First Colony Life Insurance Company
c/o GE Financial Assurance
Two Union Square, 601 Union Street
Seattle, Washington 98101
Attention: Investment Accounting - 14th Floor
Telephone No.: (206) 516-2871
Fax No.: (206) 516-4740
All other communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: Salkeld & Co.
Taxpayer I.D. Number: 54-0596414
A-7
<PAGE> 54
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
THE LIFE INSURANCE COMPANY OF VIRGINIA $4,000,000
c/o GE Financial Assurance
Two Union Square, 601 Union Street
Seattle, WA 98101
Attention: Investment Department, Nancy McFadden
Phone: (206) 516-2894
Fax: (206) 516-4863
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, premium or interest") to:
Bankers Trust Company
16 Wall Street
New York, New York 10015
ABA #021001033
Acct.: 99-911-145
FCC #097828
Notices
All notices and communications with respect to payments and written confirmation
of each such payment, to be addressed to:
The Life Insurance Company of Virginia
c/o GE Financial Assurance
Two Union Square, 601 Union Street
Seattle, WA 98101
Investment Accounting, 14th Floor
Phone: (206) 516-2871
Fax: (206) 516-4740
All other communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: Salkeld & Co.
Taxpayer I.D. Number: 54-0283385
A-8
<PAGE> 55
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
HERITAGE LIFE INSURANCE COMPANY $1,000,000
c/o GE Financial Assurance
Two Union Square, 601 Union Street
Seattle, Washington 98101
Attention: Investment Dept., VP - Private Placements
Telephone No.: (206) 516-2894
Fax No.: (206) 516-4863
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, premium or interest") to:
Bankers Trust Company (ABA #021001033)
16 Wall Street
New York, New York 10015
Acct.: 99-911-145
FCC #097825
Notices
All notices and communications with respect to payments and written confirmation
of each such payment, to be addressed:
Heritage Life Insurance Company
c/o GE Financial Assurance
Two Union Square, 601 Union Street
Seattle, Washington 98101
Attention: Investment Accounting - 14th Floor
Telephone No.: (206) 516-2871
Fax No.: (206) 516-4740
All other communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: Salkeld & Co.
Taxpayer I.D. Number: 86-0165716
A-9
<PAGE> 56
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
HARTFORD ACCIDENT & INDEMNITY CO. $3,000,000
c/o The Hartford Investment Management Company
c/o Investment Department, 10th Floor - Private Placements
P. O. Box 1744
Hartford, Connecticut 06114-1744
Telefacsimile: (860) 297-8884
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, interest or premium") to:
Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
ABA #021000021
Chase NYC/Cust
A/C #900-9-000200 for F/C/T Hartford Acct G06239 HAI
Notices
All notices and communications to be addressed as first provided above, except
notices with respect to payments, and written confirmation of each such payment,
to be addressed:
The Hartford Investment Management Company
c/o Portfolio Support, 9th Floor
P. O. Box 1744
Hartford, Connecticut 06114-1744
Telefacsimile: (860) 297-8876
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 06-0383030
A-10
<PAGE> 57
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
HARTFORD LIFE INSURANCE COMPANY $5,000,000
c/o The Hartford Investment Management Company $2,000,000
c/o Investment Department, 10th Floor - Private Placements
P. O. Box 1744
Hartford, Connecticut 06114-1744
Telefacsimile: (860) 297-8884
</TABLE>
Payments (in respect of the Note in the principal amount of $5,000,000):
All payments on or in respect of the Note to be by bank wire transfer of Federal
or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, interest or premium") to:
Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
ABA #021000021
Chase NYC/Cust
A/C #900-9-000200 for F/C/T Hartford Acct G06641 CRC
Payments (in respect of the Note in the principal amount of $2,000,000):
All payments on or in respect of the Note to be by bank wire transfer of Federal
or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, interest or premium") to:
Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
ABA #021000021
Chase NYC/Cust
A/C #900-9-000200 for F/C/T Hartford Acct G06612 HVA
Notices
All notices and communications to be addressed as first provided above, except
notices with respect to payments, and written confirmation of each such payment,
to be addressed:
The Hartford Investment Management Company
c/o Portfolio Support, 9th Fl.
P. O. Box 1744
Hartford, Connecticut 06114-1744
Telefacsimile: (860) 297-8876
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 06-0974148
A-11
<PAGE> 58
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
JEFFERSON-PILOT LIFE INSURANCE COMPANY $7,500,000
P. O. Box 21008
Greensboro, North Carolina 27420
Attention: Securities Administration - 3630
Telefacsimile: (910) 691-3025
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, interest or premium") to:
Jefferson-Pilot Life Insurance Company
c/o The Bank of New York
ABA #021 000 018 BNF: IOC566
Attention: P&I Department
Notices
All notices of payment on or in respect of the Notes and written confirmation of
each such payment, to be addressed to:
Jefferson-Pilot Life Insurance Company
c/o The Bank of New York
Attention: P&I Department
P. O. Box 19266
Newark, NJ 07195
with duplicate notice to Jefferson-Pilot Life Insurance Company at the address
first provided above.
All notices and communications other than those in respect to payments to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 56-0359860
A-12
<PAGE> 59
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY $7,500,000
P. O. Box 21008
Greensboro, North Carolina 27420
Attention: Securities Administration - 3630
Telefacsimile: (336) 691-3025
</TABLE>
[For hand delivery: 100 North Greene Street
Greensboro, North Carolina 27401]
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, interest or premium") to:
Jefferson Pilot Financial Insurance Company
c/o The Bank of New York
ABA #021 000 018 BNF: IOC566
Attention: P&I Department
Notices
All notices of payment on or in respect of the Notes and written confirmation of
each such payment, to be addressed to:
Jefferson Pilot Financial Insurance Company
c/o The Bank of New York
P. O. Box 19266
Newark, New Jersey 07195
Attention: P&I Department
with duplicate notice to Jefferson Pilot Financial Insurance Company Insurance
Company at the address first provided above.
All other notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 62-0395665
A-13
<PAGE> 60
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
THE LAFAYETTE LIFE INSURANCE COMPANY $5,000,000
1905 Teal Road
P. O. Box 7007
Lafayette, Indiana 47903
Attention: Investment Department
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal or interest") to:
Federal Reserve Bank of Chicago for Merchants National
Bank/Indianapolis
for credit to the account of: The Lafayette Life Insurance Company
Attention: Interest Clerk/Security Custody
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: None
A-14
<PAGE> 61
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
THE OHIO NATIONAL LIFE INSURANCE COMPANY $10,000,000
P.O. Box 237
Cincinnati, Ohio 45201
Attention: Investment Department
Facsimile: (513) 794-4506
</TABLE>
Overnight Delivery Address:
[One Financial Way
Cincinnati, Ohio 45242]
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, premium or interest") to:
Star Bank, N.A. (ABA #042-0000-13)
Fifth and Walnut Streets
Cincinnati, Ohio 45202
for credit to: The Ohio National Life Insurance Company
Account Number 910-275-7
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 31-0397080
A-15
<PAGE> 62
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
PACIFIC LIFE INSURANCE COMPANY $5,000,000
700 Newport Center Drive $5,000,000
Newport Beach, California 92658-9000 $5,000,000
Attention: Securities Administration $5,000,000
Telephone: (714) 640-3379; Facsimile: (714) 640-3199
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, premium or interest") to:
Chase Manhattan Bank, N.A.
ABA #021-000-021
A/C = 900-9-002206
BBK = Chase Manhattan Bank/SSTO
A/C Name: Pacific Life General Account/89930705
A/C Number: 47363300
Regarding: Security Description and PPN
Notices
All notices and communications to be addressed as first provided above, except
notices with respect to payments and written confirmation of each such payment,
to be addressed:
The Chase Manhattan Bank, N.A.
P.O. Box 456, Wall Street Station
New York, New York 10005
Name of Nominee in which Notes are to be issued: ATWELL & CO
General Taxpayer I.D. Number: 95-1079000
A-16
<PAGE> 63
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
NORTHERN LIFE INSURANCE COMPANY $5,500,000
c/o ReliaStar Investment Research, Inc.
100 Washington Avenue South, Suite 800
Minneapolis, Minnesota 55401-2121
Attention: James Tobin
Phone: (612) 372-5773
Fax: (612) 372-5368
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, premium or interest") to:
U.S. Bank N.A./Mpls.
601 2nd Avenue South
Account #1602-3237-6105
ABA #091000022
Attention: Securities Accounting
Ref: Issuer, Cusip, Coupon & Maturity
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 41-1295933
A-17
<PAGE> 64
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
WASHINGTON SQUARE ADVISERS PRIVATE $1,500,000
PLACEMENT TRUST FUND
c/o Washington Square Advisers, Inc.
Attn: WSA Private Placement Trust Fund
100 Washington Avenue South, Suite 800
Minneapolis, Minnesota 55401-2121
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, premium or interest") to:
U.S. Bank NA (DTC #2839; Inst. ID #93696; Agent Bank #93697)
F/F/C U.S. Bank
ABA #091000022
A/C 180121167365
ITG A/C 47300020
Ref: Washington Square Advisers Private Placement Trust Fund
Account #: 10604960
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 41-6424976
A-18
<PAGE> 65
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK $1,000,000
c/o ReliaStar Investment Research, Inc.
100 Washington Avenue South, Suite 800
Minneapolis, Minnesota 55401-2121
Attention: James Tobin
Phone: (612) 372-5257
Fax: (612) 372-5368
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 7.15% Senior Notes due 2005, PPN 90346# AC
4, principal, premium or interest") to:
Chase Manhattan
New York, NY
A/C #544755102
F/F/C #653095 Dept. 571 NonStandard Securities Acct. #1960
Bank ABA #021000021
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: SIGLER & CO.
Taxpayer I.D. Number: 53-0242530
A-19
<PAGE> 66
SCHEDULE B
(to Note Purchase Agreement)
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"Affiliate" means, at any time, (a) with respect to any Person, any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) with respect to the Trust or any Subsidiary, any
Person beneficially owning or holding, directly or indirectly, 10% or more of
any class of Voting Equity Interests of the Trust or any Subsidiary or any
corporation or other legal entity of which the Trust and its Subsidiaries
beneficially own or hold, in the aggregate, directly or indirectly, 10% or more
of any class of Voting Equity Interests. As used in this definition, "Control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of Voting Equity Interests, by contract or otherwise. Unless the
context otherwise clearly requires, any reference to an "Affiliate" is a
reference to an Affiliate of the Trust.
"Annual Service Charge" for any period means sum of (a) all interest
expense and all amortization of debt discount and expense during such period in
respect of Indebtedness of the Trust and its Subsidiaries, and (b) all dividends
payable during such period in respect of Disqualified Stock of the Trust and its
Subsidiaries.
"Business Day" means (a) for the purposes of SECTION 8.7 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York,
New York are required or authorized to be closed, and (b) for the purposes of
any other provision of this Agreement, any day other than a Saturday, a Sunday
or a day on which commercial banks in New York, New York or Dallas, Texas are
required or authorized to be closed.
"Capital Lease" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Closing" is defined in SECTION 3.
"Change in Control" is defined in SECTION 8.3(h).
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Confidential Information" is defined in SECTION 20.
<PAGE> 67
"Consolidated Income Available for Debt Service" for any period shall
mean the sum of (a) Consolidated Net Income prior to the recognition of any
gains or losses on the sale or other disposition of properties during such
period plus (to the extent deducted in determining Consolidated Net Income), (b)
all provisions for any Federal, state or other income taxes made by the Trust
and its Subsidiaries during such period, (c) all interest expense and all
amortization of debt discount and expense during such period in respect of
Indebtedness of the Trust and its Subsidiaries, (d) the amount of all
depreciation and amortization expense and any non-cash charge resulting from a
change in accounting principles of the Trust and its Subsidiaries during such
period, and (e) the amortization of deferred charges of the Trust and its
Subsidiaries during such period.
"Consolidated Indebtedness" means, as of any date of determination, and
without duplication, the total of all Indebtedness of the Trust and its
Subsidiaries outstanding on such date, after eliminating all offsetting debits
and credits among the Trust and its Subsidiaries and all other items required to
be eliminated in the course of the preparation of consolidated financial
statements of the Trust and its Subsidiaries in accordance with GAAP.
"Consolidated Net Income" for any period means the gross revenues of
the Trust and its Subsidiaries for such period less all expenses and other
proper charges (including taxes on income), determined on a consolidated basis
in accordance with GAAP after eliminating earnings or losses attributable to
outstanding Minority Interests, but excluding in any event:
(a) any gains or losses on the sale or other disposition of
investments or fixed or capital assets, and any taxes on such excluded
gains and any tax deductions or credits on account of any such excluded
losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Subsidiary accrued prior to
the date it became a Subsidiary;
(d) net earnings and losses of any corporation (other than a
Subsidiary), substantially all the assets of which have been acquired
in any manner by the Trust or any Subsidiary, realized by such
corporation prior to the date of such acquisition;
(e) net earnings and losses of any corporation (other than a
Subsidiary) with which the Trust or a Subsidiary shall have
consolidated or which shall have merged into or with the Trust or a
Subsidiary prior to the date of such consolidation or merger;
(f) net earnings of any business entity (other than a
Subsidiary) in which the Trust or any Subsidiary has an ownership
interest unless such net earnings shall have actually been received by
the Trust or such Subsidiary in the form of cash distributions;
(g) any portion of the net earnings of any Subsidiary which
for any reason is unavailable for payment of dividends to the Trust or
any other Subsidiary;
B-2
<PAGE> 68
(h) earnings resulting from any reappraisal, revaluation or
write-up of assets;
(i) any deferred or other credit representing any excess of
the equity in any Subsidiary at the date of acquisition thereof over
the amount invested in such Subsidiary;
(j) any gain arising from the acquisition of any securities of
the Trust or any Subsidiary;
(k) any reversal of any contingency reserve, except to the
extent that provision for such contingency reserve shall have been made
from income arising during such period; and
(l) any other extraordinary gain or loss.
"Consolidated Net Worth" means, as of the date of any determination
thereof, the amount of the capital stock accounts (net of treasury stock, at
cost) plus (or minus in the case of a deficit) the surplus and retained earnings
of the Trust and its Subsidiaries as determined in accordance with GAAP.
"Consolidated Total Assets" means, as of any date of determination, the
sum of (a) all Undepreciated Real Estate Assets of the Trust and its
Subsidiaries and (b) all other assets of the Trust and its Subsidiaries (other
than accounts receivables and intangible assets), after eliminating all
offsetting debits and credits among the Trust and its Subsidiaries and all other
items required to be eliminated in the course of the preparation of consolidated
financial statements of the Trust and its Subsidiaries in accordance with GAAP.
"Consolidated Total Capitalization" means, as of the date of any
determination thereof, the sum of (a) Consolidated Indebtedness, (b)
Consolidated Net Worth as at the end of the fiscal quarter of the Trust then
most recently ended and (c) the amount of accumulated depreciation and
amortization set forth on the consolidated balance sheet of the Trust and its
Subsidiaries as at the end of the fiscal quarter of the Trust then most recently
ended.
"Constituent Companies" is defined in the Preamble.
"Control Event" is defined in SECTION 8.3(i).
"Default" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"Default Rate" means that rate of interest that is the greater of (a)
2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (b) 2% over the rate of interest publicly announced by
Citibank, N.A. in New York, New York as its "base" or "prime" rate.
B-3
<PAGE> 69
"Disqualified Stock" means any capital stock of a Person which by the
terms of such capital stock (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable), upon the happening
of any event or otherwise (a) matures or is mandatorily redeemable, pursuant to
a sinking fund obligation or otherwise (other than capital stock which is
redeemable solely in exchange for common stock), (b) is convertible into or
exchangeable or exercisable for Indebtedness or Disqualified Stock or (c) is
redeemable at the option of the holder thereof, in whole or in part (other than
capital stock which is redeemable solely in exchange for capital stock which is
not Disqualified Stock or the redemption price of which may, at the option of
such Person, be paid in capital stock which is not Disqualified Stock), in each
case, on or prior to the stated maturity of the Notes.
"Environmental Laws" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with either
Constituent Company under Section 414 of the Code.
"Event of Default" is defined in SECTION 11.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"General Partner" is defined in SECTION 5.1(A).
"Governmental Authority" means
(a) the government of
(1) the United States of America or any State or other
political subdivision thereof, or
(2) any jurisdiction in which the Trust or any
Subsidiary conducts all or any part of its business, or which
asserts jurisdiction over any properties of the Trust or any
Subsidiary, or
B-4
<PAGE> 70
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"Guaranty" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such Indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (1) for the purchase or payment
of such Indebtedness or obligation, or (2) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor under
any Guaranty, the Indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"Guaranty Agreement" is defined in SECTION 2.
"Hazardous Material" means any and all pollutants, toxic or hazardous
wastes or any other substances, including all substances listed in or regulated
in any Environmental Law that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, regulated, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"holder" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to SECTION
13.1.
"Indebtedness" with respect to any Person means, at any time, without
duplication,
B-5
<PAGE> 71
and whether or not contingent, (a) its liabilities for borrowed money,
including, without limitation, all such liabilities evidenced by bonds, notes,
debentures or similar instruments whether or not such liabilities are secured by
any Lien existing on property owned by such Person, (b) all indebtedness for
borrowed money of any other Person which is secured by any Lien existing on
property owned by such first Person, to the extent of the lesser of (1) the
amount of indebtedness so secured and (2) the fair market value of the property
subject to such Lien, (c) all reimbursement obligations, contingent or
otherwise, in connection with any letters of credit actually issued and amounts
representing the balance deferred and unpaid of the purchase price of any
property or services except any such balance that constitutes an accrued expense
or trade payable, and all conditional sale obligations and obligations under any
title retention agreement, (d) the principal amount of all obligations of such
Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock, (e) any lease of property by the such Person as lessee which
is reflected on such Person's consolidated balance sheet as a Capital Lease in
accordance with GAAP, (f) all interest rate swaps, caps or similar agreements
and foreign exchange contracts, currency swaps or similar agreements, to the
extent, in the case of items of indebtedness under (a) through (c) above, that
any such items (other than letters of credit) would appear as a liability on
such Person's consolidated balance sheet in accordance with GAAP, and (g) to the
extent not otherwise included, any obligation by such Person to be liable for,
or to pay, as obligor, guarantor under a Guaranty or otherwise (other than for
purposes of collection in the ordinary course of business), Indebtedness of
another Person.
"Institutional Investor" means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than 5% of the aggregate principal amount
of the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"Intercreditor Agreement" shall mean that certain Intercreditor
Agreement dated as of January 9, 1998, among the parties to the 1997 Note
Purchase Agreement and the Revolving Credit Agreement, as amended from time to
time.
"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"Make-Whole Amount" is defined in SECTION 8.7.
"Material" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Trust and
its Subsidiaries, taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets, properties or
prospects of the Trust and its
B-6
<PAGE> 72
Subsidiaries, taken as a whole, or (b) the ability of the Trust to perform its
obligations under this Agreement and the Guaranty Agreement, (c) the ability of
the Operating Partnership to perform its obligations under this Agreement or the
Notes, or (d) the validity or enforceability against the Constituent Companies
of this Agreement, the Guaranty Agreement or the Notes.
"Memorandum" is defined in SECTION 5.3.
"Minority Interest" shall mean any shares of stock of any class of, or
any partnership, membership or other ownership in, a Subsidiary (other than
directors qualifying shares as required by law) that are not owned by the Trust
and/or one or more of its Subsidiaries.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as
such term is defined in Section 4001(a)(3) of ERISA).
"1997 Note Purchase Agreements" shall mean those certain separate Note
Purchase Agreements each dated as of January 31, 1997, as amended by the First
Amendment dated January 9, 1998, among the Operating Partnership, the Trust,
certain Subsidiaries thereto and the Purchasers named in Annex I thereto, as
amended from time to time.
"Notes" is defined in SECTION 1.
"Officer's Certificate" means a certificate of a Senior Financial
Officer or of any other officer of the Trust or of the general partner of the
Operating Partnership, as applicable, whose responsibilities extend to the
subject matter of such certificate.
"Operating Partnership" is defined in the Preamble.
"Other Agreements" is defined in SECTION 2.
"Other Purchasers" is defined in SECTION 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Permitted Management Transferee" is defined in SECTION 8.3(J).
"Person" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in Section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by either Constituent Company or any of
their ERISA Affiliates or with respect to which either Constituent Company or
any of their ERISA Affiliates may have any liability.
"Priority Debt" means all Indebtedness of the Trust and its
Subsidiaries secured by Liens.
B-7
<PAGE> 73
"property" or "properties" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"Proposed Prepayment Date" is defined in SECTION 8.3(c).
"PTE" is defined in SECTION 6.2(a).
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"Required Holders" means, at any time, the holders of at least 51% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by the Trust or any of its Affiliates).
"Responsible Officer" means any Senior Financial Officer and any other
officer of the Trust, the general partner of the Operating Partnership or any
Subsidiary Guarantor, as applicable, with responsibility for the administration
of the relevant portion of this Agreement.
"Revolving Credit Agreement" shall mean that certain Revolving Credit
Agreement dated January 9, 1998, among the Operating Partnership, the
institutions party thereto and Union Bank of Switzerland, New York Branch, as
Agent, as amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Trust, the Operating
Partnership or any Subsidiary Guarantor, as applicable.
"Source" is defined in SECTION 6.2.
"Subsidiary" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient Voting Equity
Interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Trust.
"Subsidiary Guarantor" is defined in SECTION 2.
"Subsidiary Guaranty Agreement" is defined in SECTION 2.
B-8
<PAGE> 74
"Successor Corporation" is defined in SECTION 10.3.
"Total Unencumbered Assets" as of any date means the sum of (a)
Undepreciated Real Estate Assets not subject to a Lien securing indebtedness for
borrowed money; and (b) the book value of all other assets of the Trust and its
Subsidiaries (other than accounts receivables and intangible assets) not subject
to a Lien securing indebtedness for borrowed money, determined on a consolidated
basis in accordance with GAAP.
"Undepreciated Real Estate Assets" as of any date means the cost
(original cost plus capital improvements) of real estate assets of the Trust and
its Subsidiaries on such date, before depreciation and amortization, determined
on a consolidated basis in accordance with GAAP.
"Unsecured Indebtedness" means at any time the aggregate unpaid
principal amount of all Indebtedness of the Trust and its Subsidiaries other
than (a) Indebtedness of a Subsidiary owing to a Constituent Company or to a
Wholly-Owned Subsidiary and (b) Priority Debt.
"Voting Equity Interests" means with respect to any Person,
(a) at any time that such Person is a corporation, the
capital stock of any class or classes of such Person the holders of
which are ordinarily, in the absence of contingencies, entitled to vote
in the election of corporate directors,
(b) at any time that such Person is a partnership, joint
venture or similar entity, the capital interest or profits interest of
such Person,
(c) at any time that such Person is a limited liability
company, the membership interests of such Person, and
(d) at any time that such Person is a trust, business trust,
association or other unincorporated organization, the beneficial
interest of such Person.
"Wholly-Owned Subsidiary" means, at any time, any Subsidiary one
hundred percent (100%) of all of the Voting Equity Interests (except directors'
qualifying shares) and Voting Equity Interests of which are owned by any one or
more of the Trust and the Trust's other Wholly-Owned Subsidiaries at such time.
B-9
<PAGE> 75
SCHEDULE 4.10
(to Note Purchase Agreement)
CHANGES IN ORGANIZATIONAL STRUCTURE
None
<PAGE> 76
SCHEDULE 5.3
(to Note Purchase Agreement)
DISCLOSURE MATERIALS
None
<PAGE> 77
SCHEDULE 5.4
(to Note Purchase Agreement)
SUBSIDIARIES OF THE TRUST
AND OWNERSHIP OF EQUITY INTERESTS
<PAGE> 78
SCHEDULE 5.4
(to Note Purchase Agreement)
DIRECTORS AND SENIOR OFFICERS
OF THE TRUST
Directors
Robert J. Stetson
Fred H. Margolin
Darrel Rolph
David Rolph
Gerald H. Graham
Eugene P. Taper
Officers
Robert J. Stetson
President and Chief Executive Officer
Fred H. Margolin
Chairman and Treasurer
Michael D. Warren
Director of Finance
<PAGE> 79
SCHEDULE 5.5
(to Note Purchase Agreement)
FINANCIAL STATEMENTS
1. SEC Form 10-K for the fiscal year ended December 31, 1997.
2. Unaudited consolidated balance sheet, income statement and statement of
cash flows for the fiscal quarter ended March 31, 1998.
<PAGE> 80
SCHEDULE 5.8
(to Note Purchase Agreement)
CERTAIN LITIGATION
None
<PAGE> 81
SCHEDULE 5.11
(to Note Purchase Agreement)
PATENTS, ETC.
None
<PAGE> 82
SCHEDULE 5.14
(to Note Purchase Agreement)
USE OF PROCEEDS
Proceeds from the sale of the Notes will be used to pay down existing
indebtedness of the Operating Partnership to Union Bank of Switzerland and for
general corporate purposes.
<PAGE> 83
SCHEDULE 5.15
(to Note Purchase Agreement)
EXISTING INDEBTEDNESS AT
APRIL 30, 1998
1. $175,000,000 Revolving Credit Agreement dated as of January 9, 1998,
between Union Bank of Switzerland and the Operating Partnership ("Bank Loan").
The Bank Loan is guaranteed by U.S. Restaurant Properties, Inc.
2. $12,500,000 aggregate amount of notes, due January 31, 2000, and
$27,500,000 aggregate amount of notes due January 31, 2002, issued pursuant to
the Note Purchase Agreement dated as of January 31, 1997 (the "Notes") from the
Operating Partnership to Pacific Mutual Life Insurance Company, The Ohio
National Life Insurance Company, Jefferson-Pilot Life Insurance Company,
Alexander Hamilton Life Insurance Company of America, First Alexander Hamilton
Life Insurance Company, Reliastar Life Insurance Company, Northern Life
Insurance Company, Reliastar Bankers Security Life Insurance Company, and
Reliastar United Services Life Insurance Company.
The Notes are guaranteed, jointly and severally, by U.S. Restaurant
Properties, Inc., USRP (Consolidating), LLC, USRP (West Virginia)
Partners, L.P., Restaurant Renovation Partners, L.P., U.S. Restaurant
Properties Development L.P., USRP (Lincoln), Ltd., USRP (Norman), Ltd.,
and USRP (Carolina), Ltd.
3. $200,000,000 Warehouse Line of Credit from U.S. Restaurant Lending
Group I, L.P., payable to Goldman Sachs Mortgage Company.
4. $1,038,888.00 Standby Letters of Credit issued by Comerica Bank -
Texas.
<PAGE> 84
EXHIBIT 1
(to Note Purchase Agreement)
FORM OF NOTE
U.S. RESTAURANT PROPERTIES OPERATING L.P.
7.15% Senior Note due May 1, 2005
No. _________ ___________, 199_
$____________ PPN 90345# AC 4
FOR VALUE RECEIVED, the undersigned, U.S. RESTAURANT PROPERTIES
OPERATING L.P. (herein called the "Operating Partnership"), a limited
partnership organized and existing under the laws of the State of Delaware,
hereby promises to pay to ____________________, or registered assigns, the
principal sum of ____________________ DOLLARS on May 1, 2005, with interest
(computed on the basis of a 360-day year of twelve 30-day months) (a) on the
unpaid balance thereof at the rate of 7.15% per annum from the date hereof,
payable semiannually, on the first day of May and November in each year,
commencing with the May 1 or November 1 next succeeding the date hereof, until
the principal hereof shall have become due and payable, and (b) to the extent
permitted by law on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of any
Make-Whole Amount (as defined in the Note Purchase Agreements referred to
below), payable semiannually as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to the
greater of (1) 9.15% or (2) 2% over the rate of interest publicly announced by
Citibank, N.A. from time to time in New York, New York as its "base" or "prime"
rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at Citibank, N.A. or at such other place as the Operating Partnership
shall have designated by written notice to the holder of this Note as provided
in the Note Purchase Agreements referred to below.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of as of
May 1, 1998 (as from time to time amended, the "Note Purchase Agreements"),
between the Operating Partnership, U.S. Restaurant Properties, Inc., a Maryland
corporation, and the respective Purchasers named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
SECTION 20 of the Note Purchase Agreements and (ii) to have made the
representation set forth in SECTION 6.2 or SECTION 13.2 of the Note Purchase
Agreements, as applicable.
This Note is a registered Note and, as provided in the Note Purchase
Agreements, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written
<PAGE> 85
instrument of transfer duly executed, by the registered holder hereof or such
holder's attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee. Prior
to due presentment for registration of transfer, the Operating Partnership may
treat the person in whose name this Note is registered as the owner hereof for
the purpose of receiving payment and for all other purposes, and the Operating
Partnership will not be affected by any notice to the contrary.
This Note and the holders hereof are entitled equally and ratably with
the holders of all other Notes to the rights and benefits provided pursuant to
the terms and provisions of the Guaranty Agreement and the Subsidiary Guaranty
Agreement (as such terms are defined in the Note Purchase Agreements). Reference
is hereby made to the Guaranty Agreement and the Subsidiary Guaranty Agreement
for a statement of the nature and extent of the benefits and security for the
Notes afforded thereby and the rights of the holders of the Notes in respect
thereof.
This Note is subject to optional prepayment, in whole or from time to
time in part, at the times and on the terms specified in the Note Purchase
Agreements, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreements,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.
This Note shall be construed and enforced in accordance with, and the
rights and parties shall be governed by, the law of the State of New York,
excluding choice-of-law principles of the law of such State which would require
application of the laws of the jurisdiction other than such State.
U.S. RESTAURANT PROPERTIES OPERATING L.P.
By: USRP Managing, Inc.
By
----------------------------------
Its
------------------------------
<PAGE> 86
EXHIBIT 4.5(a)
(to Note Purchase Agreement)
FORM OF OPINION OF SPECIAL COUNSEL
TO THE CONSTITUENT COMPANIES
The closing opinion of Middleberg, Riddle & Gianna, counsel for the
Constituent Companies, which is called for by SECTION 4.5 of the Agreement,
shall be dated the date of the Closing and addressed to you and the Other
Purchasers, shall be satisfactory in scope and form to you and the Other
Purchasers and shall be to the effect that:
1. The Trust is a corporation, duly incorporated, validly
existing and in good standing under the laws of the State of Maryland,
has the corporate power and authority to execute and perform the
Agreement, the Other Agreements and the Guaranty Agreement, has the
full corporate power and authority to conduct the activities in which
it is now engaged and is duly licensed or qualified and is in good
standing as a foreign corporation in each jurisdiction in which the
character of the properties owned or leased by it or the nature of the
business transacted by it makes such licensing or qualification
necessary.
2. The Operating Partnership is a limited partnership, duly
organized, validly existing and in good standing under the laws of the
State of Delaware, has the power and authority to execute and perform
the Agreement, the Other Agreements and to issue the Notes, has full
power and authority to conduct the activities in which it is now
engaged and is duly qualified and is in good standing as a foreign
entity in each jurisdiction in which the character of the properties
owned or leased by it or the nature of the business transacted by it
makes such licensing or qualification necessary.
3. Each Subsidiary Guarantor is a limited liability company
or limited partnership, duly organized, validly existing and in good
standing, if applicable, under the laws of its jurisdiction of
organization, has the power and authority to execute and perform the
Subsidiary Guaranty Agreement, has the full power and authority to
conduct the activities in which it is now engaged and is duly licensed
or qualified and is in good standing as a foreign corporation or other
legal entity in each jurisdiction in which the character of the
properties owned or leased by it or the nature of the business
transacted by it makes such licensing or qualification necessary.
4. Each Subsidiary of the Trust (other than the Operating
Partnership and the Subsidiary Guarantors) is a corporation or other
legal entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and is duly licensed
or qualified and is in good standing in each jurisdiction in which the
character of the properties owned or leased by it or the nature of the
business transacted by it makes such licensing or qualification
necessary and all of the issued and outstanding shares of capital stock
or other equity interests of each Subsidiary of the
<PAGE> 87
Trust (including the Operating Partnership) have been duly issued, are
fully paid and non-assessable and are owned by the Trust, by one or
more Subsidiaries, or by the Trust and one or more Subsidiaries.
5. The Agreement and the Other Agreements have been duly
authorized by all necessary action on the part of each Constituent
Company, have been duly executed and delivered by each Constituent
Company and constitute the legal, valid and binding contracts of each
Constituent Company enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and similar laws affecting creditors' rights
generally, and general principles of equity (regardless of whether the
application of such principles is considered in a proceeding in equity
or at law).
6. The Notes have been duly authorized by all necessary
action on the part of the Operating Partnership, and the Notes being
delivered on the date of the Closing have been duly executed and
delivered by the Operating Partnership and constitute the legal, valid
and binding obligations of the Operating Partnership enforceable in
accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and
similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).
7. The Guaranty Agreement has been duly authorized by all
necessary corporate action on the part of the Trust, has been duly
executed and delivered by the Trust and constitutes the legal, valid
and binding contract of the Trust enforceable in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and similar laws affecting creditors' rights
generally, and general principles of equity (regardless of whether the
application of such principles is considered in a proceeding in equity
or at law).
8. The Subsidiary Guaranty Agreement has been duly
authorized by all necessary action on the part of each Subsidiary
Guarantor, has been duly executed and delivered by each Subsidiary
Guarantor and constitutes the legal, valid and binding contract of each
Subsidiary Guarantor enforceable in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and similar laws affecting creditors' rights generally, and
general principles of equity (regardless of whether the application of
such principles is considered in a proceeding in equity or at law).
9. No approval, consent or withholding of objection on the
part of, or filing, registration or qualification with, any
Governmental Authority, Federal or state is necessary in connection
with the execution and delivery of the Agreement, the Other Agreements,
the Guaranty Agreement, the Subsidiary Guaranty Agreement or the Notes.
<PAGE> 88
10. The issuance and sale of the Notes and the execution,
delivery and performance by the Operating Partnership of the Agreement,
the Other Agreements do not conflict with or result in any breach of
any of the provisions of or constitute a default under or result in the
creation or imposition of any Lien upon any of the property of the
Operating Partnership pursuant to the provisions of the Certificate of
Limited Partnership or the Limited Partnership Agreement of the
Operating Partnership or any agreement or other instrument known to
such counsel to which the Operating Partnership is a party or by which
the Operating Partnership may be bound.
11. The execution, delivery and performance by the Trust of
the Agreement, the Other Agreements and the Guaranty Agreement do not
conflict with or result in any breach of any of the provisions of or
constitute a default under or result in the creation or imposition of
any Lien upon any of the property of the Trust pursuant to the
provisions of the Articles of Incorporation or Bylaws of the Trust or
any agreement or other instrument known to such counsel to which the
Trust is a party or by which the Trust may be bound.
12. The execution, delivery and performance by the Subsidiary
Guarantors of the Subsidiary Guaranty Agreement do not conflict with or
result in any breach of any of the provisions of or constitute a
default under or result in the creation or imposition of any Lien upon
any of the property of any Subsidiary Guarantor pursuant to the
provisions of the organizational documents of such Subsidiary Guarantor
or any agreement or other instrument known to such counsel to which
such Subsidiary Guarantor is a party or by which such Subsidiary
Guarantor may be bound.
13. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Agreement and the Other Agreements
and the delivery of the Guaranty Agreement and the Subsidiary Guaranty
Agreement do not, under existing law, require the registration of the
Notes or the Guaranty Agreement or the Subsidiary Guaranty Agreement
under the Securities Act of 1933, as amended, or the qualification of
an indenture under the Trust Indenture Act of 1939, as amended.
14. Since its organization, the Trust has been organized in
conformity with the requirements for qualification and taxation as a
"real estate investment trust" under the Code.
15. To the best of such counsel's knowledge after due
inquiry, there are no actions, suits or proceedings pending or
threatened against or affecting the Trust or any Subsidiary, at law or
in equity in any court or before any Governmental Authority, which if
adversely determined would individually or in the aggregate have a
Material Adverse Effect.
The opinion of Middleberg, Riddle & Gianna, counsel to the Constituent
Companies, shall cover such other matters relating to the sale of the Notes as
you and the Other Purchasers may reasonably request. With respect to matters of
fact on which such opinion is based, such counsel shall be entitled to rely on
appropriate certificates of public officials and officers of the Constituent
Companies.
<PAGE> 89
EXHIBIT 4.5(b)
(to Note Purchase Agreement)
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
The closing opinion of Chapman and Cutler, special counsel to you and
the Other Purchasers, called for by SECTION 4.5 of the Agreement, shall be dated
the date of the Closing and addressed to you and the Other Purchasers, shall be
satisfactory in form and substance to you and the Other Purchasers and shall be
to the effect that:
1. The Trust is a corporation, validly existing and in good
standing under the laws of the State of Maryland and has the power and
authority to execute and deliver the Agreement, the Other Agreements
and the Guaranty Agreement.
2. The Operating Partnership is a limited partnership,
validly existing and in good standing under the laws of the State of
Delaware and has the power and the authority to execute and deliver the
Agreement, the Other Agreements and to issue the Notes.
3. The Agreement and the Other Agreements have been duly
authorized by all necessary action on the part of each Constituent
Company, have been duly executed and delivered by each Constituent
Company and constitute the legal, valid and binding contracts of each
Constituent Company enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency, fraudulent conveyance and
similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).
4. The Notes have been duly authorized by all necessary
action on the part of the Operating Partnership, and the Notes being
delivered on the date of such Closing have been duly executed and
delivered by the Operating Partnership and constitute the legal, valid
and binding obligations of the Operating Partnership enforceable in
accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting creditors'
rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a
proceeding in equity or at law).
5. The Guaranty Agreement has been duly authorized by all
necessary action on the part of the Trust, has been duly executed and
delivered by the Trust and constitutes the legal, valid and binding
contract of the Trust enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent conveyance and similar laws
affecting creditors' rights generally, and general principles of equity
(regardless of whether the application of such principles is considered
in a proceeding in equity or at law).
<PAGE> 90
6. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Agreement and the Other Agreements
and the delivery of the Guaranty Agreement do not, under existing law,
require the registration of the Notes or the Guaranty Agreement under
the Securities Act of 1933, as amended, or the qualification of an
indenture under the Trust Indenture Act of 1939, as amended.
The opinion of Chapman and Cutler shall also state that the opinion of
Middleberg, Riddle & Gianna, counsel for the Constituent Companies, is
satisfactory in scope and form to Chapman and Cutler and that, in their opinion,
you and the Other Purchasers are justified in relying thereon.
In rendering the opinion set forth in paragraph 1 above, Chapman and
Cutler may rely solely upon an examination of the Articles of Incorporation and
Bylaws of the Trust and the general corporate law of the State of Maryland. In
rendering the opinion set forth in paragraph 2 above, Chapman and Cutler may
rely solely upon an examination of the Limited Partnership Agreement of the
Operating Partnership and the limited partnership laws of the State of Delaware.
The opinion of Chapman and Cutler is limited to the laws of the State of New
York, the general corporate law of the State of Maryland, the limited
partnership laws of the State of Delaware and the Federal laws of the United
States.
With respect to matters of fact upon which such opinion is based,
Chapman and Cutler may rely on appropriate certificates of public officials and
officers of the Constituent Companies and upon representations of the
Constituent Companies and you and the Other Purchasers delivered in connection
with the issuance and sale of the Notes.
<PAGE> 1
EXHIBIT 10.7
Execution Copy
================================================================================
U.S. RESTAURANT PROPERTIES OPERATING L.P.
$47,500,000 8.22% Senior Notes due August 1, 2003
--------------------------------
NOTE PURCHASE AGREEMENT
--------------------------------
Dated as of October 15, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. AUTHORIZATION OF NOTES.................................................................1
SECTION 2. SALE AND PURCHASE OF NOTES.............................................................1
SECTION 3. CLOSING................................................................................2
SECTION 4. CONDITIONS TO CLOSING..................................................................2
Section 4.1. Guaranty Agreements....................................................................2
Section 4.2. Representations and Warranties.........................................................3
Section 4.3. Performance; No Default................................................................3
Section 4.4. Compliance Certificates................................................................3
Section 4.5. Opinions of Counsel....................................................................4
Section 4.6. Purchase Permitted by Applicable Law, Etc..............................................4
Section 4.7. Sale of Other Notes....................................................................4
Section 4.8. Payment of Special Counsel Fees........................................................4
Section 4.9. Private Placement Number...............................................................4
Section 4.10. Changes in Organizational Structure....................................................4
Section 4.11. Funding Instructions...................................................................4
Section 4.12. Proceedings and Documents..............................................................5
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE CONSTITUENT COMPANIES............................5
Section 5.1. Organization; Power and Authority......................................................5
Section 5.2. Authorization, Etc.....................................................................5
Section 5.3. Disclosure.............................................................................6
Section 5.4. Organization and Ownership of Equity Interests of Subsidiaries; Affiliates.............6
Section 5.5. Financial Statements...................................................................7
Section 5.6. Compliance with Laws, Other Instruments, Etc...........................................7
Section 5.7. Governmental Authorizations, Etc.......................................................8
Section 5.9. REIT Status; Taxes.....................................................................8
Section 5.10. Title to Property; Leases..............................................................8
Section 5.11. Licenses, Permits, Etc.................................................................9
Section 5.12. Compliance with ERISA..................................................................9
Section 5.13. Private Offering......................................................................10
Section 5.14. Use of Proceeds; Margin Regulations...................................................10
Section 5.15. Existing Indebtedness; Future Liens...................................................10
Section 5.16. Foreign Assets Control Regulations, Etc...............................................11
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.17. Status under Certain Statutes.........................................................11
Section 5.18. Obligations Rank Pari Passu; Credit Rating............................................11
Section 5.19. Environmental Matters.................................................................11
SECTION 6. REPRESENTATIONS OF THE PURCHASER......................................................12
Section 6.1. Purchase for Investment...............................................................12
Section 6.2. Source of Funds.......................................................................12
SECTION 7. INFORMATION AS TO THE TRUST...........................................................13
Section 7.1. Financial and Business Information....................................................13
Section 7.2. Officer's Certificate.................................................................16
Section 7.3. Inspection............................................................................17
SECTION 8. PREPAYMENT OF THE NOTES...............................................................17
Section 8.1. Required Prepayments..................................................................17
Section 8.2. Optional Prepayments with Make-Whole Amount...........................................17
Section 8.3. Change in Control.....................................................................18
Section 8.4. Allocation of Partial Prepayments.....................................................20
Section 8.5. Maturity; Surrender, Etc..............................................................20
Section 8.6. Purchase of Notes.....................................................................20
Section 8.7. Make-Whole Amount.....................................................................21
SECTION 9. AFFIRMATIVE COVENANTS.................................................................22
Section 9.1. Compliance with Law...................................................................22
Section 9.2. Insurance.............................................................................22
Section 9.3. Maintenance of Properties.............................................................22
Section 9.4. Payment of Taxes and Claims...........................................................23
Section 9.5. Legal Existence, Maintenance of REIT Status...........................................23
Section 9.6. Nature of Business....................................................................23
Section 9.7. Obligations to Rank Pari Passu........................................................24
Section 9.8. Additional Subsidiary Guarantors......................................................24
Section 9.9. Additional Notices....................................................................25
SECTION 10. NEGATIVE COVENANTS....................................................................25
Section 10.1. Incurrence of Indebtedness............................................................25
Section 10.2. Unencumbered Asset Coverage...........................................................26
Section 10.3. Merger, Consolidation, Etc............................................................26
Section 10.4. Guaranties............................................................................27
Section 10.5. Transactions with Affiliates..........................................................27
Section 10.6. Termination of Pension Plans..........................................................27
SECTION 11. EVENTS OF DEFAULT.....................................................................28
</TABLE>
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SECTION 12. REMEDIES ON DEFAULT, ETC..............................................................30
Section 12.1. Acceleration..........................................................................30
Section 12.2. Other Remedies........................................................................31
Section 12.3. Rescission............................................................................31
Section 12.4. No Waivers or Election of Remedies, Expenses, Etc.....................................31
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.........................................31
Section 13.1. Registration of Notes.................................................................31
Section 13.2. Transfer and Exchange of Notes........................................................32
Section 13.3. Replacement of Notes..................................................................32
SECTION 14. PAYMENTS ON NOTES.....................................................................33
Section 14.1. Place of Payment......................................................................33
Section 14.2. Home Office Payment...................................................................33
SECTION 15. EXPENSES, ETC.........................................................................34
Section 15.1. Transaction Expenses..................................................................34
Section 15.2. Survival..............................................................................34
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT..........................34
SECTION 17. AMENDMENT AND WAIVER..................................................................35
Section 17.2. Solicitation of Holders of Notes......................................................35
Section 17.3. Binding Effect, Etc...................................................................35
Section 17.4. Notes held by Constituent Company, Etc................................................36
SECTION 18. NOTICES...............................................................................36
SECTION 19. REPRODUCTION OF DOCUMENTS.............................................................36
SECTION 20. CONFIDENTIAL INFORMATION..............................................................37
SECTION 21. SUBSTITUTION OF PURCHASER.............................................................37
SECTION 22. MISCELLANEOUS.........................................................................38
Section 22.1. Successors and Assigns................................................................38
Section 22.2. Payments due on Non-Business Days.....................................................38
Section 22.3. Severability..........................................................................38
Section 22.4. Construction..........................................................................38
Section 22.5. Counterparts..........................................................................38
Section 22.6. Governing Law.........................................................................39
</TABLE>
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ATTACHMENTS TO THE NOTE PURCHASE AGREEMENT:
<TABLE>
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SCHEDULE A -- Information Relating to Purchasers
SCHEDULE B -- Defined Terms
SCHEDULE 4.10 -- Changes in Organizational Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Trust and Ownership of Equity Interests
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
SCHEDULE 5.11 -- Patents, Etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness
EXHIBIT 1 -- Form of 8.22% Senior Note due August 1, 2003
EXHIBIT 2 -- Form of Guaranty Agreement
EXHIBIT 3 -- Form of Subsidiary Guaranty Agreement
EXHIBIT 4.5(a) -- Form of Opinion of Special Counsel for the Constituent Companies
EXHIBIT 4.5(b) -- Form of Opinion of Special Counsel for the Purchasers
</TABLE>
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<PAGE> 6
U.S. RESTAURANT PROPERTIES OPERATING L.P.
U.S. RESTAURANT PROPERTIES, INC.
5310 HARVEST HILL ROAD, SUITE 270
DALLAS, TEXAS 75230
8.22% Senior Notes due August 1, 2003
Dated as of
October 15, 1998
TO THE PURCHASER LISTED IN THE
ATTACHED SCHEDULE A WHO IS A
SIGNATORY HERETO:
Ladies and Gentlemen:
U.S. RESTAURANT PROPERTIES OPERATING L.P., a Delaware limited
partnership, and U.S. RESTAURANT PROPERTIES, INC., a Maryland corporation
(respectively, the "Operating Partnership" and the "Trust," collectively, the
"Constituent Companies" and individually a "Constituent Company"), jointly and
severally agree with you as follows:
SECTION 1. AUTHORIZATION OF NOTES.
The Operating Partnership will authorize the issue and sale of
$47,500,000 aggregate principal amount of its 8.22% Senior Notes due August 1,
2003 (the "Notes," such term to include any such notes issued in substitution
therefor pursuant to SECTION 13 of this Agreement or the Other Agreements (as
hereinafter defined)). The Notes shall be substantially in the form set out in
EXHIBIT 1, with such changes therefrom, if any, as may be approved by you and
the Operating Partnership. Certain capitalized terms used in this Agreement are
defined in SCHEDULE B; references to a "Schedule" or an "Exhibit" are, unless
otherwise specified, to a Schedule or an Exhibit attached to this Agreement.
SECTION 2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Operating
Partnership will issue and sell to you and you will purchase from the Operating
Partnership, at the Closing provided for in SECTION 3, Notes in the principal
amount specified opposite your name in SCHEDULE A at the purchase price of 100%
of the principal amount thereof. Contemporaneously with entering into this
Agreement, the Constituent Companies are entering into separate Note Purchase
Agreements (the "Other Agreements") identical with this Agreement with each of
the other purchasers named in SCHEDULE A (the "Other Purchasers"), providing for
the sale at such Closing to each of the Other Purchasers of Notes in the
principal amount specified opposite its name in SCHEDULE A. Your obligation
hereunder, and the obligations of the Other Purchasers under the Other
Agreements, are several and not joint obligations, and you shall have no
<PAGE> 7
obligation under any Other Agreement and no liability to any Person for the
performance or nonperformance by any Other Purchaser thereunder.
The obligations of the Operating Partnership hereunder and under the
Other Agreements and the Notes are unconditionally guaranteed by the Trust
pursuant to that certain Guaranty Agreement dated as of the date hereof (the
"Guaranty Agreement") substantially in the form of EXHIBIT 2 and by USRP
(Consolidating), LLC, a Texas limited liability company, USRP (West Virginia)
Partners, L.P., a Texas limited partnership, Restaurant Renovation Partners,
L.P., a Texas limited partnership, U.S. Restaurant Properties Development L.P.,
a Texas limited partnership, USRP (Lincoln), Ltd., a Texas limited partnership,
USRP (Norman) Ltd., a Texas limited partnership, and USRP (Carolina), Ltd., a
Texas limited partnership (collectively, the "Subsidiary Guarantors") pursuant
to that certain Subsidiary Guaranty Agreement dated as of the date hereof (the
"Subsidiary Guaranty Agreement") substantially in the form of EXHIBIT 3.
SECTION 3. CLOSING.
The sale and purchase of the Notes to be purchased by you and the Other
Purchasers shall occur at the offices of Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603, at 10:00 a.m. Chicago time, at a closing on
November 13, 1998 (the "Closing"). At the Closing, the Operating Partnership
will deliver to you the Notes to be purchased by you in the form of a single
Note (or such greater number of Notes in denominations of at least $100,000 as
you may request) dated the date of the Closing and registered in your name (or
in the name of your nominee), against delivery by you to the Operating
Partnership or its order of immediately available funds in the amount of the
purchase price therefor by wire transfer of immediately available funds for the
account of the Operating Partnership to account number 1880283120 at Comerica
Bank - Texas, 1508 West Mockingbird Lane, Dallas, Texas 75265-0282, ABA number
111000753. If at the Closing the Operating Partnership shall fail to tender such
Notes to you as provided above in this SECTION 3, or any of the conditions
specified in SECTION 4 shall not have been fulfilled to your satisfaction, you
shall, at your election, be relieved of all further obligations under this
Agreement, without thereby waiving any rights you may have by reason of such
failure or such nonfulfillment.
SECTION 4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
Section 4.1. Guaranty Agreements. (a) The Guaranty Agreement shall have
been executed and delivered by the Trust.
(b) The Subsidiary Guaranty Agreement shall have been executed and
delivered by the Subsidiary Guarantors.
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<PAGE> 8
Section 4.2. Representations and Warranties. (a) The representations
and warranties of the Constituent Companies in this Agreement shall be correct
when made and at the time of the Closing.
(b) The representations and warranties of each Subsidiary Guarantor
in the Subsidiary Guaranty Agreement shall be correct when made at the time of
the Closing.
Section 4.3. Performance; No Default. The Constituent Companies shall
have performed and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by them prior to or at the
Closing, and after giving effect to the issue and sale of the Notes (and the
application of the proceeds thereof as contemplated by SCHEDULE 5.14), no
Default or Event of Default shall have occurred and be continuing. Neither
Constituent Company nor any Subsidiary shall have entered into any transaction
since the date of the Memorandum that would have been prohibited by SECTION 10
hereof have such Section applied since such date.
Section 4.4. Compliance Certificates.
(a) Officer's Certificate. (1) Each Constituent Company shall have
delivered to you an Officer's Certificate, dated the date of the Closing,
certifying that the conditions specified in SECTIONS 4.2, 4.3 and 4.10 have been
fulfilled.
(2) Each Subsidiary Guarantor shall have delivered to you a
certificate of an authorized officer, dated the date of the Closing, certifying
that the conditions specified in SECTION 4.1(B) and 4.2(B) have been satisfied.
(b) Secretary's Certificate. (1) Each Constituent Company shall have
delivered to you a certificate certifying as to the resolutions attached thereto
and other proceedings relating to the authorization, execution and delivery of,
this Agreement and, as applicable, the Notes and the Guaranty Agreement.
(2) Each Subsidiary Guarantor shall have delivered to you a
certificate certifying as to the resolutions attached thereto and other
proceedings relating to the authorization, execution and delivery of the
Subsidiary Guaranty Agreement.
(c) ERISA Certificate. If you shall have made the disclosures
referred to in SECTION 6.2(b), (c) or (e), you shall have received from each
Constituent Company the certificates described in the penultimate paragraph of
SECTION 6.2 and each such certificate shall state that (1) such Constituent
Company is neither a "party in interest" nor a "disqualified person" (as defined
in Section 4975(e)(2) of the Code), with respect to any plan identified pursuant
to SECTION 6.2(b) or (e) or (2) with respect to any plan, identified pursuant to
SECTION 6.2(c), neither such Constituent Company nor any "affiliate" (as defined
in Section V(c) of the QPAM Exemption) of such Constituent Company has, at such
time or during the immediately preceding one year, exercised the authority to
appoint or terminate the QPAM as manager of the assets of any plan identified in
writing pursuant to SECTION 6.2(c) or to negotiate the terms of said QPAM's
management agreement on behalf of any such identified plans.
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<PAGE> 9
Section 4.5. Opinions of Counsel. You shall have received opinions in
form and substance satisfactory to you, dated the date of the Closing (a) from
Middleberg, Riddle & Gianna, counsel for the Constituent Companies and the
Subsidiary Guarantors, covering the matters set forth in EXHIBIT 4.5(A) and
covering such other matters incident to the transactions contemplated hereby as
you or your counsel may reasonably request (and the Constituent Companies hereby
instruct their counsel to deliver such opinion to you) and (b) from Chapman and
Cutler, your special counsel in connection with such transactions, substantially
in the form set forth in EXHIBIT 4.5(B) and covering such other matters incident
to such transactions as you may reasonably request.
Section 4.6. Purchase Permitted by Applicable Law, Etc. On the date of
the Closing, your purchase of Notes shall (a) be permitted by the laws and
regulations of each jurisdiction to which you are subject, without recourse to
provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting
limited investments by insurance companies without restriction as to the
character of the particular investment, (b) not violate any applicable law or
regulation (including, without limitation, Regulation T, U or X of the Board of
Governors of the Federal Reserve System) and (c) not subject you to any tax,
penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date hereof. If requested by
you, you shall have received an Officer's Certificate certifying as to such
matters of fact as you may reasonably specify to enable you to determine whether
such purchase is so permitted.
Section 4.7. Sale of Other Notes. Contemporaneously with the Closing,
the Operating Partnership shall sell to the Other Purchasers, and the Other
Purchasers shall purchase, the Notes to be purchased by them at the Closing as
specified in SCHEDULE A.
Section 4.8. Payment of Special Counsel Fees. Without limiting the
provisions of SECTION 15.1, the Operating Partnership shall have paid on or
before the Closing the fees, charges and disbursements of your special counsel
referred to in SECTION 4.5 to the extent reflected in a statement of such
counsel rendered to the Operating Partnership at least one Business Day prior to
the Closing.
Section 4.9. Private Placement Number. A Private Placement Number
issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the
Securities Valuation Office of the National Association of Insurance
Commissioners) shall have been obtained for the Notes.
Section 4.10. Changes in Organizational Structure. Except as specified
in SCHEDULE 4.10, neither Constituent Company shall have changed its
jurisdiction of organization or been a party to any merger or consolidation and
shall not have succeeded to all or any substantial part of the liabilities of
any other entity, at any time following the date of the most recent financial
statements referred to in SCHEDULE 5.5.
Section 4.11. Funding Instructions. At least three Business Days prior
to the date of the Closing, you shall have received written instructions
executed by a Responsible Officer of the Operating Partnership directing the
manner of the payment of funds and setting forth (a) the name and address of the
transferee bank, (b) such transferee bank's ABA number, (c) the account
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<PAGE> 10
name and number into which the purchase price for the Notes is to be deposited
and (d) the name and telephone number of the account representative responsible
for verifying receipt of such funds.
Section 4.12. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
satisfactory to you and your special counsel, and you and your special counsel
shall have received all such counterpart originals or certified or other copies
of such documents as you or they may reasonably request.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE CONSTITUENT COMPANIES.
Each Constituent Company represents and warrants to you that:
Section 5.1. Organization; Power and Authority. (a) The Trust is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Trust
has the corporate power and authority to own or hold under lease the properties
it purports to own or hold under lease, to transact the business it transacts
and proposes to transact, to execute and deliver this Agreement, the Other
Agreements and the Guaranty Agreement and to perform the provisions hereof and
thereof. The Trust is owner and holder of all of the outstanding capital stock
of USRP Managing, Inc., a Delaware corporation (the "General Partner"), the sole
general partner of the Operating Partnership.
(b) The Operating Partnership is a limited partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and is duly qualified as a foreign entity and is
in good standing in each jurisdiction in which such qualification is required by
law, other than those jurisdictions as to which the failure to be so qualified
or in good standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Operating Partnership has the
power and authority to own or hold under lease the properties it purports to own
or hold under lease, to transact the business it transacts, to execute and
deliver this Agreement, the Other Agreements and the Notes and to perform the
provisions hereof and thereof.
Section 5.2. Authorization, Etc. (a) This Agreement, the Other
Agreements and the Guaranty Agreement have been duly authorized by all corporate
action on the part of the Trust, and this Agreement, the Other Agreements and
the Guaranty Agreement constitute legal, valid and binding obligations of the
Trust enforceable against the Trust in accordance with their respective terms,
except as such enforceability may be limited by (1) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (2) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
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<PAGE> 11
(b) This Agreement, the Other Agreements and the Notes have been duly
authorized by all necessary action on the part of the General Partner on behalf
of the Operating Partnership, and this Agreement and the Other Agreements
constitute, and upon execution and delivery thereof each Note will constitute,
legal, valid and binding obligations of the Operating Partnership enforceable
against the Operating Partnership in accordance with their respective terms,
except as such enforceability may be limited by (1) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (2) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
Section 5.3. Disclosure. The Trust, through its agent, Salomon Smith
Barney, has delivered to you and each Other Purchaser a copy of a Private
Placement Memorandum, dated October 1998 (the "Memorandum"), relating to the
transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Trust and its Subsidiaries. Except as disclosed in SCHEDULE 5.3, this
Agreement, the Memorandum, the documents, certificates or other writings
delivered to you by or on behalf of the Constituent Companies in connection with
the transactions contemplated hereby and the financial statements listed in
SCHEDULE 5.5, taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made. Except as disclosed in the Memorandum or as expressly described in
SCHEDULE 5.3, or in one of the documents, certificates or other writings
identified therein, or in the financial statements listed in SCHEDULE 5.5, since
December 31, 1997, there has been no change in the financial condition,
operations, business, properties or prospects of the Trust or any Subsidiary
except changes that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. There is no fact known to either
Constituent Company that could reasonably be expected to have a Material Adverse
Effect that has not been set forth herein or in the Memorandum or in the other
documents, certificates and other writings delivered to you by or on behalf of
either Constituent Company specifically for use in connection with the
transactions contemplated hereby.
Section 5.4. Organization and Ownership of Equity Interests of
Subsidiaries; Affiliates. (a) SCHEDULE 5.4 contains (except as noted therein)
complete and correct lists (1) of the Trust's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its organization, and
the percentage of shares of each class of its capital stock or similar equity
interests outstanding owned by the Trust and each other Subsidiary, (2) of the
Trust's Affiliates, other than Subsidiaries, and (3) of the Trust's directors
and senior officers.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in SCHEDULE 5.4 as being owned by the Trust
and its Subsidiaries have been validly issued, are fully paid and nonassessable
and are owned by the Trust or another Subsidiary free and clear of any Lien
(except as otherwise disclosed in SCHEDULE 5.4).
(c) Each Subsidiary identified in SCHEDULE 5.4 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each
-6-
<PAGE> 12
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate or other power
and authority to own or hold under lease the properties it purports to own or
hold under lease and to transact the business it transacts and proposes to
transact.
(d) No Subsidiary is a party to, or otherwise subject to, any legal
restriction or any agreement (other than the agreements listed on SCHEDULE 5.4
and customary limitations imposed by corporate law statutes) restricting the
ability of such Subsidiary to pay dividends out of profits or make any other
similar distributions of profits to the Trust or any of its Subsidiaries that
owns outstanding shares of capital stock or similar equity interests of such
Subsidiary.
Section 5.5. Financial Statements. The Trust has delivered to each
Purchaser copies of the financial statements of the Trust and its Subsidiaries
listed on SCHEDULE 5.5. All of said financial statements (including in each case
the related schedules and notes) fairly present in all material respects the
consolidated financial position of the Trust and its Subsidiaries or U.S.
Restaurant Properties Operating L.P. and its Subsidiaries, as applicable, as of
the respective dates specified in such financial statements and the consolidated
results of their operations and cash flows for the respective periods so
specified and have been prepared in accordance with GAAP consistently applied
throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to normal year-end
adjustments).
Section 5.6. Compliance with Laws, Other Instruments, Etc. (a) The
execution, delivery and performance by the Trust of this Agreement, the Other
Agreements and the Guaranty Agreement will not (1) contravene, result in any
breach of, or constitute a default under, or result in the creation of any Lien
in respect of any property of the Trust or any Subsidiary under, any indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate
charter, by-law, partnership agreement or any other agreement or instrument to
which the Trust or any Subsidiary is bound or by which the Trust or any
Subsidiary or any of their respective properties may be bound or affected, (2)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to the Trust or any Subsidiary or (3) violate
any provision of any statute or other rule or regulation of any Governmental
Authority applicable to the Trust or any Subsidiary.
(b) The execution, delivery and performance by the Operating
Partnership of this Agreement, the Other Agreements and the Notes will not (1)
contravene, result in any breach of, or constitute a default under, or result in
the creation of any Lien in respect of any property of the Operating Partnership
or any of its Subsidiaries under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, charter, by-law, partnership agreement or
any other agreement or instrument to which the Operating Partnership or any of
its Subsidiaries is bound or by which the Operating Partnership or any of its
Subsidiaries or any of their respective properties may be bound or affected, (2)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to the Operating Partnership or any of its
Subsidiaries or (3) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Operating Partnership
or any of its Subsidiaries.
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<PAGE> 13
Section 5.7. Governmental Authorizations, Etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by (a) the Trust of this Agreement, the Other Agreements or the Guaranty
Agreement or (b) the Operating Partnership of this Agreement, the Other
Agreements or the Notes.
Section 5.8. Litigation; Observance of Agreements, Statutes and Orders.
(a) Except as disclosed in SCHEDULE 5.8, there are no actions, suits or
proceedings pending or, to the knowledge of the Trust, threatened against or
affecting the Trust or any Subsidiary or any property of the Trust or any
Subsidiary in any court or before any arbitrator of any kind or before or by any
Governmental Authority that, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.
(b) Neither the Trust nor any Subsidiary is in default under any term
of any agreement or instrument to which it is a party or by which it is bound,
or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
Section 5.9. REIT Status; Taxes. (a) The Trust has made or will make
all filings necessary to qualify as a real estate investment trust under the
Code for the taxable year of the Trust ended December 31, 1997. Each corporate
Subsidiary of the Trust is a "qualified REIT subsidiary" within the meaning of
Section 856(i) of the Code.
(b) The Trust and its Subsidiaries have filed all tax returns that
are required to have been filed in any jurisdiction, and have paid all taxes
shown to be due and payable on such returns and all other taxes and assessments
levied upon them or their properties, assets, income or franchises, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent, except for any taxes and assessments (a) the amount of
which is not individually or in the aggregate Material or (b) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Trust or a Subsidiary, as
applicable, has established adequate reserves in accordance with GAAP. Neither
Constituent Company knows of any basis for any other tax or assessment that
could reasonably be expected to have a Material Adverse Effect. The charges,
accruals and reserves on the books of the Trust and its Subsidiaries in respect
of Federal, state or other taxes for all fiscal periods are adequate. For all
taxable years ending on or prior to December 31, 1993, the Federal income tax
liability of the Trust and its Subsidiaries has been satisfied and either the
period of limitations on assessment of additional Federal income tax has expired
or the Trust and its Subsidiaries have entered into an agreement with the
Internal Revenue Service closing conclusively the total tax liability for the
taxable year.
Section 5.10. Title to Property; Leases. The Trust and its Subsidiaries
have good and sufficient title to their respective properties that individually
or in the aggregate are Material, including all such properties reflected in the
most recent audited balance sheet referred to in SECTION 5.5 or purported to
have been acquired by the Trust or any Subsidiary after said date
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<PAGE> 14
(except as sold or otherwise disposed of in the ordinary course of business).
All leases that individually or in the aggregate are Material are valid and
subsisting and are in full force and effect in all material respects.
Section 5.11. Licenses, Permits, Etc. Except as disclosed in SCHEDULE
5.11,
(a) the Trust and its Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, service marks,
trademarks and trade names, or rights thereto, that individually or in the
aggregate are Material, without known conflict with the rights of others;
(b) to the best knowledge of the Trust, no product of the Trust or
any Subsidiary infringes in any Material respect any license, permit, franchise,
authorization, patent, copyright, service mark, trademark, trade name or other
right owned by any other Person; and
(c) to the best knowledge of the Trust, there is no Material
violation by any Person of any right of the Trust or any of its Subsidiaries
with respect to any patent, copyright, service mark, trademark, trade name or
other right owned or used by the Trust or any of its Subsidiaries.
Section 5.12. Compliance with ERISA. (a) The Constituent Companies and
each of their ERISA Affiliates have operated and administered each Plan in
compliance with all applicable laws except for such instances of noncompliance
as have not resulted in and could not reasonably be expected to result in a
Material Adverse Effect. Neither Constituent Company nor any of their ERISA
Affiliates has incurred any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the incurrence
of any such liability by either Constituent Company or any of their ERISA
Affiliates, or in the imposition of any Lien on any of the rights, properties or
assets of either Constituent Company or any of their ERISA Affiliates, in either
case pursuant to Title I or IV of ERISA or to such penalty or excise tax
provisions or to Section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as would not be individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under each
of the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities. The term "benefit liabilities" has the
meaning specified in Section 4001 of ERISA and the terms "current value" and
"present value" have the meaning specified in Section 3 of ERISA.
(c) The Constituent Companies and each of their ERISA Affiliates have
not incurred withdrawal liabilities (and are not subject to contingent
withdrawal liabilities) under Section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are Material.
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(d) The expected post-retirement benefit obligation (determined as of
the last day of the Trust's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by Section 4980B of
the Code) of the Trust and its Subsidiaries is not Material.
(e) The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction that is subject to
the prohibitions of Section 406 of ERISA or in connection with which a tax could
be imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code. The representation
by the Constituent Companies in the first sentence of this SECTION 5.12(E) is
made in reliance upon and subject to the accuracy of your representation in
SECTION 6.2 as to the sources of the funds used to pay the purchase price of the
Notes to be purchased by you.
Section 5.13. Private Offering. Neither Constituent Company nor anyone
acting on their behalf has offered the Notes, the Guaranty Agreement, the
Subsidiary Guaranty Agreement or any similar securities for sale to, or
solicited any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, any Person other than you, the Other
Purchasers and not more than 100 other Institutional Investors, each of which
has been offered the Notes, the Guaranty Agreement and the Subsidiary Guaranty
Agreement at a private sale for investment. Neither Constituent Company nor
anyone acting on their behalf has taken, or will take, any action that would
subject the issuance or sale of the Notes or the delivery of the Guaranty
Agreement or the Subsidiary Guaranty Agreement to the registration requirements
of Section 5 of the Securities Act.
Section 5.14. Use of Proceeds; Margin Regulations. The Operating
Partnership will apply the proceeds of the sale of the Notes as set forth in
SCHEDULE 5.14. No part of the proceeds from the sale of the Notes hereunder will
be used, directly or indirectly, for the purpose of buying or carrying any
margin stock within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or
trading in any securities under such circumstances as to involve the Trust or
any Subsidiary in a violation of Regulation X of said Board (12 CFR 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Trust and its Subsidiaries and the Constituent
Companies do not have any present intention that margin stock will constitute
more than 10% of the value of such assets. As used in this Section, the terms
"margin stock" and "purpose of buying or carrying" shall have the meanings
assigned to them in said Regulation U.
Section 5.15. Existing Indebtedness; Future Liens. (a) Except as
described therein, SCHEDULE 5.15 sets forth a complete and correct list of all
outstanding Indebtedness of the Trust and its Subsidiaries as of October 15,
1998, since which date there has been no Material change in the amounts,
interest rates, sinking funds, installment payments or maturities of the
Indebtedness of the Trust or its Subsidiaries. Neither the Trust nor any
Subsidiary is in default and no waiver of default is currently in effect, in the
payment of any principal or interest on any Indebtedness of the Trust or such
Subsidiary and no event or condition exists with respect to any Indebtedness of
the Trust or any Subsidiary that would permit (or that with notice or the lapse
of
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time, or both, would permit) one or more Persons to cause such Indebtedness to
become due and payable before its stated maturity or before its regularly
scheduled dates of payment.
(b) Except as disclosed in SCHEDULE 5.15, neither the Trust nor any
Subsidiary has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property, whether now owned
or hereafter acquired, to be subject to a Lien not permitted by this Agreement.
Section 5.16. Foreign Assets Control Regulations, Etc. Neither the sale
of the Notes by the Operating Partnership hereunder nor its use of the proceeds
thereof will violate the Trading with the Enemy Act, as amended, or any of the
foreign assets control regulations of the United States Treasury Department (31
CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive
order relating thereto.
Section 5.17. Status under Certain Statutes. Neither the Trust nor any
Subsidiary is an "investment company" registered or required to be registered
under the Investment Company Act of 1940, as amended, or is subject to
regulation under the Public Utility Holding Company Act of 1935, as amended, the
ICC Termination Act of 1995 or the Federal Power Act, as amended.
Section 5.18. Obligations Rank Pari Passu; Credit Rating (a) The
obligations of the Trust under this Agreement, the Other Agreements and the
Guaranty Agreement rank at least pari passu in right of payment with all other
senior unsecured Indebtedness (actual or contingent) of the Trust, including,
without limitation, all senior unsecured Indebtedness of the Trust described in
SCHEDULE 5.15 hereto.
(b) The obligations of the Operating Partnership under this
Agreement, the Other Agreements and the Notes rank at least pari passu in right
of payment with all other senior unsecured Indebtedness (actual or contingent)
of the Operating Partnership including, without limitation, all senior unsecured
Indebtedness of the Operating Partnership described in SCHEDULE 5.15 hereto.
(c) The long-term senior unsecured indebtedness of the Operating
Partnership is rated at least "BBB-" by Duff & Phelps Rating Co.
Section 5.19. Environmental Matters. Neither the Trust nor any
Subsidiary has knowledge of any claim or has received any notice of any claim,
and no proceeding has been instituted raising any claim against the Trust or any
of its Subsidiaries or any of their respective real properties now or formerly
owned, leased or operated by any of them or other assets, alleging any damage to
the environment or violation of any Environmental Laws, except, in each case,
such as could not reasonably be expected to result in a Material Adverse Effect.
Except as otherwise disclosed to you in writing:
(a) neither the Trust nor any Subsidiary has knowledge of any
facts which would give rise to any claim, public or private, of
violation of Environmental Laws or damage to the environment emanating
from, occurring on or in any way related to real
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<PAGE> 17
properties now or formerly owned, leased or operated by any of them or
to other assets or their use, except, in each case, such as could not
reasonably be expected to result in a Material Adverse Effect;
(b) neither the Trust nor any of its Subsidiaries has stored
any Hazardous Materials on real properties now or formerly owned,
leased or operated by any of them or has disposed of any Hazardous
Materials in a manner contrary to any Environmental Laws in each case
in any manner that could reasonably be expected to result in a Material
Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Trust or any of its Subsidiaries are in compliance with
applicable Environmental Laws, except where failure to comply could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 6. REPRESENTATIONS OF THE PURCHASER.
Section 6.1. Purchase for Investment. You represent that you are
purchasing the Notes for your own account or for one or more separate accounts
maintained by you or for the account of one or more pension or trust funds and
not with a view to the distribution thereof; provided that the disposition of
your or their property shall at all times be within your or their control. You
understand that the Notes have not been registered under the Securities Act and
may be resold only if registered pursuant to the provisions of the Securities
Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law, and that the Operating Partnership is not required to register the
Notes.
Section 6.2. Source of Funds. You represent that at least one of the
following statements is an accurate representation as to each source of funds (a
"Source") to be used by you to pay the purchase price of the Notes to be
purchased by you hereunder:
(a) the Source is an "insurance company general account"
within the meaning of Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee
benefit plan, treating as a single plan, all plans maintained by the
same employer or employee organization, with respect to which the
amount of the general account reserves and liabilities for all
contracts held by or on behalf of such plan, exceed 10% of the total
reserves and liabilities of such general account (exclusive of separate
account liabilities) plus surplus, as set forth in the NAIC Annual
Statement filed with your state of domicile; or
(b) the Source is either (1) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (2) a bank collective investment fund, within the meaning of
the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed
to the Constituent Companies in writing pursuant to this paragraph (b),
no employee benefit plan or group of plans maintained by the same
employer or
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<PAGE> 18
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
(c) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part l(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a Person controlling
or controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in
either Constituent Company and (1) the identity of such QPAM and (2)
the names of all employee benefit plans whose assets are included in
such investment fund have been disclosed to the Constituent Companies
in writing pursuant to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Constituent
Companies in writing pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
If you or any subsequent transferee of the Notes indicates that you or
such transferee are relying on any representation contained in paragraph (b),
(c) or (e) above, each Constituent Company shall deliver on the date of the
Closing or on the date of transfer, as applicable, a certificate, which shall
state whether (i) it is a party in interest or a "disqualified person" (as
defined in Section 4975(e)(2) of the Code), with respect to any plan identified
pursuant to paragraphs (b) or (e) above, or (ii) with respect to any plan
identified pursuant to paragraph (c) above, whether it or any "affiliate" (as
defined in Section V(c) of the QPAM Exemption) has at such time, and during the
immediately preceding one year, exercised the authority to appoint or terminate
said QPAM as manager of any plan identified in writing pursuant to paragraph (c)
above or to negotiate the terms of said QPAM's management agreement on behalf of
any such identified plan.
As used in this SECTION 6.2, the terms "employee benefit plan,"
"governmental plan," "party in interest" and "separate account" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.
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SECTION 7. INFORMATION AS TO THE TRUST.
Section 7.1. Financial and Business Information. The Trust shall
deliver to each holder of Notes that is an Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Trust (other
than the last quarterly fiscal period of each such fiscal year),
duplicate copies of:
(1) a consolidated balance sheet of the Trust and its
Subsidiaries as at the end of such quarter, and
(2) consolidated statements of income, stockholders'
equity and cash flows of the Trust and its Subsidiaries for
such quarter and (in the case of the second and third
quarters) for the portion of the fiscal year ending with such
quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer of the Trust as fairly presenting, in
all material respects, the financial position of the companies being reported on
and their results of operations and cash flows, subject to changes resulting
from year-end adjustments; provided that delivery within the time period
specified above of copies of the Trust's Quarterly Report on Form 10-Q prepared
in compliance with the requirements therefor and filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this SECTION
7.1(A);
(b) Annual Statements-- within 105 days after the end of each
fiscal year of the Trust, duplicate copies of,
(1) a consolidated balance sheet of the Trust and its
Subsidiaries, as at the end of such year, and
(2) consolidated statements of income, stockholders'
equity and cash flows of the Trust and its Subsidiaries, for
such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by:
(i) an opinion thereon of independent
certified public accountants of recognized national
standing, which opinion shall state that such
financial statements present fairly, in all material
respects, the financial position of the companies
being reported upon and their results of operations
and cash flows and have been prepared in conformity
with GAAP, and that the examination of such
accountants in connection with such financial
statements has been made in accordance with generally
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accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the
circumstances, and
(ii) a certificate of such accountants
stating that they have reviewed this Agreement and
stating further whether, in making their audit, they
have become aware of any condition or event that then
constitutes a Default or an Event of Default, and, if
they are aware that any such condition or event then
exists, specifying the nature and period of the
existence thereof (it being understood that such
accountants shall not be liable, directly or
indirectly, for any failure to obtain knowledge of
any Default or Event of Default unless such
accountants should have obtained knowledge thereof in
making an audit in accordance with generally accepted
auditing standards or did not make such an audit),
provided that the delivery within the time period specified above of
the Trust's Annual Report on Form 10-K for such fiscal year (together
with the Trust's annual report to shareholders, if any, prepared
pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance
with the requirements therefor and filed with the Securities and
Exchange Commission, together with the accountant's certificate
described in clause (2) above, shall be deemed to satisfy the
requirements of this SECTION 7.1(b);
(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (1) each financial statement, report, notice or
proxy statement sent by the Trust or any Subsidiary to public
securities holders generally, and (2) each regular or periodic report,
each registration statement (without exhibits except as expressly
requested by such holder), and each prospectus and all amendments
thereto filed by the Trust or any Subsidiary with the Securities and
Exchange Commission and of all press releases and other statements made
available generally by the Trust or any Subsidiary to the public
concerning developments that are Material;
(d) Notice of Default or Event of Default -- promptly, and in
any event within five days after a Responsible Officer becoming aware
of the existence of any Default or Event of Default or that any Person
has given any notice or taken any action with respect to a claimed
default hereunder or that any Person has given any notice or taken any
action with respect to a claimed default of the type referred to in
SECTION 11(F), a written notice specifying the nature and period of
existence thereof and what action the Trust is taking or proposes to
take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within five
days after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the applicable Constituent Company or its ERISA
Affiliate proposes to take with respect thereto:
(1) with respect to any Plan, any reportable event,
as defined in Section 4043(b) of ERISA and the regulations
thereunder, for which notice
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thereof has not been waived pursuant to such regulations as in
effect on the date hereof; or
(2) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by either Constituent Company or any of their ERISA
Affiliates of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such
Multiemployer Plan; or
(3) any event, transaction or condition that could
result in the incurrence of any liability by either
Constituent Company or any of their ERISA Affiliates pursuant
to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, or
in the imposition of any Lien on any of the rights, properties
or assets of either Constituent Company or any of their ERISA
Affiliates pursuant to Title I or IV of ERISA or such penalty
or excise tax provisions, if such liability or Lien, taken
together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material
Adverse Effect;
(f) Notices from Governmental Authority -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to
the Trust or any Subsidiary from any Federal or state Governmental
Authority relating to any order, ruling, statute or other law or
regulation that could reasonably be expected to have a Material Adverse
Effect; and
(g) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Trust or any
of its Subsidiaries or relating to the ability of the Constituent
Companies or any Subsidiary Guarantor to perform their respective
obligations hereunder, under the Guaranty Agreement, or under the
Subsidiary Guaranty Agreement or under the Notes as from time to time
may be reasonably requested by any such holder of Notes, including
without limitation, such information as is required by SEC Rule 144A
under the Securities Act to be delivered to the prospective transferee
of the Notes.
Section 7.2. Officer's Certificate. Each set of financial statements
delivered to a holder of Notes pursuant to SECTION 7.1(a) or SECTION 7.1(b)
hereof shall be accompanied by a certificate of a Senior Financial Officer of
the Trust setting forth:
(a) Covenant Compliance -- the information (including
detailed calculations) required in order to establish whether the Trust
was in compliance with the requirements of SECTION 10.1 and 10.2 hereof
during the quarterly or annual period covered by the statements then
being furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as
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the case may be, permissible under the terms of such and the
calculation of the amount, ratio or percentage then in existence); and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Trust and its Subsidiaries from the beginning of the
quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or
event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Trust or
any Subsidiary to comply with any Environmental Law), specifying the
nature and period of existence thereof and what action the Trust shall
have taken or proposes to take with respect thereto.
Section 7.3. Inspection. The Trust shall permit the representatives of
each holder of Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Trust, to visit the principal executive office of the Trust, to
discuss the affairs, finances and accounts of the Trust and its
Subsidiaries with the Trust's officers, and (with the consent of the
Trust, which consent will not be unreasonably withheld) its independent
public accountants, and (with the consent of the Trust, which consent
will not be unreasonably withheld) to visit the other offices and
properties of the Trust and each Subsidiary, all at such reasonable
times and as often as may be reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Constituent Companies, to visit and inspect any
of the offices or properties of the Trust or any Subsidiary, to examine
all their respective books of account, records, reports and other
papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective
officers and independent public accountants (and by this provision the
Trust authorizes said accountants to discuss the affairs, finances and
accounts of the Trust and its Subsidiaries), all at such times and as
often as may be requested.
SECTION 8. PREPAYMENT OF THE NOTES.
Section 8.1. Required Prepayments. No regularly scheduled prepayments
of principal of the Notes are required prior to the maturity thereof.
Section 8.2. Optional Prepayments with Make-Whole Amount. The Operating
Partnership may, at its option, upon notice as provided below, prepay at any
time all, or from time to time any part of, the Notes, in an amount not less
than $1,000,000 of the aggregate principal amount of the Notes then outstanding
in the case of a partial prepayment, at 100% of the principal amount so prepaid,
together with interest accrued thereon to the date of such prepayment, plus the
Make-Whole Amount determined for the prepayment date with respect to
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such principal amount. The Operating Partnership will give each holder of Notes
written notice of each optional prepayment under this SECTION 8.2 not less than
30 days and not more than 60 days prior to the date fixed for such prepayment.
Each such notice shall specify such date, the aggregate principal amount of the
Notes to be prepaid on such date, the principal amount of each Note held by such
holder to be prepaid (determined in accordance with SECTION 8.4), and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid, and shall be accompanied by a certificate of a Senior Financial
Officer of the Operating Partnership as to the estimated Make-Whole Amount due
in connection with such prepayment (calculated as if the date of such notice
were the date of the prepayment), setting forth the details of such computation.
Two Business Days prior to such prepayment, the Operating Partnership shall
deliver to each holder of Notes a certificate of a Senior Financial Officer of
the Operating Partnership specifying the calculation of such Make-Whole Amount
as of the specified prepayment date.
Section 8.3. Change in Control. (a) Notice of Change in Control or
Control Event. The Constituent Companies will, within five Business Days after
any Responsible Officer has knowledge of the occurrence of any Change in Control
or Control Event, give written notice of such Change in Control or Control Event
to each holder of Notes unless notice in respect of such Change in Control (or
the Change in Control contemplated by such Control Event) shall have been given
pursuant to subparagraph (b) of this Section. If a Change in Control has
occurred, such notice shall contain and constitute an offer to prepay Notes as
described in subparagraph (c) of this Section and shall be accompanied by the
certificate described in subparagraph (g) of this Section.
(b) Condition to Constituent Company Action. Neither Constituent
Company will take any action that consummates or finalizes a Change in Control
unless (1) at least 30 days prior to such action the Operating Partnership shall
have given to each holder of Notes written notice containing and constituting an
offer to prepay Notes as described in subparagraph (c) of this Section,
accompanied by the certificate described in subparagraph (g) of this Section,
and (2) contemporaneously with such action, the Operating Partnership prepays
all Notes required to be prepaid in accordance with this Section.
(c) Offer to Prepay Notes. The offer to prepay Notes contemplated by
subparagraphs (a) and (b) of this Section shall be an offer to prepay, in
accordance with and subject to this Section, all, but not less than all, the
Notes held by each holder (in this case only, "holder" in respect of any Note
registered in the name of a nominee for a disclosed beneficial owner shall mean
such beneficial owner) on a date specified in such offer (the "Proposed
Prepayment Date"). If such Proposed Prepayment Date is in connection with an
offer contemplated by subparagraph (a) of this Section, such date shall be not
less than 30 days and not more than 120 days after the date of such offer (if
the Proposed Prepayment Date shall not be specified in such offer, the Proposed
Prepayment Date shall be the first Business Day after the 60th day after the
date of such offer).
(d) Acceptance. A holder of Notes may accept the offer to prepay made
pursuant to this Section by causing a notice of such acceptance to be delivered
to the Operating Partnership not later than 15 days after receipt by such holder
of the most recent offer of prepayment. A failure
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by a holder of Notes to respond to an offer to prepay made pursuant to this
Section shall be deemed to constitute a rejection of such offer by such holder.
(e) Prepayment. Prepayment of the Notes to be prepaid pursuant to
this Section shall be at 100% of the principal amount of such Notes, together
with interest on such Notes accrued to the date of prepayment, but without
Make-Whole Amount or other premium. The prepayment shall be made on the Proposed
Prepayment Date except as provided in subparagraph (f) of this Section.
(f) Deferral Pending Change in Control. The obligation of the
Operating Partnership to prepay Notes pursuant to the offers required by
subparagraph (b) and accepted in accordance with subparagraph (d) of this
Section is subject to the occurrence of the Change in Control in respect of
which such offers and acceptances shall have been made. In the event that such
Change in Control has not occurred on the Proposed Prepayment Date in respect
thereof, the prepayment shall be deferred until, and shall be made on, the date
on which such Change in Control occurs. The Operating Partnership shall keep
each holder of Notes reasonably and timely informed of (1) any such deferral of
the date of prepayment, (2) the date on which such Change in Control and the
prepayment are expected to occur, and (3) any determination by either
Constituent Company that efforts to effect such Change in Control have ceased or
been abandoned (in which case the offers and acceptances made pursuant to this
Section in respect of such Change in Control shall be deemed rescinded).
(g) Officer's Certificate. Each offer to prepay the Notes pursuant to
this Section shall be accompanied by a certificate, executed by a Senior
Financial Officer of the Operating Partnership and dated the date of such offer,
specifying: (1) the Proposed Prepayment Date; (2) that such offer is made
pursuant to this SECTION 8.3; (3) the principal amount of each Note offered to
be prepaid; (4) the interest that would be due on each Note offered to be
prepaid, accrued to the Proposed Prepayment Date; (5) that the conditions of
this Section have been fulfilled; and (6) in reasonable detail, the nature and
date or proposed date of the Change in Control.
(h) "Change in Control" Defined. Change in Control means, at any
time:
(1) the acquisition, holding or control, directly or
indirectly, by any person (as such term is used in Section 13(d) and
Section 14(d)(2) of the Exchange Act as in effect on the date of the
Closing) or related Persons constituting a group (as such term is used
in Rule 13d-5 under the Exchange Act as in effect on the date of the
Closing), other than a Permitted Management Transferee, of more than
50% of the Voting Equity Interests of the Trust; or
(2) the acquisition, holding or control, directly or
indirectly, by any person (as such term is used in Section 13(d) and
Section 14(d)(2) of the Exchange Act as in effect on the date of the
Closing) or related Persons constituting a group (as such term is used
in Rule 13d-5 under the Exchange Act as in effect on the date of the
Closing), other than the Trust or a Permitted Management Transferee, of
more than 50% of the Voting Equity Interests of the General Partner; or
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(3) the acquisition, holding or control, directly or
indirectly, by any person (as such term is used in Section 13(d) and
Section 14(d)(2) of the Exchange Act as in effect on the date of the
Closing) or related Persons constituting a group (as such term is used
in Rule 13d-5 under the Exchange Act as in effect on the date of the
Closing), other than the Trust, the General Partner, a Permitted
Management Transferee or a wholly-owned Subsidiary of the Trust or a
Permitted Management Transferee, of more than 50% of the Voting Equity
Interests of the Operating Partnership.
(i) "Control Event" Defined. Control Event means:
(1) the execution by the Trust or a Permitted Management
Transferee or any of their respective Subsidiaries or Affiliates of any
agreement or letter of intent with respect to any proposed transaction
or event or series of transactions or events which, individually or in
the aggregate, may reasonably be expected to result in a Change in
Control, or
(2) the execution of any written agreement which, when fully
performed by the parties thereto, would result in a Change in Control.
(j) "Permitted Management Transferee" Defined. Permitted Management
Transferee means, with respect to the Trust, (1) each of Robert J. Stetson and
Fred H. Margolin or (2) related Persons constituting a Group (as such term is
used in Rule 13d-5 under the Exchange Act as in effect on the date of the
Closing) which includes, and is controlled by, Robert J. Stetson and/or Fred H.
Margolin.
(k) All calculations contemplated in this SECTION 8.3 involving the
Voting Equity Interests of any Person, shall be made with the assumption that
all convertible securities of such Person then outstanding and all convertible
securities issuable upon the exercise of any warrants, options and other rights
outstanding at such time were converted at such time and that all options,
warrants and similar rights to acquire Voting Equity Interests of such Person
were exercised at such time.
Section 8.4. Allocation of Partial Prepayments. In the case of each
partial prepayment of the Notes pursuant to SECTION 8.2, the principal amount of
the Notes to be prepaid shall be allocated among all of the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore called for prepayment. All partial
prepayments made pursuant to SECTION 8.3 shall be applied only to the Notes of
the holders who have elected to participate in such prepayment.
Section 8.5. Maturity; Surrender, Etc. In the case of each prepayment
of Notes pursuant to this SECTION 8, the principal amount of each Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such date
and the applicable Make-Whole Amount, if any. From and after such date, unless
the Operating Partnership shall fail to pay such principal amount when so due
and payable, together with the interest and Make-Whole Amount, if any, as
aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid or prepaid in full shall be
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surrendered to the Operating Partnership and cancelled and shall not be
reissued, and no Note shall be issued in lieu of any prepaid principal amount of
any Note.
Section 8.6. Purchase of Notes. The Operating Partnership will not and
will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire,
directly or indirectly, any of the outstanding Notes except upon the payment or
prepayment of the Notes in accordance with the terms of this Agreement and the
Notes. The Operating Partnership will promptly cancel all Notes acquired by it
or any Affiliate pursuant to any payment, prepayment or purchase of Notes
pursuant to any provision of this Agreement and no Notes may be issued in
substitution or exchange for any such Notes.
Section 8.7. Make-Whole Amount. The term "Make-Whole Amount" means,
with respect to any Note, an amount equal to the excess, if any, of the
Discounted Value of the Remaining Scheduled Payments with respect to the Called
Principal of such Note over the amount of such Called Principal; provided that
the Make-Whole Amount may in no event be less than zero. For the purposes of
determining the Make-Whole Amount, the following terms have the following
meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to SECTION 8.2 or
has become or is declared to be immediately due and payable pursuant to
SECTION 12.1, as the context requires.
"Discounted Value" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of any Note, 0.50% over the yield to maturity implied by (a)
the yields reported, as of 10:00 a.m. (New York City time) on the
second Business Day preceding the Settlement Date with respect to such
Called Principal, on the display designated as "Page PX1" or other
appropriate page of the Bloomberg Financial Markets Services Screen (or
such other display as may replace Page PX1 or other appropriate page of
the Bloomberg Financial Markets Services Screen) for actively traded
U.S. Treasury securities having a maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date, or
(b) if such yields are not reported as of such time or the yields
reported as of such time are not ascertainable, the Treasury Constant
Maturity Series Yields reported, for the latest day for which such
yields have been so reported as of the second Business Day preceding
the Settlement Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15(519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (1) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted
financial practice and (2) interpolating linearly between (i) the
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actively traded U.S. Treasury security with the average life closest to
and greater than the Remaining Average Life and (ii) the actively
traded U.S. Treasury security with the average life closest to and less
than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (a) such Called Principal into (b) the sum
of the products obtained by multiplying (1) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (2) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date; provided that if such
Settlement Date is not a date on which interest payments are due to be
made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to SECTION 8.2 or 12.1.
"Settlement Date" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to SECTION 8.2 or has become or is declared to be immediately
due and payable pursuant to SECTION 12.1, as the context requires.
SECTION 9. AFFIRMATIVE COVENANTS.
The Constituent Companies covenant that so long as any of the Notes are
outstanding:
Section 9.1. Compliance with Law. The Constituent Companies will, and
will cause each Subsidiary to, comply with all laws, ordinances or governmental
rules or regulations to which each of them is subject, including, without
limitation, ERISA and all Environmental Laws, and will obtain and maintain in
effect all licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 9.2. Insurance. The Constituent Companies will, and will cause
each Subsidiary to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if
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adequate reserves are maintained with respect thereto) as is customary in the
case of entities of established reputations engaged in the same or a similar
business and similarly situated.
Section 9.3. Maintenance of Properties. The Constituent Companies will,
and will cause each Subsidiary to, maintain and keep, or cause to be maintained
and kept, their respective properties in good repair, working order and
condition (other than ordinary wear and tear), so that the business carried on
in connection therewith may be properly conducted at all times; provided that
this Section shall not prevent either Constituent Company or any Subsidiary from
discontinuing the operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the Trust has
concluded that such discontinuance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Section 9.4. Payment of Taxes and Claims. The Constituent Companies
will, and will cause each Subsidiary to, file all tax returns required to be
filed in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent and all claim for which sums have become
due and payable that have or might become a Lien on properties or assets of
either Constituent Company or any Subsidiary; provided that neither Constituent
Company nor any Subsidiary need pay any such tax or assessment or claims if (a)
the amount, applicability or validity thereof is contested by such Constituent
Company or such Subsidiary on a timely basis in good faith and in appropriate
proceedings, and such Constituent Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of such
Constituent Company or such Subsidiary or (b) the nonpayment of all such taxes
and assessments in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
Section 9.5. Legal Existence, Maintenance of REIT Status. (a) The
Constituent Companies will at all times preserve and keep in full force and
effect their legal existence. Subject to SECTION 10.3, the Constituent Companies
will at all times preserve and keep in full force and effect the corporate or
other legal existence of each Subsidiary (unless merged into a Constituent
Company or a Subsidiary) and all rights and franchises of the Constituent
Companies and each Subsidiary unless, in the good faith judgment of the Trust,
the termination of or failure to preserve and keep in full force and effect such
legal existence, right or franchise could not, individually or in the aggregate,
have a Material Adverse Effect.
(b) The Trust will qualify as a real estate investment trust under
the Code for the taxable year of the Trust ended December 31, 1997 and will
maintain its qualification as a real estate investment trust under the Code and
the applicability to the Trust and its stockholders of the method of taxation
provided for in Section 857(b) of the Code (and any successor provision
thereto).
(c) The General Partner will at all times be the sole general partner
of the Operating Partnership.
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Section 9.6. Nature of Business. Neither Constituent Company nor any
Subsidiary will engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be engaged in by
such Constituent Company and its Subsidiaries would be substantially changed
from the general nature of the business engaged in by such Constituent Company
and its Subsidiaries on the date of this Agreement.
Section 9.7. Obligations to Rank Pari Passu. (a) All obligations under
this Agreement and the Guaranty Agreement of the Trust are and at all times
shall remain direct and unsecured obligations of the Trust ranking pari passu as
against the assets of the Trust and pari passu with all other present and future
unsecured Indebtedness (actual or contingent) of the Trust which is not
expressed to be subordinate or junior in rank to any other unsecured
Indebtedness of the Trust.
(b) The Notes and all other obligations under this Agreement of the
Operating Partnership are and at all times shall remain direct and unsecured
obligations of the Operating Partnership ranking pari passu as against the
assets of the Operating Partnership with all other Notes from time to time
issued and outstanding hereunder without any preference among themselves and
pari passu with all other present and future unsecured Indebtedness (actual or
contingent) of the Operating Partnership which is not expressed to be
subordinate or junior in rank to any other unsecured Indebtedness of the
Operating Partnership.
Section 9.8. Additional Subsidiary Guarantors. (a) Concurrently with
any Subsidiary entering into a guaranty in respect of any Indebtedness of either
Constituent Company, the Constituent Companies shall cause such Subsidiary to
execute and deliver a supplement to the Subsidiary Guaranty Agreement in the
form of Exhibit A to the Subsidiary Guaranty Agreement.
(b) Concurrently with the execution and delivery by a Subsidiary of a
supplement to the Subsidiary Guaranty Agreement, the Constituent Companies shall
cause such Subsidiary to deliver to each holder of Notes (1) such documents and
evidence with respect to such Subsidiary as any holder may reasonably request in
order to establish the existence and good standing of such Subsidiary and
evidence that the Board of Directors or similar group of persons of such
Subsidiary has adopted resolutions authorizing the execution and delivery of a
supplement to the Subsidiary Guaranty Agreement, (2) evidence of compliance with
such Subsidiary's outstanding debt instruments in the form of (i) a compliance
certificate from such Subsidiary to the effect that such Subsidiary has complied
with all terms and conditions of its outstanding debt instruments, (ii) consents
or approvals of the holder or holders of any evidence of Indebtedness or
security, and/or (iii) amendments of agreements pursuant to which any evidence
of Indebtedness or security may have been issued, all as may be reasonably
deemed necessary by the holders of Notes to permit the execution and delivery of
a supplement to the Subsidiary Guaranty Agreement by such Subsidiary, (3) an
opinion of counsel to the effect that (i) such Subsidiary is a corporation or
other business entity, duly organized, validly existing and in good standing, if
applicable, under the laws of its jurisdiction of organization, has the power
and the authority to execute and deliver a supplement to the Subsidiary Guaranty
Agreement and to perform the Subsidiary Guaranty Agreement, (ii) the execution
and delivery of a supplement to the Subsidiary Guaranty Agreement and
performance of the Subsidiary Guaranty Agreement has been duly authorized by all
necessary action on the part of such Subsidiary, a supplement to the
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Subsidiary Guaranty Agreement has been duly executed and delivered by such
Subsidiary and the Subsidiary Guaranty Agreement constitutes the legal, valid
and binding contract of such Subsidiary enforceable against such Subsidiary in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
conveyance or similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such principles
is considered in a proceeding in equity or at law), (iii) the execution and
delivery of a supplement to the Subsidiary Guaranty Agreement and the
performance by such Subsidiary of the Subsidiary Guaranty Agreement do not
conflict with or result in any breach of any of the provisions of or constitute
a default under or result in the creation of a Lien upon any of the property of
such Subsidiary pursuant to the provisions of its charter documents or any
agreement or other instrument known to such counsel to which such Subsidiary is
a party to or by which such Subsidiary may be bound and (iv) no approval,
consent or withholding of objection on the part of, or filing, registration or
qualification with, any Governmental Authority, Federal or state, is necessary
in connection with the lawful execution and delivery of a supplement to the
Subsidiary Guaranty Agreement by such Subsidiary or the performance of the
Subsidiary Guaranty Agreement by such Subsidiary, which opinion may contain such
assumptions and qualifications as are reasonably acceptable to the Required
Holders, and (4) all other documents and showings reasonably requested by the
holders of Notes in connection with the execution and delivery of a supplement
to the Subsidiary Guaranty Agreement, which documents shall be satisfactory in
form and substance to such holders and their special counsel, and each holder of
Notes shall have received a copy (executed or certified as may be appropriate)
of all of the foregoing legal documents.
Section 9.9. Additional Notices. The Constituent Companies will deliver
to each holder of the Notes promptly, and in any event within five days after a
Responsible Officer becoming aware of the occurrence thereof, or aware of the
reasonable likelihood of the occurrence thereof, a written notice describing the
facts and circumstances set forth in any notice delivered under Article II of
the Intercreditor Agreement.
SECTION 10. NEGATIVE COVENANTS.
The Trust covenants that so long as any of the Notes are outstanding:
Section 10.1. Incurrence of Indebtedness. The Trust will not, and will
not permit any Subsidiary to, directly or indirectly, create, incur, assume,
guarantee, or otherwise become directly or indirectly liable with respect to,
any Indebtedness, other than Indebtedness owing to either Constituent Company or
any Wholly-Owned Subsidiary, unless on the date the Trust or such Subsidiary
becomes liable with respect to any such Indebtedness and immediately after
giving effect thereto, to the application of the proceeds thereof and the
concurrent retirement of any other Indebtedness,
(a) no Default or Event of Default exists,
(b) Consolidated Indebtedness does not exceed an amount equal
to 60% of Consolidated Total Capitalization,
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(c) Consolidated Income Available for Debt Service for the
four consecutive fiscal quarter period of the Trust then most recently
ended shall have been at least 1.5 times the amount of Annual Service
Charge for such four consecutive fiscal quarter period, and
(d) in the case of the incurrence of Priority Debt, Priority
Debt does not exceed an amount equal to 40% of the sum of (1)
Consolidated Total Assets as at the end of the fiscal quarter of the
Trust then most recently ended, (2) the purchase price of real estate
assets and mortgage loan receivables acquired by the Trust or any
Subsidiary since the end of such fiscal quarter and (3) the amount of
any proceeds received from the issuance and sale of any securities or
the incurrence of any Indebtedness by the Trust or any Subsidiary
(other the amount of any such proceeds used to acquire real estate
assets or mortgage loan receivables or applied to repay outstanding
Indebtedness of the Trust or any Subsidiary) since the end of such
fiscal quarter.
For the purposes of this SECTION 10.1, there shall be excluded (i) from any
determination of Indebtedness, all Indebtedness that is at the date of such
determination non-recourse to the Trust, the Operating Partnership and the
General Partner and (ii) from any determination of Consolidated Total Assets,
all assets related to such non-recourse Indebtedness.
Additionally, for the purposes of this SECTION 10.1, any Person becoming a
Subsidiary after the date hereof shall be deemed, at the time it becomes a
Subsidiary, to have incurred all of its then outstanding Indebtedness, and any
Person extending or renewing any Indebtedness, or, in the case of any refunding
of Indebtedness if the maturity date thereof has been extended, then such
Indebtedness shall be deemed to have been incurred at the time of such
extension, renewal or refunding.
Section 10.2. Unencumbered Asset Coverage. The Trust will not at any
time permit Total Unencumbered Assets to be less than 150% of Unsecured
Indebtedness.
Section 10.3. Merger, Consolidation, Etc. Neither Constituent Company
will consolidate with or merge with or into any other corporation or convey,
transfer or lease substantially all of its assets in a single transaction or
series of transactions to any Person, except
(a) in the case of any such transaction involving the Trust,
(1) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by
conveyance, transfer or lease substantially all of the assets
of the Trust as an entirety, as the case may be (the
"Successor Corporation"), shall be a solvent Person organized
and existing under the laws of the United States of America,
any State thereof or the District of Columbia; and
(2) if either the Trust or the Operating Partnership
is not the Successor Corporation, such Person shall have
executed and delivered to each holder of Notes its assumption
of the due and punctual performance and observance of each
covenant and condition of this Agreement and the Guaranty
Agreement (pursuant
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to such agreements and instruments as shall be reasonably
satisfactory to the Required Holders), such Person shall have
caused to be delivered to each holder of Notes an opinion of
nationally recognized independent counsel, or other
independent counsel reasonably satisfactory to the Required
Holders, to the effect that all agreements or instruments
effecting such assumption are enforceable in accordance with
their terms and comply with the terms hereof and each
Subsidiary Guarantor shall have delivered to each holder of
the Notes a certificate whereby such Subsidiary Guarantor
shall have reaffirmed its obligations under the Subsidiary
Guaranty Agreement,
(b) in the case of any such transaction involving the
Operating Partnership, either the Trust or the Operating Partnership is
the survivor or successor of such merger or consolidation,
(c) immediately after giving effect to such transaction, no
Default or Event of Default would exist, and
(d) the Successor Corporation would be permitted by the
provisions of SECTION 10.1 hereof to incur at least $1.00 of additional
Indebtedness owing to a Person other than a Subsidiary of the Successor
Corporation.
Section 10.4. Guaranties. The Constituent Companies will not, and will
not permit any Subsidiary to, become or be liable in respect of any Guaranty
except (a) Guaranties existing on the date of the Closing and described on
SCHEDULE 5.15 hereto, (b) the Guaranty Agreement and the Subsidiary Guaranty
Agreement, (c) Guaranties entered into within the limitations of SECTION 9.8
hereof, and (d) Guaranties by a Constituent Company which are limited in amount
to a stated maximum dollar exposure or which constitute Guaranties of
obligations incurred by any Subsidiary in compliance with the provisions of this
Agreement.
Section 10.5. Transactions with Affiliates. The Constituent Companies
will not, and will not permit any Subsidiary to, enter into or be a party to any
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except in the ordinary course of and pursuant
to the reasonable requirements of such Constituent Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
such Constituent Company or such Subsidiary than would be obtained in a
comparable arm's-length transaction with a Person other than an Affiliate.
Section 10.6. Termination of Pension Plans. The Constituent Companies
will not and will not permit any Subsidiary to withdraw from any Multiemployer
Plan or permit any employee benefit plan maintained by it to be terminated if
such withdrawal or termination could result in withdrawal liability (as
described in Part 1 of Subtitle E of Title IV of ERISA) or the imposition of a
Lien on any property of either Constituent Company or any Subsidiary pursuant to
Section 4068 of ERISA.
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SECTION 11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) the Operating Partnership defaults in the payment of any
principal or Make-Whole Amount, if any, on any Note when the same
becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise; or
(b) the Operating Partnership defaults in the payment of any
interest on any Note for more than five Business Days after the same
becomes due and payable; or
(c) either Constituent Company defaults in the performance of
or compliance with any term contained in SECTION 7.1(d) or SECTIONS
10.1 through 10.3, both inclusive; or
(d) either Constituent Company defaults in the performance of
or compliance with any term contained herein (other than those referred
to in paragraphs (a), (b) and (c) of this SECTION 11) and such default
is not remedied within 30 days after the earlier of (1) a Responsible
Officer obtaining actual knowledge of such default and (2) such
Constituent Company receiving written notice of such default from any
holder of a Note (any such written notice to be identified as a "notice
of default" and to refer specifically to this paragraph (d) of SECTION
11); or
(e) any representation or warranty made in writing by or on
behalf of either Constituent Company or any Subsidiary Guarantor or by
any officer of either Constituent Company or any Subsidiary Guarantor
in this Agreement, the Guaranty Agreement, the Subsidiary Guaranty
Agreement or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect
in any material respect on the date as of which made; or
(f) (1) the Trust or any Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness that is outstanding in an aggregate principal amount of at
least $10,000,000 beyond any period of grace provided with respect
thereto, or (2) the Trust or any Subsidiary is in default in the
performance of or compliance with any term of any evidence of any
Indebtedness in an aggregate outstanding principal amount of at least
$10,000,000 or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such
default or condition such Indebtedness has become, or has been declared
(or one or more Persons are entitled to declare such Indebtedness to
be), due and payable before its stated maturity or before its regularly
scheduled dates of payment, or (3) as a consequence of the occurrence
or continuation of any event or condition (other than the passage of
time or the right of the holder of Indebtedness to convert such
Indebtedness into equity interests), (i) the Trust or any Subsidiary
has become obligated to purchase or repay Indebtedness before its
regular maturity or before its regularly scheduled dates of payment in
an aggregate outstanding
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principal amount of at least $10,000,000, or (ii) one or more Persons
have the right to require the Trust or any Subsidiary so to purchase or
repay such Indebtedness; or
(g) (1) the Guaranty Agreement or the Subsidiary Guaranty
Agreement shall prove to be unenforceable or invalid or the Trust or
any Subsidiary Guarantor shall deny or disaffirm its obligations under
the Guaranty Agreement or the Subsidiary Guaranty Agreement,
respectively, or (2) default shall occur in the observance or
performance by the Trust or any Subsidiary Guarantor of any provision
of the Guaranty Agreement or the Subsidiary Guaranty Agreement,
respectively, which is not remedied within five Business Days after the
earlier of (i) a Responsible Officer of the Trust or such Subsidiary
Guarantor obtaining actual knowledge of such default and (ii) the Trust
or such Subsidiary Guarantor receiving written notice of such default
from any holder of a Note; or
(h) the Trust or any Subsidiary (1) is generally not paying,
or admits in writing its inability to pay, its debts as they become
due, (2) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement
or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy, insolvency, reorganization, moratorium or
other similar law of any jurisdiction, (3) makes an assignment for the
benefit of its creditors, (4) consents to the appointment of a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property,
(5) is adjudicated as insolvent or to be liquidated, or (6) takes
corporate action for the purpose of any of the foregoing; or
(i) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Trust
or any of its Subsidiaries, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief
or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of the Trust or any of its
Subsidiaries, or any such petition shall be filed against the Trust or
any of its Subsidiaries and such petition shall not be dismissed within
60 days; or
(j) a final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 (excluding for purposes of such
determination such amount of any insurance proceeds paid by or on
behalf of the Trust or any of its Subsidiaries in respect of such
judgment or judgments or unconditionally acknowledged in writing to be
payable by the insurance carrier that issued the related insurance
policy) are rendered against one or more of the Trust and its
Subsidiaries and which judgments are not, within 60 days after entry
thereof, bonded, discharged or stayed pending appeal, or are not
discharged within 60 days after the expiration of such stay; or
(k) if (1) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or
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extension of any amortization period is sought or granted under Section
412 of the Code, (2) a notice of intent to terminate any Plan shall
have been or is reasonably expected to be filed with the PBGC or the
PBGC shall have instituted proceedings under ERISA Section 4042 to
terminate or appoint a trustee to administer any Plan or the PBGC shall
have notified either Constituent Company or any of their ERISA
Affiliates that a Plan may become a subject of any such proceedings,
(3) the aggregate "amount of unfunded benefit liabilities" (within the
meaning of Section 4001(a)(18) of ERISA) under all Plans, determined in
accordance with Title IV of ERISA, shall exceed $1,000,000, (4) either
Constituent Company or any of their ERISA Affiliates shall have
incurred or is reasonably expected to incur any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the
Code relating to employee benefit plans, (5) either Constituent Company
or any of their ERISA Affiliates withdraws from any Multiemployer Plan,
or (6) the Trust or any Subsidiary establishes or amends any employee
welfare benefit plan that provides post-employment welfare benefits in
a manner that would increase the liability of the Trust or any
Subsidiary thereunder; and any such event or events described in
clauses (1) through (6) above, either individually or together with any
other such event or events, could reasonably be expected to have a
Material Adverse Effect.
As used in SECTION 11(k), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
SECTION 12. REMEDIES ON DEFAULT, ETC.
Section 12.1. Acceleration. (a) If an Event of Default with respect to
a Constituent Company described in paragraph (h) or (i) of SECTION 11 (other
than an Event of Default described in clause (1) of paragraph (h) or described
in clause (6) of paragraph (h) by virtue of the fact that such clause
encompasses clause (1) of paragraph (h)) has occurred, all the Notes then
outstanding shall automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing, any
holder or holders of more than 33-1/3% in principal amount of the Notes at the
time outstanding may at any time at its or their option, by notice or notices to
either Constituent Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of
SECTION 11 has occurred and is continuing, any holder or holders of Notes at the
time outstanding affected by such Event of Default may at any time, at its or
their option, by notice or notices to either Constituent Company, declare all
the Notes held by it or them to be immediately due and payable.
Upon any Note's becoming due and payable under this SECTION 12.1,
whether automatically or by declaration, such Note will forthwith mature and the
entire unpaid principal amount of such Note, plus (1) all accrued and unpaid
interest thereon and (2) the Make-Whole Amount determined in respect of such
principal amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. Each Constituent
-30-
<PAGE> 36
Company acknowledges, and the parties hereto agree, that each holder of a Note
has the right to maintain its investment in the Notes free from repayment by the
Operating Partnership (except as herein specifically provided for), and that the
provision for payment of a Make-Whole Amount by the Operating Partnership in the
event that the Notes are prepaid or are accelerated as a result of an Event of
Default, is intended to provide compensation for the deprivation of such right
under such circumstances.
Section 12.2. Other Remedies. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under SECTION 12.1, the holder of
any Note at the time outstanding may proceed to protect and enforce the rights
of such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any Note, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law or otherwise.
Section 12.3. Rescission. At any time after any Notes have been
declared due and payable pursuant to clause (b) or (c) of SECTION 12.1, the
holders of not less than 67% in principal amount of the Notes then outstanding,
by written notice to the Constituent Companies, may rescind and annul any such
declaration and its consequences if (a) the Operating Partnership has paid all
overdue interest on the Notes, all principal of and Make-Whole Amount, if any,
on any Notes that are due and payable and are unpaid other than by reason of
such declaration, and all interest on such overdue principal and Make-Whole
Amount, if any, and (to the extent permitted by applicable law) any overdue
interest in respect of the Notes, at the Default Rate, (b) all Events of Default
and Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
SECTION 17, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Notes. No rescission and annulment
under this SECTION 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.
Section 12.4. No Waivers or Election of Remedies, Expenses, Etc. No
course of dealing and no delay on the part of any holder of any Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Constituent Companies under SECTION 15,
the Constituent Companies will pay to the holder of each Note on demand such
further amount as shall be sufficient to cover all costs and expenses of such
holder incurred in any enforcement or collection under this SECTION 12,
including, without limitation, reasonable attorneys' fees, expenses and
disbursements.
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
Section 13.1. Registration of Notes. The Operating Partnership shall
keep at its principal executive office a register for the registration and
registration of transfers of Notes. The name and address of each holder of one
or more Notes, each transfer thereof and the name and address of each transferee
of one or more Notes shall be registered in such register. Prior to due
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<PAGE> 37
presentment for registration of transfer, the Person in whose name any Note
shall be registered shall be deemed and treated as the owner and holder thereof
for all purposes hereof, and the Operating Partnership shall not be affected by
any notice or knowledge to the contrary. The Operating Partnership shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
Section 13.2. Transfer and Exchange of Notes. Upon surrender of any
Note at the principal executive office of the Operating Partnership for
registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of such Note or its attorney
duly authorized in writing and accompanied by the address for notices of each
transferee of such Note or part thereof), the Operating Partnership shall
execute and deliver, at the Operating Partnership's expense (except as provided
below), one or more new Notes (as requested by the holder thereof) in exchange
therefor, in an aggregate principal amount equal to the unpaid principal amount
of the surrendered Note. Each such new Note shall be payable to such Person as
such holder may request and shall be substantially in the form of EXHIBIT 1.
Each such new Note shall be dated and bear interest from the date to which
interest shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Operating
Partnership may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $100,000; provided that
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $100,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
SECTION 6.2, provided, however, that, such transferee will not be deemed to have
chosen the options set forth in SECTION 6.2(B), (C) or (E) unless such
transferee shall have made the disclosures referred to therein at least five
Business Days prior to its acceptance of such Note and shall have received prior
to such acceptance of such Note the certificate provided for in the penultimate
paragraph of SECTION 6.2 and such certificate shall contain the statement set
forth in either SECTION 4.3(C)(1) or (2), as applicable; and provided, further,
that, such transferee will not be deemed to have chosen an option set forth in
SECTION 6.2(A), (B) or (D) unless the applicable Class Exemption referred to
therein remains in effect at that time or another similar Class Exemption is
then available. The Constituent Companies shall exercise reasonable due
diligence as is necessary to respond to any such disclosure, provided that, if
either Constituent Company shall not respond within five Business Days following
receipt of any such disclosure, such Constituent shall be deemed to have made
the statement set forth in either Section 4.3(C)(1) or (2), as applicable.
Section 13.3. Replacement of Notes. Upon receipt by the Operating
Partnership of evidence reasonably satisfactory to it of the ownership of and
the loss, theft, destruction or mutilation of any Note (which evidence shall be,
in the case of an Institutional Investor, notice from such Institutional
Investor of such ownership and such loss, theft, destruction or mutilation), and
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<PAGE> 38
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original Purchaser or another holder of a
Note with a minimum net worth of at least $50,000,000, such Person's
own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Operating Partnership at its own expense shall execute and deliver, in lieu
thereof, a new Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest shall
have been paid thereon.
SECTION 14. PAYMENTS ON NOTES.
Section 14.1. Place of Payment. Subject to SECTION 14.2, payments of
principal, Make-Whole Amount, if any, and interest becoming due and payable on
the Notes shall be made in the Borough of Manhattan, City and State of New York
at the principal office of Citibank, N.A. in such jurisdiction. The Operating
Partnership may at any time, by notice to each holder of a Note, change the
place of payment of the Notes so long as such place of payment shall be either
the principal office of the Operating Partnership in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.
Section 14.2. Home Office Payment. So long as you or your nominee shall
be the holder of any Note, and notwithstanding anything contained in SECTION
14.1 or in such Note to the contrary, the Operating Partnership will pay all
sums becoming due on such Note for principal, Make-Whole Amount, if any, and
interest by the method and at the address specified for such purpose below your
name in SCHEDULE A, or by such other method or at such other address as you
shall have from time to time specified to the Operating Partnership in writing
for such purpose, without the presentation or surrender of such Note or the
making of any notation thereon, except that upon written request of the
Operating Partnership made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Operating
Partnership at its principal executive office or at the place of payment most
recently designated by the Operating Partnership pursuant to SECTION 14.1. Prior
to any sale or other disposition of any Note held by you or your nominee you
will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Operating Partnership in exchange for a new Note or Notes
pursuant to SECTION 13.2. The Operating Partnership will afford the benefits of
this SECTION 14.2 to any Institutional Investor that is the direct or indirect
transferee of any Note purchased by you under this Agreement and that has made
the same agreement relating to such Note as you have made in this SECTION 14.2.
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<PAGE> 39
SECTION 15. EXPENSES, ETC.
Section 15.1. Transaction Expenses. Whether or not the transactions
contemplated hereby are consummated, the Constituent Companies will pay all
costs and expenses (including reasonable attorneys' fees of a special counsel
and, if reasonably required, local or other counsel) incurred by you and each
Other Purchaser or holder of a Note in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of this
Agreement, the Guaranty Agreement, the Subsidiary Guaranty Agreement or the
Notes (whether or not such amendment, waiver or consent becomes effective),
including, without limitation: (a) the costs and expenses incurred in enforcing
or defending (or determining whether or how to enforce or defend) any rights
under this Agreement, the Guaranty Agreement, the Subsidiary Guaranty Agreement
or the Notes or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement, the Guaranty
Agreement, the Subsidiary Guaranty Agreement or the Notes, or by reason of being
a holder of any Note or the beneficiary of the Guaranty Agreement or the
Subsidiary Guaranty Agreement, and (b) the costs and expenses, including
financial advisors' fees, incurred in connection with the insolvency or
bankruptcy of either Constituent Company or any Subsidiary or in connection with
any work-out or restructuring of the transactions contemplated hereby, by the
Guaranty Agreement, by the Subsidiary Guaranty Agreement and by the Notes. The
Constituent Companies will pay, and will save you and each other holder of a
Note harmless from, all claims in respect of any fees, costs or expenses, if
any, of brokers and finders (other than those retained by you).
Section 15.2. Survival. The obligations of the Constituent Companies
under this SECTION 15 will survive the payment or transfer of any Note, the
enforcement, amendment or waiver of any provision of this Agreement, the
Guaranty Agreement, the Subsidiary Guaranty Agreement or the Notes, and the
termination of this Agreement, the Guaranty Agreement or the Subsidiary Guaranty
Agreement.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of either Constituent Company pursuant to this
Agreement shall be deemed representations and warranties of such Constituent
Company under this Agreement. Subject to the preceding sentence, this Agreement,
the Guaranty Agreement, the Subsidiary Guaranty Agreement and the Notes embody
the entire agreement and understanding between you and the Constituent Companies
and supersede all prior agreements and understandings relating to the subject
matter hereof.
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<PAGE> 40
SECTION 17. AMENDMENT AND WAIVER.
Section 17.1. Requirements. This Agreement and the Notes may be
amended, and the observance of any term hereof or of the Notes may be waived
(either retroactively or prospectively), with (and only with) the written
consent of the Constituent Companies and the Required Holders, except that (a)
no amendment or waiver of any of the provisions of SECTION 1, 2, 3, 4, 5, 6 or
21 hereof, or any defined term (as it is used therein), will be effective as to
you unless consented to by you in writing, and (b) no such amendment or waiver
may, without the written consent of the holder of each Note at the time
outstanding affected thereby, (1) subject to the provisions of SECTION 12
relating to acceleration or rescission, change the amount or time of any
prepayment or payment of principal of, or reduce the rate or change the time of
payment or method of computation of interest or of the Make-Whole Amount on, the
Notes, (2) change the percentage of the principal amount of the Notes the
holders of which are required to consent to any such amendment or waiver, or (3)
amend any of SECTIONS 8, 11(a), 11(b), 12, 17 or 20.
Section 17.2. Solicitation of Holders of Notes.
(a) Solicitation. The Constituent Companies will provide each holder
of the Notes (irrespective of the amount of Notes then owned by it) with
sufficient information, sufficiently far in advance of the date a decision is
required, to enable such holder to make an informed and considered decision with
respect to any proposed amendment, waiver or consent in respect of any of the
provisions hereof or of the Notes. The Constituent Companies will deliver
executed or true and correct copies of each amendment, waiver or consent
effected pursuant to the provisions of this SECTION 17 to each holder of
outstanding Notes promptly following the date on which it is executed and
delivered by, or receives the consent or approval of, the requisite holders of
Notes.
(b) Payment. The Constituent Companies will not directly or
indirectly pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, or grant any security, to
any holder of Notes as consideration for or as an inducement to the entering
into by any holder of Notes of any waiver or amendment of any of the terms and
provisions hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
Section 17.3. Binding Effect, Etc. Any amendment or waiver consented to
as provided in this SECTION 17 applies equally to all holders of Notes and is
binding upon them and upon each future holder of any Note and upon the
Constituent Companies without regard to whether such Note has been marked to
indicate such amendment or waiver. No such amendment or waiver will extend to or
affect any obligation, covenant, agreement, Default or Event of Default not
expressly amended or waived or impair any right consequent thereon. No course of
dealing between the Constituent Companies and the holder of any Note nor any
delay in exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any holder of such Note. As used herein, the term "this
Agreement" and references thereto shall mean this Agreement as it may from time
to time be amended or supplemented.
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<PAGE> 41
Section 17.4. Notes held by Constituent Company, Etc. Solely for the
purpose of determining whether the holders of the requisite percentage of the
aggregate principal amount of Notes then outstanding approved or consented to
any amendment, waiver or consent to be given under this Agreement or the Notes,
or have directed the taking of any action provided herein or in the Notes to be
taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by either Constituent Company or any of their Affiliates shall
be deemed not to be outstanding.
SECTION 18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telefacsimile if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(1) if to you or your nominee, to you or it at the address
specified for such communications in SCHEDULE A, or at such other
address as you or it shall have specified to the Trust in writing,
(2) if to any other holder of any Note, to such holder at
such address as such other holder shall have specified to the Trust in
writing, or
(3) if to either Constituent Company, to the Trust at its
address set forth at the beginning hereof to the attention of the
Treasurer and Secretary, or at such other address as the Trust shall
have specified to the holder of each Note in writing.
Notices under this SECTION 18 will be deemed given only when actually received.
SECTION 19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating hereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. Each
Constituent Company agrees and stipulates that, to the extent permitted by
applicable law, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you in
the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
SECTION 19 shall not prohibit either Constituent Company or any other holder of
Notes from contesting any such reproduction to the same extent that it could
contest the original, or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.
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<PAGE> 42
SECTION 20. CONFIDENTIAL INFORMATION.
For the purposes of this SECTION 20, "Confidential Information" means
information delivered to you by or on behalf of the Trust or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified in writing when received by you as being
confidential information of the Trust or such Subsidiary; provided that such
term does not include information that (a) was publicly known or otherwise known
to you prior to the time of such disclosure, (b) subsequently becomes publicly
known through no act or omission by you or any Person acting on your behalf, (c)
otherwise becomes known to you other than through disclosure by the Trust or any
Subsidiary or (d) constitutes financial statements delivered to you under
SECTION 7.1 that are otherwise publicly available. You will maintain the
confidentiality of such Confidential Information in accordance with procedures
adopted by you in good faith to protect confidential information of third
parties delivered to you; provided that you may deliver or disclose Confidential
Information to (1) your directors, trustees, officers, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of the investment represented by your Notes), (2) your
financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this SECTION 20, (3) any other holder of any Note, (4) any
Institutional Investor to which you sell or offer to sell such Note or any part
thereof or any participation therein (if such Person has agreed in writing prior
to its receipt of such Confidential Information to be bound by the provisions of
this SECTION 20), (5) any Person from which you offer to purchase any security
of either Constituent Company (if such Person has agreed in writing prior to its
receipt of such Confidential Information to be bound by the provisions of this
SECTION 20), (6) any Federal or state regulatory authority having jurisdiction
over you, (7) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access to
information about your investment portfolio or (8) any other Person to which
such delivery or disclosure may be necessary or appropriate (i) to effect
compliance with any law, rule, regulation or order applicable to you, (ii) in
response to any subpoena or other legal process, (iii) in connection with any
litigation to which you are a party or (iv) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this Agreement, the
Guaranty Agreement or the Subsidiary Guaranty Agreement. Each holder of a Note,
by its acceptance of a Note, will be deemed to have agreed to be bound by and to
be entitled to the benefits of this SECTION 20 as though it was a party to this
Agreement. On reasonable request by the Trust in connection with the delivery to
any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Trust embodying the provisions of this SECTION 20.
SECTION 21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as
the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Trust, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be
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<PAGE> 43
bound by this Agreement and shall contain a confirmation by such Affiliate of
the accuracy with respect to it of the representations set forth in SECTION 6.
Upon receipt of such notice, wherever the word "you" is used in this Agreement
(other than in this SECTION 21), such word shall be deemed to refer to such
Affiliate in lieu of you. In the event that such Affiliate is so substituted as
a purchaser hereunder and such Affiliate thereafter transfers to you all of the
Notes then held by such Affiliate, upon receipt by the Trust of notice of such
transfer, wherever the word "you" is used in this Agreement (other than in this
SECTION 21), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.
SECTION 22. MISCELLANEOUS.
Section 22.1. Successors and Assigns. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent holder of a Note) whether so
expressed or not.
Section 22.2. Payments due on Non-Business Days. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of or Make-Whole Amount or interest on any Note that is due on a date other than
a Business Day shall be made on the next succeeding Business Day without
including the additional days elapsed in the computation of the interest payable
on such next succeeding Business Day.
Section 22.3. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
Section 22.4. Construction. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the requirements
of this Agreement.
Section 22.5. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
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<PAGE> 44
Section 22.6. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of New York, excluding choice-of-law principles of the law
of such State that would require the application of the laws of a jurisdiction
other than such State.
* * * * *
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<PAGE> 45
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Constituent Companies, whereupon the foregoing shall become a binding agreement
between you and the Constituent Companies.
Very truly yours,
U.S. RESTAURANT PROPERTIES OPERATING L.P.
By: USRP Managing, Inc.,
Its General Partner
By
---------------------------------------
Its
------------------------------------
U.S. RESTAURANT PROPERTIES, INC.
By
---------------------------------------
Its
------------------------------------
Accepted as of ______________, 1998.
[VARIATION]
By
---------------------------------------
Its
------------------------------------
<PAGE> 46
INFORMATION RELATING TO PURCHASERS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF NOTES
NAME AND ADDRESS OF PURCHASER TO BE PURCHASED
<S> <C>
JACKSON NATIONAL LIFE INSURANCE COMPANY $20,000,000
5901 Executive Drive
Lansing, Michigan 48909
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 8.22% Senior Notes due August 1, 2003, PPN
90346# AD 2, principal, premium or interest") to:
NORTHERN CHGO
ABA #071-000-152
Credit Account Number 5186041000
For further Credit to: 2691241/Jackson National Life Insurance Company
Ref: U.S. Restaurant Properties Operating, L.P. PVTPL, date of payment,
principal and interest breakdown
Attention: Oscell Owens/Marilyn Calpe
Notices
All notices and communications with respect to payment/rate notices, to be faxed
to (Operations Contact):
Oscell Owens Susan Perrino
Northern Trust Private Placements
801 S. Canal, Floor C1N PPM America Inc.
Chicago, IL 60607 225 West Wacker Drive
Tel: (312) 444-5754 Suite 1200
Fax: (312) 630-8179 Chicago, IL 60606
Tel: (312) 634-1205
Fax: (312) 634-0054
SCHEDULE A
(to Note Purchase Agreement)
<PAGE> 47
All notices, waivers, amendments, consents, financial information and COPIES of
all original notes and credit documents should be sent to (Credit Contact):
Colin Atkins
PPM America, Inc.
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606-1228
Attention: Private Placements
Telephone Number: (312) 634-2586
Telefacsimile Number: (312) 634-0054
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 38-1659835
A-2
<PAGE> 48
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF NOTES
NAME AND ADDRESS OF PURCHASER TO BE PURCHASED
<S> <C>
GREAT NORTHERN INSURED ANNUITY CORPORATION $10,000,000
Two Union Square
601 Union Street
Seattle, Washington 98101-2336
Attention: Investment Department, Private Placements
Telephone: (206) 516-4954
Telecopier Number: (206) 516-4863
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 8.22% Senior Notes due August 1, 2003, PPN
90346# AD 2, principal, premium or interest") to:
Bankers Trust Company (ABA #021001033)
14 Wall Street
New York, New York 10005
Account Number 99-911-145
FCC #097835
Notices
All notices with respect to payments and written confirmation of each such
payment, to be addressed:
GE Financial Assurance
Account: Great Northern Insured Annuity Corporation
Two Union Square
601 Union Street
Seattle, Washington 98101-2336
Attention: Investment Accounting
Telephone: (206) 516-2871
Facsimile: (206) 516-4740
All other notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: SALKELD & CO.
Taxpayer I.D. Number: 91-1127115
A-3
<PAGE> 49
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
ALEXANDER HAMILTON LIFE INSURANCE $5,000,000
COMPANY OF AMERICA
P. O. Box 21008
Greensboro, North Carolina 27420
Attention: Securities Administration - 3630
Telefacsimile: (336) 691-3025
Overnight Mail Address:
100 North Greene Street
Greensboro, North Carolina 27401
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 8.22% Senior Notes due August 1, 2003, PPN
90346# AD 2, principal, premium or interest") to:
Alexander Hamilton Life Insurance Company of America
c/o The Bank of New York
ABA #021 000 018 BNF: IOC566
Attention: P&I Department
Notices
All notices of payment on or in respect of the Notes and written confirmation of
each such payment, to be addressed to:
Alexander Hamilton Life Insurance Company of America
c/o The Bank of New York
P. O. Box 19266
Newark, NJ 07195
Attention: P&I Department
with duplicate notice to Alexander Hamilton Life Insurance Company of America at
the address first provided above.
All notices and communications other than those in respect to payments to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 56-1311063
A-4
<PAGE> 50
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
JEFFERSON-PILOT LIFE INSURANCE COMPANY $5,000,000
P. O. Box 21008
Greensboro, North Carolina 27420
Attention: Securities Administration - 3630
Telefacsimile: (336) 691-3025
Overnight Mail Address:
100 North Greene Street
Greensboro, North Carolina 27401
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 8.22% Senior Notes due August 1, 2003, PPN
90346# AD 2, principal, interest or premium") to:
Jefferson-Pilot Life Insurance Company
c/o The Bank of New York
ABA #021 000 018 BNF: IOC566
Attention: P&I Department
Notices
All notices of payment on or in respect of the Notes and written confirmation of
each such payment, to be addressed to:
Jefferson-Pilot Life Insurance Company
c/o The Bank of New York
P. O. Box 19266
Newark, New Jersey 07195
Attention: P&I Department
with duplicate notice to Jefferson-Pilot Life Insurance Company at the address
first provided above.
All notices and communications other than those in respect to payments to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 56-0359860
A-5
<PAGE> 51
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
SOUTHERN FARM BUREAU LIFE INSURANCE $5,000,000
COMPANY
1401 Livingston Lane
Jackson, Mississippi 39213
Attention: Carol Robertson
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "U.S.
Restaurant Properties Operating L.P., 8.22% Senior Notes due August 1, 2003, PPN
90346# AD 2, principal, premium or interest") to:
State Street Bank
Boston, MA 02101
ABA #011000028
For further credit to: Southern Farm Bureau Life Insurance Company
DDA Account #59848127, EQ83
Notices
All notices of payment on or in respect of the Notes and written confirmation of
each such payment, to be addressed as first provided above.
All other communications, including Waivers, Amendments, Consents and financial
information should be sent to:
Southern Farm Bureau Life Insurance Company
P. O. Box 78
Jackson, Mississippi 39205
Attention: Investment Department
or by overnight delivery to:
1401 Livingston Lane
Jackson, Mississippi 39213
Contact Person: Carol Robertson, CFA
Telephone: (601) 981-7422 extension 506
Facsimile: (601) 981-3605
or Dottie Carlisle
Telephone: (601) 981-7422 extension 800
Facsimile: (601) 981-3605
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 64-0283583
A-6
<PAGE> 52
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
THE CANADA LIFE ASSURANCE COMPANY $1,000,000
330 University Avenue,
Toronto, Ontario, Canada M5G 1R8
Attention: U.S. Private Placements, SP-11
Brian Lynch, Treasurer, U.S.
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:
Chase Manhattan Bank
ABA #021-000-021
Account No. 900-9-000200
Trust Account No. G52708, The Canada Life Assurance Company
Attention: Bond Interest
reference: U.S. Restaurant Properties Operating L.P., 8.22% Senior
Notes due August 1, 2003, PPN 90346# AD 2, whether principal and/or
interest and due date
Notices
All notices and communications to be addressed as first provided above, except
notice with respect to payment, and written confirmation of each such payment,
to be addressed:
Chase Manhattan Bank
North America Insurance
3 Chase MetroTech Centre - 6th Floor
Brooklyn, New York 11245
Attention: Ms. Doll Balbadar
with a copy to:
The Canada Life Assurance Company
330 University Avenue, SP-12
Toronto, Ontario, Canada M5G 1R8
Attention: Supervisor, Securities Accounting
Name of Nominee in which Notes are to be issued: J. Romeo & Co.
Taxpayer I.D. Number: 38-0397420
A-7
<PAGE> 53
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
CANADA LIFE INSURANCE COMPANY OF AMERICA $1,250,000
330 University Avenue,
Toronto, Ontario, Canada M5G 1R8
Attention: U.S. Private Placements, SP-11
Brian Lynch, Treasurer, U.S.
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:
Chase Manhattan Bank
ABA #021-000-021
Account No. 900-9-000200
Trust Account No. G52709, Canada Life Insurance Company of America
Attention: Doll Balbadar
reference: U.S. Restaurant Properties Operating L.P., 8.22% Senior
Notes due August 1, 2003, PPN 90346# AD 2, whether principal and/or
interest and due date
Notices
All notices and communications to be addressed as first provided above, except
notice with respect to payment, and written confirmation of each such payment,
to be addressed:
Chase Manhattan Bank
North America Insurance
3 Chase MetroTech Centre - 6th Floor
Brooklyn, New York 11245
Attention: Ms. Doll Balbadar
with a copy to:
Canada Life Insurance Company of America
330 University Avenue, SP-12
Toronto, Ontario, Canada M5G 1R8
Attention: Supervisor, Securities Accounting
Name of Nominee in which Notes are to be issued: J. Romeo & Co.
Taxpayer I.D. Number: 38-2816473
A-8
<PAGE> 54
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER NOTES TO BE PURCHASED
<S> <C>
CANADA LIFE INSURANCE COMPANY OF NEW YORK $250,000
330 University Avenue,
Toronto, Ontario, Canada M5G 1R8
Attention: U.S. Private Placements, SP-11
Brian Lynch, Treasurer, U.S.
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:
Chase Manhattan Bank
ABA #021-000-021
Account No. 900-9-000200
Trust Account No. G52685, Canada Life Insurance Company of New York
Attention: Doll Balbadar
reference: U.S. Restaurant Properties Operating L.P., 8.22% Senior
Notes due August 1, 2003, PPN 90346# AD 2, whether principal and/or
interest and due date
Notices
All notices and communications to be addressed as first provided above, except
notice with respect to payment, and written confirmation of each such payment,
to be addressed:
Chase Manhattan Bank
North America Insurance
3 Chase MetroTech Centre - 6th Floor
Brooklyn, New York 11245
Attention: Ms. Doll Balbadar
with a copy to:
Canada Life Insurance Company of New York
330 University Avenue, SP-12
Toronto, Ontario, Canada M5G 1R8
Attention: Supervisor, Securities Accounting
Name of Nominee in which Notes are to be issued: J. Romeo & Co.
Taxpayer I.D. Number: 13-2690792
A-9
<PAGE> 55
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"Affiliate" means, at any time, (a) with respect to any Person, any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) with respect to the Trust or any Subsidiary, any
Person beneficially owning or holding, directly or indirectly, 10% or more of
any class of Voting Equity Interests of the Trust or any Subsidiary or any
corporation or other legal entity of which the Trust and its Subsidiaries
beneficially own or hold, in the aggregate, directly or indirectly, 10% or more
of any class of Voting Equity Interests. As used in this definition, "Control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of Voting Equity Interests, by contract or otherwise. Unless the
context otherwise clearly requires, any reference to an "Affiliate" is a
reference to an Affiliate of the Trust.
"Annual Service Charge" for any period means sum of (a) all interest
expense and all amortization of debt discount and expense during such period in
respect of Indebtedness of the Trust and its Subsidiaries, and (b) all dividends
payable during such period in respect of Disqualified Stock of the Trust and its
Subsidiaries.
"Business Day" means (a) for the purposes of SECTION 8.7 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York,
New York are required or authorized to be closed, and (b) for the purposes of
any other provision of this Agreement, any day other than a Saturday, a Sunday
or a day on which commercial banks in New York, New York or Dallas, Texas are
required or authorized to be closed.
"Capital Lease" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Closing" is defined in SECTION 3.
"Change in Control" is defined in SECTION 8.3(H).
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Confidential Information" is defined in SECTION 20.
"Consolidated Income Available for Debt Service" for any period shall
mean the sum of (a) Consolidated Net Income prior to the recognition of any
gains or losses on the sale or other disposition of properties during such
period plus (to the extent deducted in determining Consolidated Net Income), (b)
all provisions for any Federal, state or other income taxes made
SCHEDULE B
(to Note Purchase Agreement)
<PAGE> 56
by the Trust and its Subsidiaries during such period, (c) all interest expense
and all amortization of debt discount and expense during such period in respect
of Indebtedness of the Trust and its Subsidiaries, (d) the amount of all
depreciation and amortization expense and any non-cash charge resulting from a
change in accounting principles of the Trust and its Subsidiaries during such
period, and (e) the amortization of deferred charges of the Trust and its
Subsidiaries during such period.
"Consolidated Indebtedness" means, as of any date of determination, and
without duplication, the total of all Indebtedness of the Trust and its
Subsidiaries outstanding on such date, after eliminating all offsetting debits
and credits among the Trust and its Subsidiaries and all other items required to
be eliminated in the course of the preparation of consolidated financial
statements of the Trust and its Subsidiaries in accordance with GAAP.
"Consolidated Net Income" for any period means the gross revenues of
the Trust and its Subsidiaries for such period less all expenses and other
proper charges (including taxes on income), determined on a consolidated basis
in accordance with GAAP after eliminating earnings or losses attributable to
outstanding Minority Interests, but excluding in any event:
(a) any gains or losses on the sale or other disposition of
investments or fixed or capital assets, and any taxes on such excluded
gains and any tax deductions or credits on account of any such excluded
losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Subsidiary accrued prior to
the date it became a Subsidiary;
(d) net earnings and losses of any corporation (other than a
Subsidiary), substantially all the assets of which have been acquired
in any manner by the Trust or any Subsidiary, realized by such
corporation prior to the date of such acquisition;
(e) net earnings and losses of any corporation (other than a
Subsidiary) with which the Trust or a Subsidiary shall have
consolidated or which shall have merged into or with the Trust or a
Subsidiary prior to the date of such consolidation or merger;
(f) net earnings of any business entity (other than a
Subsidiary) in which the Trust or any Subsidiary has an ownership
interest unless such net earnings shall have actually been received by
the Trust or such Subsidiary in the form of cash distributions;
(g) any portion of the net earnings of any Subsidiary which
for any reason is unavailable for payment of dividends to the Trust or
any other Subsidiary;
(h) earnings resulting from any reappraisal, revaluation or
write-up of assets;
(i) any deferred or other credit representing any excess of
the equity in any Subsidiary at the date of acquisition thereof over
the amount invested in such Subsidiary;
B-2
<PAGE> 57
(j) any gain arising from the acquisition of any securities of
the Trust or any Subsidiary;
(k) any reversal of any contingency reserve, except to the
extent that provision for such contingency reserve shall have been made
from income arising during such period; and
(l) any other extraordinary gain or loss.
"Consolidated Net Worth" means, as of the date of any determination
thereof, the amount of the capital stock accounts (net of treasury stock, at
cost) plus (or minus in the case of a deficit) the surplus and retained earnings
of the Trust and its Subsidiaries as determined in accordance with GAAP.
"Consolidated Total Assets" means, as of any date of determination, the
sum of (a) all Undepreciated Real Estate Assets of the Trust and its
Subsidiaries and (b) all other assets of the Trust and its Subsidiaries (other
than accounts receivables and intangible assets), after eliminating all
offsetting debits and credits among the Trust and its Subsidiaries and all other
items required to be eliminated in the course of the preparation of consolidated
financial statements of the Trust and its Subsidiaries in accordance with GAAP.
"Consolidated Total Capitalization" means, as of the date of any
determination thereof, the sum of (a) Consolidated Indebtedness, (b)
Consolidated Net Worth as at the end of the fiscal quarter of the Trust then
most recently ended and (c) the amount of accumulated depreciation and
amortization set forth on the consolidated balance sheet of the Trust and its
Subsidiaries as at the end of the fiscal quarter of the Trust then most recently
ended.
"Constituent Companies" is defined in the Preamble.
"Control Event" is defined in SECTION 8.3(i).
"Default" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"Default Rate" means that rate of interest that is the greater of (a)
2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (b) 2% over the rate of interest publicly announced by
Citibank, N.A. in New York, New York as its "base" or "prime" rate.
"Disqualified Stock" means any capital stock of a Person which by the
terms of such capital stock (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable), upon the happening
of any event or otherwise (a) matures or is mandatorily redeemable, pursuant to
a sinking fund obligation or otherwise (other than capital stock which is
redeemable solely in exchange for common stock), (b) is convertible into or
exchangeable or exercisable for Indebtedness or Disqualified Stock or (c) is
redeemable at the option of the holder thereof, in whole or in part (other than
capital stock which is redeemable
B-3
<PAGE> 58
solely in exchange for capital stock which is not Disqualified Stock or the
redemption price of which may, at the option of such Person, be paid in capital
stock which is not Disqualified Stock), in each case, on or prior to the stated
maturity of the Notes.
"Environmental Laws" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with either
Constituent Company under Section 414 of the Code.
"Event of Default" is defined in SECTION 11.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"General Partner" is defined in SECTION 5.1(A).
"Governmental Authority" means
(a) the government of
(1) the United States of America or any State or
other political subdivision thereof, or
(2) any jurisdiction in which the Trust or any
Subsidiary conducts all or any part of its business, or which
asserts jurisdiction over any properties of the Trust or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"Guaranty" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation of
B-4
<PAGE> 59
any other Person in any manner, whether directly or indirectly, including
(without limitation) obligations incurred through an agreement, contingent or
otherwise, by such Person:
(a) to purchase such Indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (1) for the purchase or payment
of such Indebtedness or obligation, or (2) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor under
any Guaranty, the Indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"Guaranty Agreement" is defined in SECTION 2.
"Hazardous Material" means any and all pollutants, toxic or hazardous
wastes or any other substances, including all substances listed in or regulated
in any Environmental Law that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, regulated, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"holder" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to SECTION
13.1.
"Indebtedness" with respect to any Person means, at any time, without
duplication, and whether or not contingent, (a) its liabilities for borrowed
money, including, without limitation, all such liabilities evidenced by bonds,
notes, debentures or similar instruments whether or not such liabilities are
secured by any Lien existing on property owned by such Person, (b) all
indebtedness for borrowed money of any other Person which is secured by any Lien
existing on property owned by such first Person, to the extent of the lesser of
(1) the amount of indebtedness so secured and (2) the fair market value of the
property subject to such Lien, (c) all reimbursement obligations, contingent or
otherwise, in connection with any letters of credit actually issued and amounts
representing the balance deferred and unpaid of the purchase price of any
property or services except any such balance that constitutes an accrued expense
or trade payable, and all conditional sale obligations and obligations under any
title retention agreement,
B-5
<PAGE> 60
(d) the principal amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock, (e) any
lease of property by the such Person as lessee which is reflected on such
Person's consolidated balance sheet as a Capital Lease in accordance with GAAP,
(f) all interest rate swaps, caps or similar agreements and foreign exchange
contracts, currency swaps or similar agreements, to the extent, in the case of
items of indebtedness under (a) through (c) above, that any such items (other
than letters of credit) would appear as a liability on such Person's
consolidated balance sheet in accordance with GAAP, and (g) to the extent not
otherwise included, any obligation by such Person to be liable for, or to pay,
as obligor, guarantor under a Guaranty or otherwise (other than for purposes of
collection in the ordinary course of business), Indebtedness of another Person.
"Institutional Investor" means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than 5% of the aggregate principal amount
of the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"Intercreditor Agreement" shall mean that certain Intercreditor
Agreement dated as of January 9, 1998, among the parties to the 1997 Note
Purchase Agreements and the Revolving Credit Agreement, as amended from time to
time.
"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"Make-Whole Amount" is defined in SECTION 8.7.
"Material" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Trust and
its Subsidiaries, taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets, properties or
prospects of the Trust and its Subsidiaries, taken as a whole, or (b) the
ability of the Trust to perform its obligations under this Agreement and the
Guaranty Agreement, (c) the ability of the Operating Partnership to perform its
obligations under this Agreement or the Notes, or (d) the validity or
enforceability against the Constituent Companies of this Agreement, the Guaranty
Agreement or the Notes.
"Memorandum" is defined in SECTION 5.3.
"Minority Interest" shall mean any shares of stock of any class of, or
any partnership, membership or other ownership in, a Subsidiary (other than
directors qualifying shares as required by law) that are not owned by the Trust
and/or one or more of its Subsidiaries.
B-6
<PAGE> 61
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as
such term is defined in Section 4001(a)(3) of ERISA).
"1997 Note Purchase Agreements" shall mean those certain separate Note
Purchase Agreements each dated as of January 31, 1997, as amended by the First
Amendment dated January 9, 1998, among the Operating Partnership, the Trust,
certain Subsidiaries thereto and the Purchasers named in Annex I thereto, as
amended from time to time.
"Notes" is defined in SECTION 1.
"Officer's Certificate" means a certificate of a Senior Financial
Officer or of any other officer of the Trust or of the general partner of the
Operating Partnership, as applicable, whose responsibilities extend to the
subject matter of such certificate.
"Operating Partnership" is defined in the Preamble.
"Other Agreements" is defined in SECTION 2.
"Other Purchasers" is defined in SECTION 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Permitted Management Transferee" is defined in SECTION 8.3(j).
"Person" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in Section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by either Constituent Company or any of
their ERISA Affiliates or with respect to which either Constituent Company or
any of their ERISA Affiliates may have any liability.
"Priority Debt" means all Indebtedness of the Trust and its
Subsidiaries secured by Liens.
"property" or "properties" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"Proposed Prepayment Date" is defined in SECTION 8.3(c).
"PTE" is defined in SECTION 6.2(a).
B-7
<PAGE> 62
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"Required Holders" means, at any time, the holders of at least 51% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by the Trust or any of its Affiliates).
"Responsible Officer" means any Senior Financial Officer and any other
officer of the Trust, the general partner of the Operating Partnership or any
Subsidiary Guarantor, as applicable, with responsibility for the administration
of the relevant portion of this Agreement.
"Revolving Credit Agreement" shall mean that certain Revolving Credit
Agreement dated January 9, 1998, among the Operating Partnership, the
institutions party thereto and Union Bank of Switzerland, New York Branch, as
Agent, as amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Trust, the Operating
Partnership or any Subsidiary Guarantor, as applicable.
"Source" is defined in SECTION 6.2.
"Subsidiary" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient Voting Equity
Interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Trust.
"Subsidiary Guarantor" is defined in SECTION 2.
"Subsidiary Guaranty Agreement" is defined in SECTION 2.
"Successor Corporation" is defined in SECTION 10.3.
"Total Unencumbered Assets" as of any date means the sum of (a)
Undepreciated Real Estate Assets not subject to a Lien securing indebtedness for
borrowed money; and (b) the book value of all other assets of the Trust and its
Subsidiaries (other than accounts receivables and intangible assets) not subject
to a Lien securing indebtedness for borrowed money, determined on a consolidated
basis in accordance with GAAP.
B-8
<PAGE> 63
"Undepreciated Real Estate Assets" as of any date means the cost
(original cost plus capital improvements) of real estate assets of the Trust and
its Subsidiaries on such date, before depreciation and amortization, determined
on a consolidated basis in accordance with GAAP.
"Unsecured Indebtedness" means at any time the aggregate unpaid
principal amount of all Indebtedness of the Trust and its Subsidiaries other
than (a) Indebtedness of a Subsidiary owing to a Constituent Company or to a
Wholly-Owned Subsidiary and (b) Priority Debt.
"Voting Equity Interests" means with respect to any Person,
(a) at any time that such Person is a corporation, the capital
stock of any class or classes of such Person the holders of which are
ordinarily, in the absence of contingencies, entitled to vote in the
election of corporate directors,
(b) at any time that such Person is a partnership, joint
venture or similar entity, the capital interest or profits interest of
such Person,
(c) at any time that such Person is a limited liability
company, the membership interests of such Person, and
(d) at any time that such Person is a trust, business trust,
association or other unincorporated organization, the beneficial
interest of such Person.
"Wholly-Owned Subsidiary" means, at any time, any Subsidiary one
hundred percent (100%) of all of the Voting Equity Interests (except directors'
qualifying shares) and Voting Equity Interests of which are owned by any one or
more of the Trust and the Trust's other Wholly-Owned Subsidiaries at such time.
B-9
<PAGE> 64
CHANGES IN ORGANIZATIONAL STRUCTURE
None
SCHEDULE 4.10
(to Note Purchase Agreement)
<PAGE> 65
DISCLOSURE MATERIALS
None
SCHEDULE 5.3
(to Note Purchase Agreement)
<PAGE> 66
SUBSIDIARIES OF THE TRUST
AND OWNERSHIP OF EQUITY INTERESTS
SEE ATTACHED
SCHEDULE 5.4
(to Note Purchase Agreement)
<PAGE> 67
DIRECTORS AND SENIOR OFFICERS
OF THE TRUST
Directors
Robert J. Stetson
Fred H. Margolin
Darrel Rolph
David Rolph
Gerald H. Graham
Eugene P. Taper
Officers
Robert J. Stetson
President and Chief Executive Officer
Fred H. Margolin
Chairman and Treasurer
Michael D. Warren
Director of Finance
SCHEDULE 5.4
(to Note Purchase Agreement)
<PAGE> 68
FINANCIAL STATEMENTS
1. SEC Form 10-K for the fiscal year ended December 31, 1997.
2. Unaudited consolidated balance sheet, income statement and statement of
cash flows for the fiscal quarter ended September 30, 1998.
SCHEDULE 5.5
(to Note Purchase Agreement)
<PAGE> 69
CERTAIN LITIGATION
None
SCHEDULE 5.8
(to Note Purchase Agreement)
<PAGE> 70
PATENTS, ETC.
None
SCHEDULE 5.11
(to Note Purchase Agreement)
<PAGE> 71
USE OF PROCEEDS
Proceeds from the sale of the Notes will be used to pay down existing
indebtedness of the Operating Partnership to Union Bank of Switzerland and for
general corporate purposes.
SCHEDULE 5.14
(to Note Purchase Agreement)
<PAGE> 72
EXISTING INDEBTEDNESS AT
OCTOBER 15, 1998
1. $175,000,000 Revolving Credit Agreement dated as of January 9, 1998,
between Union Bank of Switzerland and the Operating Partnership ("Bank Loan").
The Bank Loan is guaranteed by U.S. Restaurant Properties, Inc.
2. $12,500,000 aggregate amount of notes, due January 31, 2000, and
$27,500,000 aggregate amount of notes due January 31, 2002, issued pursuant to
the Note Purchase Agreement dated as of January 31, 1997 (the "Notes") from the
Operating Partnership to Pacific Mutual Life Insurance Company, The Ohio
National Life Insurance Company, Jefferson-Pilot Life Insurance Company,
Alexander Hamilton Life Insurance Company of America, First Alexander Hamilton
Life Insurance Company, Reliastar Life Insurance Company, Northern Life
Insurance Company, Reliastar Bankers Security Life Insurance Company, and
Reliastar United Services Life Insurance Company.
The Notes are guaranteed, jointly and severally, by U.S. Restaurant
Properties, Inc., USRP (Consolidating), LLC, USRP (West Virginia)
Partners, L.P., Restaurant Renovation Partners, L.P., U.S. Restaurant
Properties Development L.P., USRP (Lincoln), Ltd., USRP (Norman), Ltd.,
and USRP (Carolina), Ltd.
3. $200,000,000 Warehouse Line of Credit from U.S. Restaurant Lending
Group I, L.P., payable to Goldman Sachs Mortgage Company.
4. $1,038,888.00 Standby Letters of Credit issued by Comerica Bank -
Texas.
5. $1,100,000 Note payable to IDS Life Insurance Company, a Minnesota
corporation, dated May 20, 1997.
6. $111,000,000 aggregate amount of notes, due May 1, 2005, issued
pursuant to the Note Purchase Agreement dated as of May 1, 1998 (the "Notes")
from the Operating Partnership to Life Investors Insurance Company of America,
Peoples Security Life Insurance Company, The Canada Life Assurance Company,
Canada Life Insurance Company of America, Canada Life Insurance Company of New
York, GE Capital Edison Life Insurance Company, First Colony Life Insurance
Company, The Life Insurance Company of Virginia, Heritage Life Insurance
Company, Hartford Accident & Indemnity Co., Hartford Life Insurance Company,
Jefferson-Pilot Life Insurance Company, Jefferson Pilot Financial Insurance
Company, The Lafayette Life Insurance Company, The Ohio National Life Insurance
Company, Pacific Life Insurance Company, Northern Life Insurance Company,
Washington Square Advisers Private Placement Trust Fund, and Reliastar Life
Insurance Company of New York.
SCHEDULE 5.15
(to Note Purchase Agreement)
<PAGE> 73
The Notes are guaranteed, jointly and severally, by U.S. Restaurant
Properties, Inc., USRP (Consolidating), LLC, USRP (West Virginia),
Partners, L.P., Restaurant Renovation Partners, L.P., U.S. Restaurant
Properties Development L.P., USRP (Lincoln), Ltd., USRP (Norman), Ltd.,
and USRP (Carolina), Ltd.
B-2
<PAGE> 74
FORM OF NOTE
U.S. RESTAURANT PROPERTIES OPERATING L.P.
8.22% Senior Note due August 1, 2003
No. _________ November 13, 1998
$____________ PPN____________
FOR VALUE RECEIVED, the undersigned, U.S. RESTAURANT PROPERTIES
OPERATING L.P. (herein called the "Operating Partnership"), a limited
partnership organized and existing under the laws of the State of Delaware,
hereby promises to pay to ____________________, or registered assigns, the
principal sum of ____________________ DOLLARS on August 1, 2003, with interest
(computed on the basis of a 360-day year of twelve 30-day months) (a) on the
unpaid balance thereof at the rate of 8.22% per annum from the date hereof,
payable semiannually, on the first day of August and February in each year,
commencing with the August 1 or February 1 next succeeding the date hereof,
until the principal hereof shall have become due and payable, and (b) to the
extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Make-Whole Amount (as defined in the Note Purchase Agreements
referred to below), payable semiannually as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the greater of (1) 10.22% or (2) 2% over the rate of interest publicly
announced by Citibank, N.A. from time to time in New York, New York as its
"base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at Citibank, N.A. or at such other place as the Operating Partnership
shall have designated by written notice to the holder of this Note as provided
in the Note Purchase Agreements referred to below.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of as of
October 15, 1998 (as from time to time amended, the "Note Purchase Agreements"),
between the Operating Partnership, U.S. Restaurant Properties, Inc., a Maryland
corporation, and the respective Purchasers named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
SECTION 20 of the Note Purchase Agreements and (ii) to have made the
representation set forth in SECTION 6.2 or SECTION 13.2 of the Note Purchase
Agreements, as applicable.
This Note is a registered Note and, as provided in the Note Purchase
Agreements, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the
EXHIBIT 1
(to Note Purchase Agreement)
<PAGE> 75
Operating Partnership may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Operating Partnership will not be affected by any notice to
the contrary.
This Note and the holders hereof are entitled equally and ratably with
the holders of all other Notes to the rights and benefits provided pursuant to
the terms and provisions of the Guaranty Agreement and the Subsidiary Guaranty
Agreement (as such terms are defined in the Note Purchase Agreements). Reference
is hereby made to the Guaranty Agreement and the Subsidiary Guaranty Agreement
for a statement of the nature and extent of the benefits and security for the
Notes afforded thereby and the rights of the holders of the Notes in respect
thereof.
This Note is subject to optional prepayment, in whole or from time to
time in part, at the times and on the terms specified in the Note Purchase
Agreements, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreements,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.
This Note shall be construed and enforced in accordance with, and the
rights and parties shall be governed by, the law of the State of New York,
excluding choice-of-law principles of the law of such State which would require
application of the laws of the jurisdiction other than such State.
U.S. RESTAURANT PROPERTIES OPERATING L.P.
By: USRP Managing, Inc.
By
Its
------------------------------------
E-1-2
<PAGE> 76
FORM OF OPINION OF SPECIAL COUNSEL
TO THE CONSTITUENT COMPANIES
The closing opinion of Middleberg, Riddle & Gianna, counsel for the
Constituent Companies, which is called for by SECTION 4.5 of the Agreement,
shall be dated the date of the Closing and addressed to you and the Other
Purchasers, shall be satisfactory in scope and form to you and the Other
Purchasers and shall be to the effect that:
1. The Trust is a corporation, duly incorporated, validly
existing and in good standing under the laws of the State of Maryland,
has the corporate power and authority to execute and perform the
Agreement, the Other Agreements and the Guaranty Agreement, has the
full corporate power and authority to conduct the activities in which
it is now engaged and is duly licensed or qualified and is in good
standing as a foreign corporation in each jurisdiction in which the
character of the properties owned or leased by it or the nature of the
business transacted by it makes such licensing or qualification
necessary.
2. The Operating Partnership is a limited partnership, duly
organized, validly existing and in good standing under the laws of the
State of Delaware, has the power and authority to execute and perform
the Agreement, the Other Agreements and to issue the Notes, has full
power and authority to conduct the activities in which it is now
engaged and is duly qualified and is in good standing as a foreign
entity in each jurisdiction in which the character of the properties
owned or leased by it or the nature of the business transacted by it
makes such licensing or qualification necessary.
3. Each Subsidiary Guarantor is a limited liability company
or limited partnership, duly organized, validly existing and in good
standing, if applicable, under the laws of its jurisdiction of
organization, has the power and authority to execute and perform the
Subsidiary Guaranty Agreement, has the full power and authority to
conduct the activities in which it is now engaged and is duly licensed
or qualified and is in good standing as a foreign corporation or other
legal entity in each jurisdiction in which the character of the
properties owned or leased by it or the nature of the business
transacted by it makes such licensing or qualification necessary.
4. Each Subsidiary of the Trust (other than the Operating
Partnership and the Subsidiary Guarantors) is a corporation or other
legal entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and is duly licensed
or qualified and is in good standing in each jurisdiction in which the
character of the properties owned or leased by it or the nature of the
business transacted by it makes such licensing or qualification
necessary and all of the issued and outstanding shares of capital stock
or other equity interests of each Subsidiary of the Trust (including
the Operating Partnership) have been duly issued, are fully paid and
non-assessable and are owned by the Trust, by one or more Subsidiaries,
or by the Trust and one or more Subsidiaries.
EXHIBIT 4.5(a)
(to Note Purchase Agreement)
<PAGE> 77
5. The Agreement and the Other Agreements have been duly
authorized by all necessary action on the part of each Constituent
Company, have been duly executed and delivered by each Constituent
Company and constitute the legal, valid and binding contracts of each
Constituent Company enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and similar laws affecting creditors' rights
generally, and general principles of equity (regardless of whether the
application of such principles is considered in a proceeding in equity
or at law).
6. The Notes have been duly authorized by all necessary
action on the part of the Operating Partnership, and the Notes being
delivered on the date of the Closing have been duly executed and
delivered by the Operating Partnership and constitute the legal, valid
and binding obligations of the Operating Partnership enforceable in
accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and
similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).
7. The Guaranty Agreement has been duly authorized by all
necessary corporate action on the part of the Trust, has been duly
executed and delivered by the Trust and constitutes the legal, valid
and binding contract of the Trust enforceable in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and similar laws affecting creditors' rights
generally, and general principles of equity (regardless of whether the
application of such principles is considered in a proceeding in equity
or at law).
8. The Subsidiary Guaranty Agreement has been duly
authorized by all necessary action on the part of each Subsidiary
Guarantor, has been duly executed and delivered by each Subsidiary
Guarantor and constitutes the legal, valid and binding contract of each
Subsidiary Guarantor enforceable in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and similar laws affecting creditors' rights generally, and
general principles of equity (regardless of whether the application of
such principles is considered in a proceeding in equity or at law).
9. No approval, consent or withholding of objection on the
part of, or filing, registration or qualification with, any
Governmental Authority, Federal or state is necessary in connection
with the execution and delivery of the Agreement, the Other Agreements,
the Guaranty Agreement, the Subsidiary Guaranty Agreement or the Notes.
10. The issuance and sale of the Notes and the execution,
delivery and performance by the Operating Partnership of the Agreement,
the Other Agreements do not conflict with or result in any breach of
any of the provisions of or constitute a default under or result in the
creation or imposition of any Lien upon any of the property of the
Operating Partnership pursuant to the provisions of the Certificate of
Limited Partnership or the Limited Partnership Agreement of the
Operating Partnership or any agreement or
E-4.5(a)-2
<PAGE> 78
other instrument known to such counsel to which the Operating
Partnership is a party or by which the Operating Partnership may be
bound.
11. The execution, delivery and performance by the Trust of
the Agreement, the Other Agreements and the Guaranty Agreement do not
conflict with or result in any breach of any of the provisions of or
constitute a default under or result in the creation or imposition of
any Lien upon any of the property of the Trust pursuant to the
provisions of the Articles of Incorporation or Bylaws of the Trust or
any agreement or other instrument known to such counsel to which the
Trust is a party or by which the Trust may be bound.
12. The execution, delivery and performance by the Subsidiary
Guarantors of the Subsidiary Guaranty Agreement do not conflict with or
result in any breach of any of the provisions of or constitute a
default under or result in the creation or imposition of any Lien upon
any of the property of any Subsidiary Guarantor pursuant to the
provisions of the organizational documents of such Subsidiary Guarantor
or any agreement or other instrument known to such counsel to which
such Subsidiary Guarantor is a party or by which such Subsidiary
Guarantor may be bound.
13. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Agreement and the Other Agreements
and the delivery of the Guaranty Agreement and the Subsidiary Guaranty
Agreement do not, under existing law, require the registration of the
Notes or the Guaranty Agreement or the Subsidiary Guaranty Agreement
under the Securities Act of 1933, as amended, or the qualification of
an indenture under the Trust Indenture Act of 1939, as amended.
14. Since its organization, the Trust has been organized in
conformity with the requirements for qualification and taxation as a
"real estate investment trust" under the Code.
15. To the best of such counsel's knowledge after due
inquiry, there are no actions, suits or proceedings pending or
threatened against or affecting the Trust or any Subsidiary, at law or
in equity in any court or before any Governmental Authority, which if
adversely determined would individually or in the aggregate have a
Material Adverse Effect.
The opinion of Middleberg, Riddle & Gianna, counsel to the Constituent
Companies, shall cover such other matters relating to the sale of the Notes as
you and the Other Purchasers may reasonably request. With respect to matters of
fact on which such opinion is based, such counsel shall be entitled to rely on
appropriate certificates of public officials and officers of the Constituent
Companies.
E-4.5(a)-3
<PAGE> 79
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
The closing opinion of Chapman and Cutler, special counsel to you and
the Other Purchasers, called for by SECTION 4.5 of the Agreement, shall be dated
the date of the Closing and addressed to you and the Other Purchasers, shall be
satisfactory in form and substance to you and the Other Purchasers and shall be
to the effect that:
1. The Trust is a corporation, validly existing and in good
standing under the laws of the State of Maryland and has the power and
authority to execute and deliver the Agreement, the Other Agreements
and the Guaranty Agreement.
2. The Operating Partnership is a limited partnership,
validly existing and in good standing under the laws of the State of
Delaware and has the power and the authority to execute and deliver the
Agreement, the Other Agreements and to issue the Notes.
3. The Agreement and the Other Agreements have been duly
authorized by all necessary action on the part of each Constituent
Company, have been duly executed and delivered by each Constituent
Company and constitute the legal, valid and binding contracts of each
Constituent Company enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency, fraudulent conveyance and
similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).
4. The Notes have been duly authorized by all necessary
action on the part of the Operating Partnership, and the Notes being
delivered on the date of such Closing have been duly executed and
delivered by the Operating Partnership and constitute the legal, valid
and binding obligations of the Operating Partnership enforceable in
accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting creditors'
rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a
proceeding in equity or at law).
5. The Guaranty Agreement has been duly authorized by all
necessary action on the part of the Trust, has been duly executed and
delivered by the Trust and constitutes the legal, valid and binding
contract of the Trust enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent conveyance and similar laws
affecting creditors' rights generally, and general principles of equity
(regardless of whether the application of such principles is considered
in a proceeding in equity or at law).
6. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Agreement and the Other Agreements
and the delivery of the Guaranty Agreement do not, under existing law,
require the registration of the Notes or
EXHIBIT 4.5(b)
(to Note Purchase Agreement)
<PAGE> 80
the Guaranty Agreement under the Securities Act of 1933, as amended, or
the qualification of an indenture under the Trust Indenture Act of
1939, as amended.
The opinion of Chapman and Cutler shall also state that the opinion of
Middleberg, Riddle & Gianna, counsel for the Constituent Companies, is
satisfactory in scope and form to Chapman and Cutler and that, in their opinion,
you and the Other Purchasers are justified in relying thereon.
In rendering the opinion set forth in paragraph 1 above, Chapman and
Cutler may rely solely upon an examination of the Articles of Incorporation and
Bylaws of the Trust and the general corporate law of the State of Maryland. In
rendering the opinion set forth in paragraph 2 above, Chapman and Cutler may
rely solely upon an examination of the Limited Partnership Agreement of the
Operating Partnership and the limited partnership laws of the State of Delaware.
The opinion of Chapman and Cutler is limited to the laws of the State of New
York, the general corporate law of the State of Maryland, the limited
partnership laws of the State of Delaware and the Federal laws of the United
States.
With respect to matters of fact upon which such opinion is based,
Chapman and Cutler may rely on appropriate certificates of public officials and
officers of the Constituent Companies and upon representations of the
Constituent Companies and you and the Other Purchasers delivered in connection
with the issuance and sale of the Notes.
E-4.5(b)-2
<PAGE> 1
Exhibit 12.1
U.S. RESTAURANT PROPERTIES, INC.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 4,933 $ 5,223 $ 7,473 $ (9,393) $ 5,917
Fixed Charges:
Interest Expense 90 262 2,558 9,599 16,011
Capitalized Interest -- -- -- -- 493
Amortization of Debt Issue Costs -- 1 162 385 666
Preferred Stock Dividend Requirements -- -- -- 868 7,102
Rent Exp. Portion Representing Interest -- 1 5 27 12
-------- -------- -------- -------- --------
Total Fixed Charges 90 264 2,725 10,879 24,284
Less Preferred Stock Dividend Requirements -- -- -- 868 7,102
======== ======== ======== ======== ========
Earnings $ 5,023 $ 5,487 $ 10,198 $ 618 $ 23,099
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 55.81x 20.78x 3.74x .06x(1) 1.34x(2)
Ratio of Earnings to Combined
Fixed Charges and preferred
stock dividends 55.81x 20.78x 3.74x .06x(1) .95x(2)
</TABLE>
(1) During 1997, the Company recorded a non-cash, unusual charge of $19,220
related to the termination of the management contract. Excluding the
effects of this unusual charge, the ratio of earnings to fixed charges
and the ratio of earnings to combined fixed charges and preferred stock
would have been 1.98x and 1.82x, respectively for 1997.
(2) During 1998, the Company recorded a non-cash, unusual charge of $12,047
related to 495,509 OP units accrued according to the 1997 termination
of the management contract. Excluding the effects of this unusual
charge, the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock would have been
2.05x and 1.45x, respectively for 1998.
<PAGE> 1
Exhibit 21.1
U.S. RESTAURANT PROPERTIES, INC.
LIST OF SUBSIDIARIES AS OF DECEMBER 31, 1998
The following sets forth a list of the registrants direct and indirect
subsidiaries as of December 31, 1998 together with their state of organization.
<TABLE>
<CAPTION>
Subsidiary State of Organization
---------- ---------------------
<S> <C>
USRP Managing, Inc. Delaware
USRP Renovation Corp. Texas
Restaurant Acquisition Corp. Texas
Restaurant Funding, Inc. Texas
Restaurant Contractor Corp. Texas
U.S. Restaurant Properties Operating L.P. Delaware
Restaurant Property Partners, L.P. Texas
USRP (West Virginia) Partners, L.P. Texas
Restaurant Renovation Partners, L.P. Texas
U.S. Restaurant Properties Development, L.P. Texas
USRP (Carolina), Ltd. Texas
USRP (Lincoln), Ltd. Texas
USRP (Norman), Ltd. Texas
USRP (Consolidating), LLC Texas
USRP (Dee Dee), LLC Texas
USRP (Sybra), LLC Texas
USRP (Ribbit), LLC Texas
USRP (Jones), LLC Texas
USRP (Central Avenue), LLC Texas
USRP (Midon), LLC Texas
USRP (Susi), LLC Texas
USRP (Minnesota), LLC Texas
USRP (Acquisition), LLC Texas
USRP (Popeye's), LLC Texas
USRP (Finance), LLC Texas
USRP (Cal), LLC Texas
USRP GP, LLC Texas
USRP (San Antonio), Ltd. Texas
USRP (66), Ltd. Texas
USRP (Austin), Ltd. Texas
USRP (Jones), LLC Texas
USRP (Bob), LLC Texas
USRP (Don), LLC Texas
USRP (Fred), LLC Texas
USRP (Illinois), LLC Texas
USRP (Jennifer), LLC Texas
USRP (Missouri), LLC Texas
USRP (St. Louis), LLC Texas
USRP (Sarah), LLC Texas
USRP (Steve), LLC Texas
USRP (Valerie), LLC Texas
USRP (Palma), LLC Texas
USRP (Smyrna), LLC Texas
USRP (Legend), LLC Texas
USRP (Gold), LLC Texas
USRP (Lavid), L.P. Texas
</TABLE>
<PAGE> 2
U.S. RESTAURANT PROPERTIES, INC.
LIST OF SUBSIDIARIES AS OF DECEMBER 31, 1998 (continued)
<TABLE>
<CAPTION>
Subsidiary State of Organization
---------- ---------------------
<S> <C>
USRP (CAP), Inc. Texas
USRP (PAC), L.P. Texas
USRP (T&C), LLC Texas
USRP (Carroll), LLC Texas
USRP (BC), LLC Texas
USRP (Fain 10), L.P. Texas
USRP (Hollis), LLC Texas
USRP (Bill), LLC Texas
USRP (Chris), LLC Texas
USRP (Molly), LLC Texas
USRP (Sandra), LLC Texas
USRP (Pat), LLC Texas
USRP (Kil), LLC Texas
Oahu Terminal, LLC Texas
Oahu Convenience Stores, LLC Texas
</TABLE>
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (Registration No. 333-34263) of U.S. Restaurant Properties, Inc. of our
report dated March 19, 1999 (which report expresses an unqualified opinion and
includes an explanatory paragraph relating to a change in the method of
accounting for contingent rents to conform to the consensus reached by the
Emerging Issues Task Force in Issue 98-9 on May 21, 1998) appearing in this
Annual Report on Form 10-K of U.S. Restaurant Properties, Inc. for the year
ended December 31, 1998.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Dallas, Texas
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,857
<SECURITIES> 0
<RECEIVABLES> 11,884
<ALLOWANCES> 1,067
<INVENTORY> 0
<CURRENT-ASSETS> 23,465
<PP&E> 553,611
<DEPRECIATION> 27,938
<TOTAL-ASSETS> 604,169
<CURRENT-LIABILITIES> 22,096
<BONDS> 206,112
0
4
<COMMON> 14
<OTHER-SE> 209,757
<TOTAL-LIABILITY-AND-EQUITY> 604,169
<SALES> 0
<TOTAL-REVENUES> 58,530
<CGS> 3,158
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,689
<INCOME-PRETAX> 6,107
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,107
<DISCONTINUED> 0
<EXTRAORDINARY> 190
<CHANGES> 0
<NET-INCOME> 5,917
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
