<PAGE>
As filed with the Securities and Exchange Commission on December 8, 1997
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------------
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------------------------
FFP REAL ESTATE TRUST
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Texas 6798 75-2735609
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification No.)
</TABLE>
2801 Glenda Avenue
Fort Worth, Texas 76117
(817) 838-4767
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
STEVEN B. HAWKINS
2801 Glenda Avenue
Fort Worth, Texas 76117
(817) 838-4767
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copy to:
W. ALAN KAILER
Jenkens & Gilchrist,
a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
(214) 855-4500
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement and the
satisfaction or waiver of all other conditions to the restructuring and
conversion of FFP Partners, L.P. described in the enclosed Proxy
Statement/Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]_____
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]_____
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Proposed Proposed maximum
Title of each class of securities Amount to be maximum offering aggregate Amount of
to be registered registered (1) price per unit (2) offering price (2) registration fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value............. 3,779,415 shares $.33 $1,247,207 $368
===================================================================================================================================
</TABLE>
(1) The Registration Statement covers shares to be issued by the Registrant in
connection with a proposed restructuring.
(2) Computed pursuant to Rule 457(f)(1) under the Securities Act of 1933, as
amended, based upon the book value of the securities computed as of
September 28, 1997, of $.33 per share. Estimated solely for the purpose of
calculating the registration fee.
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to Section 8(a), may determine.
<PAGE>
[LOGO OF FFP PARTNER, L.P.
INC. APPEARS HERE]
FFP PARTNERS, L.P.
RESTRUCTURING PROPOSAL -- YOUR VOTE IS VERY IMPORTANT
December 9, 1997
To the Unitholders of FFP Partners, L.P.:
We are asking you to approve the separation of the activities now conducted
by FFP Partners into two groups. FFP Partners will continue to hold the real
estate assets currently used in its retail operations. FFP Partners will
transfer the fuel and merchandise marketing assets and other businesses it now
conducts to FFP Marketing Company, Inc. You will continue as partners of FFP
Partners and will also receive your proportionate share of stock of the
Marketing Company. In addition, as part of the restructuring, FFP Partners will
be authorized to convert to a real estate investment trust. If this conversion
occurs in the future, you will be entitled to receive shares of the new REIT for
your FFP units. There is no guarantee that the conversion of FFP Partners to a
real estate investment trust will occur even if the restructuring is approved,
however. Voting for the restructuring includes approving certain amendments to
FFP Partners' partnership agreement. These amendments are discussed in detail in
this Proxy Statement.
The restructuring cannot be completed unless the limited partners approve
it by a vote of the holders of a majority of the outstanding FFP units. We have
scheduled a special meeting of the FFP unitholders to vote on the restructuring.
The special meeting will be held on Friday, December 26, 1997, at 10:00 a.m.
(local time), at Holiday Inn-North, 2540 Meacham Boulevard, Fort Worth, Texas.
The record date for FFP unitholders entitled to vote at the special meeting is
December 5, 1997.
We have unanimously approved the restructuring and unanimously recommend
that you vote FOR the approval of the restructuring. We have conflicts of
interest in making this recommendation, which are described under "Conflicts of
Interest" in this Proxy Statement. Whether or not you plan to attend the special
meeting of unitholders, please take the time to vote by completing and mailing
the enclosed proxy card to us. If you sign, date and mail your proxy card
without indicating how you want to vote, your proxy will be counted as a vote in
favor of the restructuring. If you fail to return your card, your proxy will be
counted as a vote against the restructuring.
After the restructuring, the Harvison Family will own approximately 41% of
the Marketing Company shares. They will also own approximately a 2% interest in
FFP Partners as general partner and a 39% interest in the subsidiary of FFP
Partners that will hold all the assets of FFP Partners.
This Proxy Statement is first being mailed to FFP unitholders on December
9, 1997. It provides you with detailed information about the proposed
restructuring. It is a prospectus for the REIT and the Marketing Company and
also a proxy statement for the special meeting of FFP unitholders. We encourage
you to read this entire document carefully.
Sincerely,
John H. Harvison,
Chairman of the Board
Neither the SEC nor any state securities regulators have approved the REIT
shares or the Marketing Company shares to be issued under this Proxy Statement
or determined if this Proxy Statement is accurate or adequate. Any
representation to the contrary is a criminal offense.
<PAGE>
Until January 3, 1998 (25 days after the date of this Proxy Statement), all
dealers effecting transactions in the securities offered hereby, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligations of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
This Proxy Statement is not an offer to sell nor is it seeking an offer to
buy the FFP units, the REIT shares or the Marketing Company shares in any
jurisdiction in which, or to any person to whom, such offer or sale is not
permitted.
ADDITIONAL INFORMATION
FFP Partners files annual, quarterly and special reports, proxy statements
and other information with the SEC. After the conversion, FFP Partners will no
longer file such reports, statements or information with the SEC, but the REIT
and the Marketing Company will be required to do so. You may read and copy any
reports, statements or other information FFP Partners has filed or the REIT or
the Marketing Company will file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our
SEC filings are also available to the public from commercial document retrieval
services and at the Internet web site maintained by the SEC at
http://www.sec.gov.
Both the REIT and the Marketing Company have filed a Registration Statement
on Form S-4 to register with the SEC the REIT shares and the Marketing Company
shares to be issued pursuant to the restructuring. This Proxy Statement is a
part of the Registration Statements and constitutes a prospectus on the REIT and
the Marketing Company in addition to being a proxy statement of FFP Partners for
the special meeting. As permitted by the SEC rules, this Proxy Statement does
not contain all of the information you can find in the Registration Statements
or their exhibits.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
----
<S> <C>
SUMMARY AND QUESTIONS AND
ANSWERS ABOUT THE RESTRUCTURING i
SUMMARY OF PRO FORMA FINANCIAL
INFORMATION OF FFP PARTNERS
AND THE MARKETING COMPANY............................................... 2
RISK FACTORS.............................................................. 3
Risks Relating to the Restructuring..................................... 3
Risks Relating to the REIT and FFP Partners
After the Conversion................................................. 4
Risks Relating to the Marketing Company................................. 5
THE RESTRUCTURING......................................................... 7
Background of the Restructuring......................................... 7
Reasons for the Restructuring........................................... 8
Amendments to the FFP Partnership
Agreement............................................................ 9
The Contribution and Distribution...................................... 10
Analysis of Alternatives Considered.................................... 11
Allocation of REIT Shares and Marketing
Company Shares Among FFP
Unitholders......................................................... 12
No Dissenters' Appraisal Rights........................................ 12
Costs of the Restructuring............................................. 12
Consequences If Restructuring
Is Not Approved..................................................... 13
Accounting Treatment................................................... 13
THE SPECIAL MEETING...................................................... 13
SELECTED HISTORICAL FINANCIAL
INFORMATION AND OTHER DATA
OF FFP PARTNERS........................................................ 15
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS OF FFP PARTNERS............................................. 16
PRO FORMA FINANCIAL INFORMATION
OF FFP PARTNERS AND THE
MARKETING COMPANY...................................................... 21
BUSINESS................................................................. 27
General................................................................ 27
Recent Developments.................................................... 27
The Marketing Company.................................................. 27
The REIT and FFP Partners.............................................. 33
MANAGEMENT............................................................... 35
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS.......................................... 40
CONFLICTS OF INTEREST.................................................... 44
DESCRIPTION OF SECURITIES................................................ 46
FFP Partners........................................................... 46
The REIT............................................................... 48
The Marketing Company.................................................. 51
CERTAIN ANTI-TAKEOVER PROVISIONS
DELAWARE AND TEXAS LAW
AND OF THE ORGANIZATIONAL
DOCUMENTS OF THE REIT AND THE
MARKETING COMPANY...................................................... 52
SUMMARY COMPARISON OF FFP UNITS,
REIT SHARES AND MARKETING
COMPANY SHARES......................................................... 55
FEDERAL INCOME TAX
CONSIDERATIONS......................................................... 65
A. The Restructuring................................................... 65
C. Tax Consequences of the REIT's
Qualification and Operation as
a Real Estate Investment Trust.................................... 69
D. Tax Consequences of the Operations
of FFP Partners................................................... 76
D. Tax Consequences of the Operations
of the Marketing Company.......................................... 82
ERISA Considerations................................................... 83
LEGAL MATTERS............................................................ 84
EXPERTS.................................................................. 84
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE..................................................... F-1
APPENDIX A
GLOSSARY............................................................... A-1
APPENDIX B
Amendments to FFP Partnership
Agreement........................................................... B-1
</TABLE>
<PAGE>
SUMMARY AND QUESTIONS AND ANSWERS
ABOUT THE RESTRUCTURING
The following summary and questions and answers highlight selected information
from this document and may not contain all of the information that is important
to you. To understand the restructuring fully, you should read this entire Proxy
Statement carefully. Many of the terms used in this Proxy Statement are defined
in the Glossary included as Appendix A at the end of this document.
Summary
FFP Partners is a publicly traded partnership that, through its
subsidiaries, owns and operates convenience stores, truck stops, and self-
service motor fuel outlets and conducts fuel wholesaling and terminaling
operations and other related activities. The FFP units are listed for trading on
the American Stock Exchange. The general partner of FFP Partners is FFP Partners
Management Company, Inc., which is a private company controlled by the Harvison
Family. The Harvison Family currently owns approximately 39% of the outstanding
FFP units, and approximately a 2% interest in FFP Partners through the general
partner.
The Board of Directors of FFP's general partner has unanimously approved
the restructuring of FFP Partners to separate the activities now conducted by
FFP Partners into two groups. After the restructuring, FFP Partners will own
through FFP Properties, its newly formed operating subsidiary, the real estate
that FFP Partners now owns through its subsidiary FFP Operating Partners, L.P.
FFP Partners will be controlled by the REIT. FFP Partners will transfer the fuel
and merchandise marketing assets and other business it now conducts to the
Marketing Company. You will continue as partners of FFP Partners and will also
receive your proportionate share of the Marketing Company shares.
Upon completion of the restructuring the Harvison Family will own:
100% of the REIT,
39% of the interest in FFP Properties and
41% of the Marketing Company shares.
The principal executive offices of FFP Partners and FFP's general partner
are located at 2801 Glenda Avenue, Fort Worth, Texas 76117-4391. The telephone
number is (817) 838-4700.
Questions and Answers
Q: What is the restructuring?
A: The restructuring will be completed in two steps. The first step will
separate FFP Partners' real estate business from its fuel and merchandise
marketing and other non-real estate businesses. Through the restructuring,
the REIT, a newly formed real estate investment trust, will become the
general partner of FFP Partners. FFP Partners will own indirectly through
FFP Properties the real estate it now owns indirectly through the Operating
Partnership. The non-real estate assets will be transferred to the newly
formed Marketing Company. The Marketing Company shares will then be
distributed to the partners of FFP Partners.
Upon completion of the restructuring, you will continue to own your FFP
units. You will also automatically receive one Marketing Company share for
each FFP unit you now own. The Marketing Company shares will be listed on
the American Stock Exchange.
If the FFP unitholders approve the restructuring, they will also be
approving the second step, which is the later conversion of FFP Partners
from its present limited partnership form to a real estate investment trust
form through either a merger or an exchange of FFP units. We cannot assure
you that the conversion will occur even if the restructuring is approved.
<PAGE>
Q: What is the merger alternative for the conversion?
A: FFP Partners will convert to a real estate investment trust using the
merger alternative only if we obtain a ruling from the Internal Revenue
Service that the merger alternative will be tax-free to FFP unitholders. In
the merger alternative, FFP Partners would be converted to a real estate
investment trust form through a tax-free merger of FFP Partners with the
REIT. FFP Partners will be the surviving entity and will become a
subsidiary of the REIT. Your FFP unit certificates will automatically
become REIT share certificates. You will automatically become a shareholder
of the REIT and cease to be a unitholder of FFP Partners. The FFP units
will no longer be listed on the American Stock Exchange, but the REIT
shares will be listed on a securities exchange.
Q: What is the exchange alternative for the conversion?
A: If we are not able to obtain a favorable ruling from the Internal Revenue
Service on the merger alternative, we may convert to a real estate
investment trust using the exchange alternative. We would use this
alternative only if the general partner determines that an active market
for the REIT shares is likely to develop.
In the exchange alternative FFP Partners would be converted to a real
estate investment trust form by implementing amendments to FFP Partners'
Partnership Agreement. These amendments would:
prohibit you from transferring your FFP units to a third party, and
provide that you could require the REIT to redeem your FFP units for
either REIT shares or cash.
If you request the REIT to redeem your FFP units, the REIT will determine
whether to give you REIT shares or cash. We anticipate that the REIT will
in all cases decide to give you REIT shares, unless giving you REIT shares
would endanger the REIT's treatment as a real estate investment trust under
the tax rules. The FFP units will no longer be listed on the American Stock
Exchange, but we intend that the REIT shares would be listed on a
securities exchange at that time.
Q: What will I receive if each step of the restructuring is completed?
A: After the first step of the restructuring, you will continue to hold your
FFP units. Your FFP units will remain listed for trading on the American
Stock Exchange until the conversion occurs. In addition, for each FFP unit
you now hold you will own one Marketing Company share.
If the conversion is later completed using the merger alternative, you will
receive one REIT share for each FFP unit you own.
If the conversion is completed using the exchange alternative, your FFP
units will be exchangeable for one REIT share for each FFP unit you own or
for cash at their fair market value.
In either the merger alternative or the exchange alternative, the REIT
shares you receive will be subject to restrictions on transferability
necessary to maintaining the REIT's status as a real estate investment
trust.
Q: Why is FFP Partners proposing the restructuring?
A: FFP Partners currently operates as a "pass-through" entity for federal
income tax purposes. This means that FFP Partners does not pay federal
income taxes. Instead, you pay your share of taxes on income earned by FFP
Partners. Under federal law, our pass-through status expires at the end of
1997. If we restructure:
. we will maintain "pass-through" tax status for our real estate
activities beyond 1997 because FFP Partners will then hold only real
estate that the tax law permits to be held by a publicly traded
partnership;
ii
<PAGE>
. you will continue your ownership of the real estate and the marketing
assets through publicly traded entities; and
. if the conversion occurs, you will be able to trade your interests in
the real estate activities as a real estate investment trust.
Q: Are there risks in doing the restructuring?
A: Yes. There are significant risks to the restructuring. These risks are
outlined in detail beginning on page __ of the accompanying Proxy
Statement. You should carefully review and consider these risks in deciding
how to vote on the restructuring. We believe the most significant risks
are:
. There are potential conflicts of interest between FFP Partners and
FFP's general partner, and there will be potential conflicts of
interest between FFP Partners and the Marketing Company following the
restructuring and between the REIT and the Marketing Company following
the conversion.
. The Harvison Family will be able to remove FFP Partners as general
partner of FFP Properties at any time and, therefore, remove FFP
Partners from control of the operations of its assets, all of which
are owned through FFP Properties.
. There are no dissenters' appraisal rights; you will be bound by the
vote of the holders of a majority of the outstanding FFP units.
. We cannot assure you that the conversion will occur. The decision
whether to complete the conversion will be made by the Board of Trust
Managers of the REIT in its sole discretion.
. We cannot assure you that the combined market price of the FFP units,
or after the conversion the REIT shares, and the Marketing Company
shares will equal or exceed the current market price of the FFP units.
. Anti-takeover provisions exist in the organizational documents of the
REIT and the Marketing Company that may have the effect of
discouraging a change in control under circumstances that could give
you an opportunity to realize a premium over the then prevailing
market prices.
. FFP Partners' business has been operated as a single enterprise. The
separation of the assets and business now conducted by FFP Partners
may create unforeseen difficulties that may cause either or both FFP
Partners, or after the conversion the REIT, and the Marketing Company
to be unsuccessful.
Q: What are my tax consequences in these transactions?
A: The restructuring
You will not recognize federal income tax gain or loss in the
restructuring.
The tax basis in your FFP units will be divided between the FFP units and
the Marketing Company shares you receive.
After the restructuring but before the conversion
After you receive your Marketing Company shares, you generally will
recognize taxable gain or loss when you sell, exchange or otherwise dispose
of them.
You generally will recognize taxable gain or loss when you sell, exchange
or otherwise dispose of your FFP units.
iii
<PAGE>
The conversion
If the conversion is completed through the merger alternative -- the
exchange of your FFP units for REIT shares will not be taxed.
If the conversion is completed through the exchange alternative -- you will
be required to recognize taxable gain or loss when you redeem your FFP
units for either cash or REIT shares, even if you do not immediately sell
those REIT shares.
After the conversion
You generally will recognize taxable gain or loss when you sell, exchange,
or otherwise dispose of your REIT shares.
Jenkens & Gilchrist, a Professional Corporation, tax counsel to FFP
Partners ("Tax Counsel"), is of the opinion that under existing law, based
upon factual representations made by FFP Partners and FFP's general partner
and assuming the facts described in this Proxy Statement are correct, this
summary of federal income tax law and the more detailed description of
federal income tax law beginning on page 65, is correct.
Q: What do I need to do now?
A: Mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your FFP units may be represented at the special meeting
of unitholders that will take place December 26, 1997.
Q: Who can I call if I have questions?
A: You may call Steve Hawkins, Vice President - Finance and Administration, at
FFP Partners at (888) 855-6529 during regular business hours (central
time).
Q: What are the relationships among the REIT, FFP Partners, FFP Properties,
the Harvison Family, and the Marketing Company after the restructuring?
A: The REIT -- will be the general partner of and will control FFP Partners.
FFP Partners -- through its subsidiary FFP Properties, will own
substantially all of the real estate that is now held by the Operating
Partnership.
FFP Properties -- will lease the real estate it owns to the Marketing
Company for which the Marketing Company will pay FFP Properties rental
payments that management believes are at fair market value. Management did
not engage any third party advisors or refer to any third party surveys or
analyses of rental rates in making its determination of fair market value.
The Harvison Family -- will own a limited partner interest in FFP
Properties that is equivalent to and in lieu of its ownership in FFP
Partners. We have structured the Harvison Family ownership in this way to
comply with certain tax rules prohibiting 5% partners of a publicly traded
partnership from holding 10% or more of the interests in the tenants of the
properties held by the partnership.
The Marketing Company -- will own all of the other assets now owned by FFP
Partners and will operate all of the businesses now conducted by FFP
Partners other than the ownership of real estate.
FFP Partners, or after the conversion the REIT, and the Marketing Company
will be separate, publicly traded entities that will deal with each other
on an arm's-length basis in the future.
Q: Who will manage the Marketing Company, FFP Partners and the REIT?
A: The Board of Directors of the Marketing Company
You will have the right to elect the Board of Directors of the Marketing
Company after the restructuring.
iv
<PAGE>
The officers of the Marketing Company
The current officers of FFP's general partner will serve as officers of the
Marketing Company. The officers and their positions with the Marketing
Company are:
John H. Harvison, Chief Executive Officer
Robert J. Byrnes, President and Chief Operating Officer
Steven B. Hawkins, Vice President-Finance and Administration, Secretary,
Treasurer and Chief Financial Officer
J.D. St. Clair, Vice President-Fuel Supply and Distribution
Michael Triantafellou, Vice President-Retail Operations.
The general partner of FFP Partners
As a limited partnership, FFP Partners does not have directors and
officers. Instead, the directors and officers of FFP's general partner
manage all operations of FFP Partners. After the restructuring, the REIT
will be the general partner of FFP Partners.
The Board of Trust Managers of the REIT
The Board of Trust Managers of the REIT will supervise the management of
FFP Partners. You will have no right to elect the Board of Trust Managers
of FFP's general partner after the restructuring, just as you currently
have no right to elect the Board of Directors of FFP's general partner. You
will have a right to elect the Board of Trust Managers of the REIT after
the conversion by the merger alternative or after you exchange your FFP
units for REIT shares under the exchange alternative.
The officers of the REIT
The officers of the REIT will be:
John H. Harvison, Chief Executive Officer and President
Steven B. Hawkins, Vice President-Finance and Administration, Secretary,
Treasurer and Chief Financial Officer.
For information regarding potential conflicts of interest between
management of FFP Partners and the Marketing Company after the
restructuring and between the REIT and the Marketing Company after the
conversion, see page __.
Q: Are there differences between my FFP units and the REIT shares and
Marketing Company shares I will receive?
A: Yes. There are a number of differences between the FFP units, the REIT
shares and Marketing Company shares, as well as the rights and privileges
you will have as a holder of each of them.
There are also a number of differences among Delaware partnership law that
governs FFP Partners, Texas real estate investment trust law that governs
the REIT, and Texas corporate law that governs the Marketing Company.
For a summary comparison of the FFP units, the REIT shares and the
Marketing Company shares and the law that applies to each of FFP Partners,
the REIT and the Marketing Company, see page 55.
There are also many differences in the tax consequences of owning FFP
units, REIT shares and Marketing Company shares. For a discussion of the
tax consequences of owning these entities, see page 64.
Q: When do you expect the restructuring to be completed?
A: We intend to complete the restructuring on December 28, 1997.
v
<PAGE>
Q: When do you expect the conversion to a real estate investment trust to be
completed?
A: We intend to complete the conversion as soon as possible, but cannot tell
you a specific date that it will be completed.
Q: How do I revoke my proxy if I decide to do so?
A: You have the unconditional right to revoke your proxy at any time before
your FFP units are voted. You can revoke the proxy either by appearing in
person and notifying the officials at the special meeting that you wish to
revoke your proxy or by notifying FFP Partners in writing addressed to:
2801 Glenda Avenue, Fort Worth, Texas 76117-4391, Attention: Steven B.
Hawkins, Secretary. Your revocation will not be effective unless it has
been received by the Secretary of FFP's general partner before the day of
the special meeting of unitholders or by the officials in charge of the
special meeting of unitholders before the FFP units are voted.
Q: Should I send in my FFP unit certificates now?
A: No. After the restructuring is completed, we will send you written
instructions for receiving your Marketing Company shares. If the conversion
is completed under the merger alternative, we will send you written
instructions for receiving your REIT shares. If the conversion is completed
under the exchange alternative, you will keep your FFP unit certificates
until you choose to exchange your FFP units for REIT shares or cash.
vi
<PAGE>
STRUCTURE OF FFP PARTNERS, THE REIT AND THE MARKETING COMPANY
The diagram below shows the current structure of FFP Partners and the structure
of FFP Partners, the REIT and the Marketing Company after the restructuring.
Structure of FFP Partners
before the restructuring
---------------------
-------- 1% FFP Partners
Harvison G.P. Management
--------------- Family Interest Company, Inc.
FFP Unitholders -------- ---------------------
--------------- 39%
60% L.P. Interest 1%
L.P. Interest G.P. Interest
------------------ ---------------------
FFP Partners, L.P. FFP Operating
------------------ Partners, L.P.
99% ---------------------
L.P. ---------------------
Interest Real Estate and Fuel
and Merchandise
Marketing Operations
---------------------
Structure of FFP Partners and the
REIT after restructuring
--------
Harvison
Family
--------
100% (1)
97% (2)
----------------
FFP Real Estate ---------------
Investment Trust FFP Unitholders
("REIT") ---------------
---------------- 98%
L.P. Interest (2)
2% G.P.
Interest -------------
FFP Partners,
L.P.
-------------
--------
60% Harvison
G.P. Interest Family
--------
------------- 39%
FFP Properties, L.P. Interest
L.P.
-------------
-------------
Real Estate
-------------
Structure of the Marketing Company
after the restructuring
--------------------
FFP Unitholders --------
-------------------- Harvison
Family
59% --------
41%
--------------------
FFP Marketing
Company,Inc.
--------------------
--------------------
Fuel and Merchandise
Marketing Operations
--------------------
- ------------------
(1) After the conversion under the merger alternative, the Harvison Family will
own 3% of the REIT. After the conversion under the exchange alternative,
the Harvison Family's ownership of the REIT will be diluted as FFP
unitholders redeem their FFP units for REIT shares and as REIT shares are
sold in the public market.
(2) After the conversion under the exchange alternative, you will be able only
to have your FFP units redeemed for either REIT shares, which will be able
to be sold in the public market, or cash, at the option of the REIT (in its
capacity as general partner of FFP Partners).
1
<PAGE>
SUMMARY OF PRO FORMA FINANCIAL
INFORMATION OF FFP PARTNERS AND
THE MARKETING COMPANY
The following table sets forth certain historical financial information for
FFP Partners and certain pro forma financial information for FFP Partners and
the Marketing Company as of and for each of the periods indicated. The pro
forma balance sheet data below is presented as though the restructuring had
occurred on September 28, 1997. The pro forma revenue and income/loss data is
presented as though the restructuring had occurred at the beginning of the
respective fiscal periods presented. This information is not necessarily
indicative of the financial position or results of operations that actually
would have been achieved if the restructuring had in fact occurred on such dates
nor of the financial position or results of operations that may be achieved in
the future. The following information should be read in conjunction with the
historical consolidated financial statements of FFP Partners appearing elsewhere
in this Proxy Statement.
<TABLE>
<CAPTION>
FFP Marketing FFP
Partners Company Partners
as reported pro forma pro forma
---------------- --------------- ---------------
(in thousands except per share/unit data)
<S> <C> <C> <C>
As of September 28, 1997
Total assets $ 84,299 $ 65,573 $18,726
Total debt (including capital leases) 19,153 3,126 16,027
Partners'/Stockholders' equity 22,841 22,231 1,229
Book value per share/unit $ 6.11 $ 6.04 $ 0.54
For the year ended December 29, 1996
Total revenues $390,152 $390,152 $ 2,430
Income/(loss) before income taxes 2,487 2,496 (9)
Net income/(loss) (159) 1,989 (5)
Net income/(loss) per unit/share $ (0.04) $ 0.52 $ 0.00
Cash distributions per Class A and Class B unit $ 0.415
For the nine months ended September 28, 1997
Total revenues $288,073 $288,073 $ 1,823
Income/(loss) before income taxes (894) (1,111) 217
Net income/(loss) (159) (762) 130
Net income/(loss) per unit/share $ (0.35) $ (0.20) $ 0.06
Cash distributions per Class A and Class B unit $ 0.00
</TABLE>
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RISK FACTORS
You should carefully consider, in addition to the other information
presented in this Proxy Statement, the risk factors described below in
determining how to vote on the restructuring.
Risks Relating to the Restructuring
Potential Conflicts of Interest. FFP's general partner makes all decisions
relating to the management of FFP Partners. Companies owned, directly or
indirectly, by certain officers and directors (principally members of the
Harvison Family) of FFP's general partner are the sole shareholders of FFP's
general partner. As a result of FFP Partners' relationship with FFP's general
partner and its affiliates, the restructuring and the recommendation of the
restructuring by the Board of Directors of FFP's general partner could involve
conflicts of interest between FFP Partners and FFP's general partner and its
affiliates. Under employment agreements with Messrs. Harvison, Byrnes, Hawkins
and St. Clair, FFP Partners must pay each officer severance payments in an
amount equal to twice his then current annual salary plus a continuation of
certain benefits provided by FFP Partners for a period of two years if the
officer's employment is terminated under certain circumstances. After the
restructuring, these agreements will remain in place for Messrs. Harvison and
Hawkins. In addition, the Marketing Company intends to enter into substantially
similar employment agreements with all four of these individuals after the
restructuring.
The relationships between FFP Partners or the REIT and the Marketing
Company following the restructuring may cause the interests of such companies to
conflict. Potential sources of such conflict include the Marketing Company's
leasing of a substantial portion of its properties from affiliates of FFP
Partners. In addition, Mr. John H. Harvison will serve as Chairman of the Board
and Chief Executive Officer of both the REIT, which will be FFP's general
partner, and the Marketing Company. Mr. Steven B. Hawkins will serve as Chief
Financial Officer and Vice President - Finance and Administration of both the
REIT and the Marketing Company. All of Messrs. Harvison's and Hawkins'
compensation will be paid by the Marketing Company, and FFP Partners will
reimburse the Marketing Company for the amount of time Messrs. Harvison and
Hawkins devote to the REIT or to FFP Partners. In addition, the other current
directors and officers of FFP Partners will own shares and have options to
purchase shares of both FFP Partners, and after the conversion, the REIT, and
the Marketing Company following the restructuring. See "Conflicts of Interest."
Absence of Dissenters' Appraisal Rights. You have no right to dissent from
the restructuring and receive an appraised value for your FFP units.
Consequently, you will be bound by the vote of FFP unitholders owning a majority
of the outstanding FFP units. If you do not wish to own FFP units or Marketing
Company shares, you must either sell your FFP units before we complete the
restructuring or sell your Marketing Company shares after the restructuring is
completed. See "The Restructuring--No Dissenters' Appraisal Rights."
Uncertainty of the Conversion. We cannot assure you that the conversion
will occur. The conversion will occur through the merger alternative only if we
obtain a ruling from the Internal Revenue Service that the merger will be tax-
free to FFP unitholders. The Internal Revenue Service may decline to give such
a favorable ruling. The conversion through the exchange alternative is subject
to the sole discretion of the Board of Trust Managers of the REIT, which will be
the general partner of FFP Partners following the restructuring. Therefore, we
may not realize the anticipated benefits of a real estate investment trust.
Uncertain Market Price of FFP Units, REIT Shares and Marketing Company
Shares. We cannot assure you that the combined market price of the FFP units, or
after the conversion the REIT shares, and the Marketing Company shares will
equal or exceed the market price of your FFP units. As a result, the aggregate
value of your investment in FFP Partners, or after the conversion the REIT, and
the Marketing Company following the restructuring could be lower than the value
of your investment in FFP Partners before the restructuring.
Control by the Harvison Family. When the restructuring is completed, the
Harvison Family will control all of the REIT shares and approximately 41% of the
outstanding Marketing Company shares, which is comparable to the 41% of the FFP
equity interests it now holds (including Class A and Class B units, interests in
FFP Partners' general partner, and the general partner's interest in FFP
Partners' subsidiary partnerships).
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In addition, the Harvison Family will hold all of the limited partner
interests in FFP Properties, constituting 39% of the economic interests in FFP
Properties. Because the Harvison Family will own all of the limited partner
interests, the Harvison Family will be able to remove FFP Partners as the
general partner of FFP Properties at any time. If the Harvison Family removes
FFP Partners as general partner of FFP Properties, then FFP Partners will have
no control over its assets, all of which are held through FFP Properties, but
will continue as a limited partner of and retain its economic interest in FFP
Properties.
Upon completion of the conversion under the merger alternative, the
Harvison Family will control approximately 3% of the outstanding REIT shares and
it will also hold a 39% interest in FFP Properties, giving it a 41% interest in
the assets of the REIT. Upon completion of the conversion under the exchange
alternative, the Harvison Family will continue to own all the REIT shares, but
its ownership will be diluted as FFP unitholders exchange their FFP units for
REIT shares. In the exchange alternative, if the REIT chooses to redeem FFP
units for cash rather than REIT shares, the percentage ownership of the Harvison
Family would increase, reducing the percentage ownership of the remaining
holders of REIT shares and the potential percentage ownership of the remaining
holders of the FFP units.
As a result of such ownership, the Harvison Family initially will be able
effectively to control all matters requiring approval by the holders of REIT
shares or Marketing Company shares, including the amendment of the REIT's
Declaration of Trust or the Marketing Company's Articles of Incorporation, the
approval of mergers or similar transactions of the REIT or the Marketing Company
and the election of all trust managers of the REIT and directors of the
Marketing Company. See "Security Ownership of Management and Certain Beneficial
Owners."
Risks Relating to the REIT and FFP Partners After the Conversion
Effect of Certain Anti-Takeover Provisions. Certain provisions of the
REIT's Declaration of Trust may discourage a third party from making an
acquisition proposal for the REIT, and may inhibit a change in control of the
REIT under circumstances that could give you the opportunity to realize a
premium over the then-prevailing market prices. Furthermore, your ability to
change the management of the REIT could be substantially impeded by these anti-
takeover provisions. For the REIT to maintain its qualification as a real
estate investment trust for federal income tax purposes, no more than 50% in
value of its outstanding shares may be owned, directly or indirectly, by five or
fewer persons. See "Description of Securities," "Certain Anti-Takeover
Provisions of Delaware and Texas Law and of the Organizational Documents of the
REIT and the Marketing Company" and "Federal Income Tax Considerations."
Restrictions on Transfer. The REIT's Declaration of Trust may restrict the
transfer of REIT shares. For example, if any purported transfer of REIT shares
would (i) result in any person owning, directly or indirectly, in excess of 4.9%
of the outstanding REIT shares of any class; (ii) result in the REIT shares
being owned by fewer than 100 persons; (iii) result in the REIT being "closely
held," as defined in the Code; or (iv) cause the REIT to own, directly or
constructively, 10% or more of the ownership interests in a tenant of the REIT's
real property, the REIT shares will be designated as "Excess Shares" and
transferred automatically to a trust effective on the day before the purported
transfer of such REIT shares. See "Description of Securities--The REIT--
Restrictions on Transfer."
FFP Partners' Partnership Agreement will be amended to restrict the
transfer of FFP units if such transfer would result in any person owning,
directly or indirectly, in excess of 4.9% of the outstanding FFP units. This
amendment will be effective immediately upon the restructuring. See
"Description of Securities--FFP Partners--Restrictions on Transfer."
Adverse Effects of Real Estate Investment Trust Minimum Distribution
Requirements. To obtain the favorable tax treatment accorded to real estate
investment trusts under the Code, after the conversion the REIT generally will
be required each year to distribute to its shareholders at least 95% of its real
estate investment trust taxable income. Differences in timing between the
actual receipt of income and the actual payment of deductible expenses in
arriving at taxable income, the creation of reserves and required debt
amortization payments could require the REIT to borrow funds to meet the 95%
distribution requirement even if management believes that the then prevailing
market conditions generally are not favorable for the borrowings or that the
borrowings are not advisable in the absence of such tax considerations. See
"Federal Income Tax Considerations--Tax Consequences of the REIT's Qualification
and Operation as a Real Estate Investment Trust--Annual Distributions to
Shareholders."
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Adverse Effect of Increases in Interest Rates. One of the factors that may
influence the market price of the REIT shares is the annual yield from REIT
dividends as compared to yields on other financial instruments. Therefore, a
general increase in market interest rates could result in higher yields on
certain financial instruments which could adversely affect the market price of
the REIT shares, since alternative investment vehicles may be more attractive.
Possible Environmental Liabilities and Regulations. The Marketing Company
and the other tenants of the REIT's properties will be primarily responsible for
environmental liabilities related to operations on the properties. In addition,
the REIT intends to enter into leases with its tenants that provide that the
tenant will indemnify the REIT for environmental liabilities. However, the
REIT's operating costs may be affected by any obligation to pay for the cost of
complying with existing environmental laws if a tenant fails to indemnify the
REIT, as well as the cost of compliance with future legislation. Under current
environmental laws, a current or previous owner of real property may be liable
for the costs of removal or remediation of hazardous or toxic substances on,
under or in such property. Such laws often impose liability whether or not the
owner knew of, or was responsible for, the presence of such hazardous or toxic
substances. The costs of defending against claims of liability or remediating
contaminated property and the cost of complying with environmental laws could
materially adversely affect the REIT's results of operations and financial
condition.
Investment Concentration in Single Industry and Reliance on Single Tenant.
FFP Partners' real estate interests will initially consist entirely of
convenience store and retail motor fuel outlet properties leased to a single
tenant, the Marketing Company. As a result, a downturn in the convenience store
or retail motor fuel industries or the failure of the Marketing Company to make
its rental payments could have a material adverse effect on FFP Partners' total
rental revenues and amounts available for distribution. These risks should be
mitigated as FFP Partners diversifies its portfolio through its acquisition
strategy and enters into leases with additional parties, although FFP Partners
presently has no commitments to acquire additional properties (other than the E-
Z Serve Acquisition discussed below) or to lease property to any company other
than the Marketing Company. The REIT will be subject to these same risks unless
the rental portfolio has been diversified prior to the conversion. See
"Business--The REIT and FFP Partners--Business Strategy."
Risks Relating to the Marketing Company
Effect of Certain Anti-Takeover Provisions. Certain provisions of the
Articles of Incorporation may discourage a third party from making an
acquisition proposal for the Marketing Company, and may inhibit a change in
control of the Marketing Company under circumstances that could give you the
opportunity to realize a premium over the then-prevailing market prices.
Furthermore, your ability to change the management of the Marketing Company
could be substantially impeded by these anti-takeover provisions. See
"Description of Securities," "Certain Anti-Takeover Provisions of Delaware and
Texas Law and of the Organizational Documents of the REIT and the Marketing
Company" and "Federal Income Tax Considerations."
Volatility of Fuel Margins. The Marketing Company's earnings and cash flow
from operations will depend to a significant degree upon the sale of motor fuel
at margins sufficient to cover fixed and variable expenses. The Marketing
Company will have no crude oil reserves. The Marketing Company will purchase
fuel for its branded retail outlets and branded wholesale customers from the oil
company that branded the outlet and for its unbranded outlets from large
integrated oil companies and independent refineries. The feedstocks for its
processing plant will be purchased from refiners and pipeline operators.
Historically, petroleum prices have been subject to extreme volatility and
products have been subject to periodic shortages followed by periods of
oversupply. A large, rapid increase in prices paid by the Marketing Company for
petroleum products would adversely affect the Marketing Company's profitability
if the Marketing Company's sales prices were not similarly increased or if
retail consumption of gasoline were to decline significantly.
Possible Changes in Supply of and Demand for Petroleum Products. During
recent years, FFP Partners has not had any difficulties in obtaining sufficient
quantities of motor fuel to satisfy retail sales requirements. However,
unanticipated national or international events could result in a curtailment of
motor fuel supplies to the Marketing Company. Management believes a significant
portion of its merchandise sales are to customers who also purchase motor fuel.
Accordingly, reduced availability of motor fuel could negatively impact other
facets of the Marketing Company's operations as well. However, based on its
experience during times of shortage, management believes the
5
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Marketing Company would be able to acquire petroleum products on competitive
terms due in part to the large volume of its historical purchases. Retail
customers use petroleum primarily as a motor fuel, and the Marketing Company's
sales will therefore depend in part on the level of motor fuel consumption. The
Marketing Company is not able to predict the effect that future conservation
measures, technological advances in transportation or the use of alternative
fuels might have on the Marketing Company's operations.
Possible Environmental Liabilities and Regulations. The Marketing Company
will be subject to various federal, state, and local environmental, health and
safety laws and regulations. In particular, to comply with federal regulations
regarding underground storage tanks and related equipment, the Marketing Company
estimates that it will spend approximately $2,000,000 over the next thirteen
months.
We believe that FFP Partners complies in all material respects with
existing environmental laws and regulations. We are not currently aware of any
material capital expenditures, other than as discussed above, that will be
required to comply with such existing laws and regulations. However, new laws
and regulations could be adopted which could require the Marketing Company to
incur significant additional costs.
No Operating History as an Independent Company. The Marketing Company does
not have an operating history as an independent company, and there is no
assurance that it will be profitable as a stand-alone company. The business of
the Marketing Company has historically relied on FFP Partners for various
financial and administrative services. After the restructuring, the Marketing
Company will maintain its own lines of credit, banking relationships and
administrative functions.
Government Regulation of Alcoholic Beverage Sales. FFP Partners' retail
outlets sell alcoholic beverages in areas where such sales are legally
permitted. The sale of alcoholic beverages is generally regulated by state and
local laws which grant to various agencies the authority to approve, revoke, or
suspend permits and licenses relating to the sale of such beverages. In most
states, such agencies have wide-ranging discretion to determine if a licensee or
applicant is qualified to be licensed. The State of Texas requires that
licenses for the sale of alcoholic beverages be held, directly or indirectly,
only by individual residents of Texas or by companies controlled by such
persons. Therefore, FFP Partners has an agreement with a corporation controlled
by John H. Harvison, the Chairman of the Board and Chief Executive Officer of
FFP's general partner, which permits that corporation to sell alcoholic
beverages in FFP Partners' Texas outlets where such sales are legal. The
Marketing Company will succeed to this agreement upon consummation of the
restructuring. The Marketing Company's loss of its ability to maintain a
required permit or license in a particular state could have a material adverse
impact on sales and profits from stores located in such state or jurisdiction.
In many states, sellers of alcoholic beverages have been held responsible
for damages caused by persons who purchased alcoholic beverages from them and
who were at the time of the purchase, or subsequently became, intoxicated.
Although we have adopted procedures which are designed to minimize such
liability, the potential exposure to the Marketing Company as a seller of
alcoholic beverages is substantial. Our present liability insurance, which will
be assumed by the Marketing Company upon consummation of the restructuring,
provides coverage, within its limits and subject to its deductibles, for this
type of liability. See "Business--The Marketing Company--Government Regulation
- - Environmental Regulation."
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THE RESTRUCTURING
Background of the Restructuring
We have been aware since the passage by Congress of the Omnibus Budget
Reconciliation Act of 1987 that FFP Partners could not continue its current
operations and be treated as a partnership for federal income tax purposes after
December 31, 1997, unless circumstances were to change. One alternative that we
were aware of from that time was to divide FFP Partners' activities into
separate real estate and marketing entities. With the relatively recent market
interest in real estate investment trusts, utilizing this type of entity for the
real estate activities became more attractive.
From time to time after FFP Partners' initial public offering, the
executive officers and Board of Directors of FFP's general partner have
explicitly discussed what action, if any, should be taken to address the
changing tax status of FFP Partners. For the past few years, we believed there
was a likelihood that the Code would be revised to "grandfather" or permit
existing publicly traded partnerships such as FFP Partners to continue to be
taxed as partnerships for federal income tax purposes. During that period,
representatives of FFP Partners attended meetings of the Coalition of Publicly
Traded Partnerships, which advocated that this change be made. Various bills
that would implement such a revision to the Code were introduced in Congress.
Therefore, we were optimistic that no change in the structure of FFP Partners
would be required. However, different forms of grandfathering provisions were
included in the various bills that became the Taxpayer Relief Act of 1997.
Because of our expectation that the Code would be revised to grandfather
FFP Partners and permit continued tax treatment as a partnership, the Board of
Directors did not believe it was necessary to consider specifically other
alternatives until 1997. At its regular meeting in March 1997, the Board of
Directors discussed with the executive officers what alternatives were available
if FFP Partners were not grandfathered. The executive officers informed the
Board that they believed the most advantageous alternative structure for FFP
Partners would be to place the real estate into a real estate investment trust
and the marketing activities into a corporation, each of which would be publicly
traded. The Board of Directors did not formally resolve to take any action at
that time, but the members of the Board concurred with the executive officers
that such a structure appeared to be advisable and should be pursued in the
absence of the passage of a grandfathering provision.
Beginning in March 1997, the executive officers, particularly John H.
Harvison and Steven B. Hawkins, began discussions with representatives of
various investment banks and others concerning a possible restructuring of FFP
Partners. The executive officers did not engage any of these persons to act on
their behalf or to provide any advice, but were merely attempting to explore
whether a restructuring could be done, the possible effect of a restructuring on
the market for the resulting entities' securities and the ability of those
entities to obtain future debt and equity financing. Through these meetings, the
executive officers concluded that the resulting entities would likely be able to
obtain suitable financing and that the market for the entities' securities would
likely be at least as active as that for FFP's units. However, the executive
officers did not seek or receive any commitments from anyone to provide
financing or to facilitate a market in the securities.
In May 1997, the executive officers discussed in greater detail how a
restructuring of FFP Partners could be accomplished and timing of the necessary
actions. In this and subsequent meetings, the various alternatives discussed
below under "--Analysis of Alternatives Considered" were considered. In
particular, in June 1997 the executive officers contacted an unrelated third
party about the possibility of FFP Partners and the Harvison Family selling a
significant portion of the real estate underlying FFP Partners' convenience
store and other locations to the third party for cash and leasing that property
from the third party. Under this possible structure, after the sale and
leaseback of the properties, FFP Partners would have converted to a corporation
and continued to conduct its convenience store, truck stop, self-service
gasoline outlet and other operations. A contribution by the Harvison Family to
the REIT of the real estate owned by the Harvison Family that is used in FFP
Partners' business was also considered.
The executive officers again discussed all the alternatives with the Board
of Directors at its regular meeting in July 1997. The officers then advised the
Board that, although there were a number of uncertainties and several
alternatives remained, in the absence of the passage of a grandfathering
provision, the most favorable structure continued to appear to be the separation
of FFP Partners into a marketing company and a real estate company with a goal
of qualifying the real estate company as a real estate investment trust. Again,
although no formal vote was taken, the consensus of the Board was that the
executive officers should continue to pursue the restructuring.
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At its meeting in December 1997, the Board of Directors reached several
conclusions. First, after passage and review of the Taxpayer Relief Act of 1997
as finally enacted in August 1997, the Board concluded that if we were to
continue as a publicly-traded partnership we would have to pay an excise tax of
3.5% of our "gross business income." Based on our historical results of
operations during the last three fiscal years, our tax obligations under this
alternative would have been equivalent to income taxes at a 33% to 54% rate.
Therefore, the Board of Directors determined that it would not be as desirable
for FFP Partners to operate under the grandfathering provisions of the Taxpayer
Relief Act of 1997 as it would be for FFP Partners to undertake a restructuring.
Second, after further discussions with the third party, the third party
indicated that the price it would be willing to pay for 22 properties owned by
FFP Partners would be significantly less than $6,000,000, with no specific offer
or indication of a specific price it would be willing to pay. The Board
concluded that further discussions with this third party would not likely be
advantageous to FFP Partners because the Board of Directors did not believe,
based on their business experience, that the third party would be willing to pay
an adequate price for the 22 properties. The Board did not determine a specific
price for these properties that they believed to be adequate. Third, the Board
of Directors concluded that, because the alternative of the Harvison Family
contributing its real estate to the real estate entity involved a transaction
with affiliates of FFP Partners, it would likely require extensive consideration
by the independent members of the Board of Directors, which may not have been
possible to have completed before December 31, 1997. Therefore, the Board of
Directors decided not to consider this alternative further until after
completion of the restructuring. Last, for the reasons described in "--Reasons
for the Restructuring," the Board of Directors determined that the alternative
of completing the restructuring as described in this Proxy Statement would
likely be the most advantageous course of action for the unitholders. The Board
of Directors adopted the plan of restructuring and recommended that the FFP
unitholders approve the restructuring.
Reasons for the Restructuring
We are recommending that you approve the restructuring because we believe
the restructuring will result in the following benefits to you: (i) we will
maintain "pass-through" status for federal income tax purposes for our real
estate activities beyond 1997; (ii) you will continue your ownership of the real
estate and the marketing assets through publicly traded entities; and (iii) if
the conversion occurs, you will be able to trade your interest in the real
estate activities as a real estate investment trust. Because we believe many
investors view investment in a real estate investment trust as more attractive
than investment in a limited partnership, we also believe that the restructuring
will position FFP Partners to acquire additional properties and will afford it,
after the conversion, access to additional capital that is not currently
available to it. These factors, each of which is more fully described below,
are closely inter-related, and relative weights were not assigned to them. We
believe it is less likely that these advantages can be realized to the same
extent by FFP Partners as it now exists or under the various other alternatives
considered by FFP Partners. See "--Analysis of Alternatives Considered."
"Pass-Through" Tax Status. FFP Partners currently operates as a "pass-
through" entity for federal income tax purposes. Under the Omnibus Budget
Reconciliation Act of 1987, this pass-through status for FFP Partners terminates
at December 31, 1997. The restructuring will enable FFP Partners' real estate
activities to maintain "pass-through" status for federal income tax purposes.
(The other operations of FFP Partners will, upon consummation of the
restructuring, be subject to corporate tax.)
Continuation of Public Ownership in a Tax-Free Transaction. FFP Partners
has been a public company and traded on the American Stock Exchange since 1987.
We believe the public market is important to our unitholders and, therefore,
have planned the restructuring to maintain the public market for both the FFP
units and the Marketing Company shares. The value of the public market might be
outweighed, however, by the payment of federal income taxes if the restructuring
was a taxable transaction. Therefore, we have also planned the restructuring to
be non-taxable to the typical FFP unitholder. We determined that the most
desirable way to accomplish both of these objectives was to provide that you
will retain your ownership of your FFP units, which will remain listed for
trading on the American Stock Exchange until the conversion. If the conversion
is completed through the merger alternative, the exchange of your FFP units for
REIT shares will be a non-taxable event. If the conversion is completed through
the exchange alternative, your FFP units will no longer be transferable. If you
wish to sell your FFP units, you can have the REIT (in its capacity as FFP's
general partner) redeem them, at its option, either for a cash amount equal to
the market value of the REIT shares or for REIT shares that you can then sell.
You will be required to recognize taxable gain or loss upon the redemption of
your FFP units for either cash or REIT shares.
Ownership of REIT Shares. We believe that many investors currently
consider investments in real estate investment trusts preferable to ownership of
partnerships. After the conversion, this may affect the market for REIT shares
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compared to the market for FFP units. Additionally, the separation of FFP
Partners' business into two distinct entities should enable the investment
community to analyze more effectively the individual investment characteristics,
performance and future prospects of the real estate business of FFP Partners,
and after the conversion the REIT, and the retail and wholesale operations of
the Marketing Company. We believe these facts will enhance the likelihood that
the FFP units, and after the conversion the REIT shares, and the Marketing
Company shares may achieve increased investor interest compared to the FFP units
before the restructuring. Widespread investor and analyst interest in real
estate investment trusts is generally focused on entities that are much larger
than FFP Partners will be after the restructuring, however. Management intends
to expand FFP Partners, and after the conversion the REIT, aggressively, but
cannot assure that FFP Partners or the REIT will successfully grow or that a
market for the REIT shares will develop.
You should consider the benefits of the restructuring in light of the risks
associated with the restructuring described in this document under "Risk
Factors."
Amendments to the FFP Partnership Agreement
To effect the restructuring, certain amendments to the FFP Partnership
Agreement are proposed to be made. Certain of the proposed amendments to the
FFP Partnership Agreement will take effect immediately and others will take
effect only upon the conversion under the exchange alternative. If the
conversion is effected under the merger alternative, FFP Partners will merge
with the REIT and cease to exist as a separate entity. A vote in favor of the
restructuring will also be a vote approving each of the amendments to the FFP
Partnership Agreement described below. The FFP Partnership Agreement requires
the holders of a majority of FFP units to approve the amendments to the FFP
Partnership Agreement. A copy of the proposed amendments to the FFP Partnership
Agreement is attached as Appendix B.
Amendments Effective Immediately. Immediately upon the restructuring, the
FFP Partnership Agreement will be revised to reflect that the REIT will be the
general partner and that the sole business of the REIT will be to serve as
general partner of FFP Partners and activities required by that status.
Article III of the FFP Partnership Agreement, which sets forth the purpose
of the partnership and the types of businesses it can engage in, will be amended
in its entirety to reflect the new purpose and business of FFP Partners.
Article III will be amended to provide that the partnership's purpose and
business shall be limited to investing in, acquiring, owning, holding a
leasehold interest in, managing, maintaining, operating, leasing, subleasing,
improving, financing, reconstructing, selling, exchanging, franchising and
otherwise disposing of real property and activities ancillary thereto.
A new Section 4.11 will be added to Article IV of the FFP Partnership
Agreement to provide that additional FFP units may not be issued to the REIT
unless either (i)(a) the additional FFP units are issued in connection with the
grant, award or issuance of REIT shares that have designations, preferences and
other rights such that the economic interests attributable to such REIT shares
are substantially similar to the designations, preferences and other rights of
the additional FFP units issued to the REIT and (b) the REIT shall make a
capital contribution to FFP Partners in an amount equal to the proceeds, if any,
raised in connection with the issuance of such REIT shares, or (ii) the
additional FFP units are issued to all partners in proportion to their
respective percentage interests in FFP Partners.
Similarly, the REIT may not grant, award or issue additional shares of
capital stock, or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase such shares of
capital stock (collectively "New REIT Securities"), other than to all holders of
such shares of capital stock unless (i) FFP's general partner shall cause FFP
Partners to issue to the REIT FFP units or rights, options, warrants or
convertible or exchangeable securities of FFP Partners having designations,
preferences and other rights, all such that the economic interests are
substantially the same as those of the New REIT Securities, and (ii) the REIT
makes a capital contribution to FFP Partners of the proceeds from the grant,
award or issuance of such New REIT Securities and from the exercise of the
rights contained in such New REIT Securities.
Article V of the FFP Partnership will be amended to eliminate references to
the subordination of Class B units, which concept is no longer applicable under
the terms of the existing FFP Partnership Agreement.
In addition, upon the conversion, Article V will be amended to eliminate
the requirement that FFP Partners distribute for each year a minimum amount
equal to the estimated tax liability of the limited partners. We believe this
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provision is unnecessary once the conversion occurs because of the extensive
requirements regarding distributions imposed on real estate investment trusts by
the Code.
Immediately upon the restructuring, Section 6.14 of the FFP Partnership
Agreement, which requires the general partner to maintain a minimum net worth
consisting of assets other than the interest in FFP Partners, will be deleted.
Because the sole business and assets of the REIT will be to serve as a partner
of FFP Partners, this requirement will no longer be able to be met.
New sections will also be added to the FFP Partnership Agreement that are
intended to enable FFP Partners to continue to be taxed as a partnership for
federal income tax purposes. Under the Code, if any person owns (directly or
indirectly) both 5% or more of FFP Partners and 10% or more of any tenant, FFP
Partners' revenue from that tenant is not qualified income. If more than 10% of
FFP Partners' gross income is not qualified income, FFP Partners may become
taxable as a corporation. See "Federal Income Tax Considerations--D. Tax
Consequences of the Operations of FFP Partners" for a more detailed discussion
of these issues. To prevent this result, the new sections prohibit any person
from acquiring 4.9% or more of any class of FFP units. For a more complete
discussion of these provisions, see "Description of Securities--FFP Partners--
Restrictions on Transfer."
Amendments Effective Upon the Conversion Under the Exchange Alternative.
The amendments that will be effective upon the conversion under the exchange
alternative are intended to implement the trading of the REIT shares in lieu of
the FFP units. The amendments will (i) prohibit the transfer of FFP units to
third parties other than the general partner; and (ii) provide a mechanism to
permit FFP unitholders to request a redemption of their FFP units for, in the
discretion of FFP's general partner, either cash or REIT shares.
A new Section 11.9 will be added to the FFP Partnership Agreement to permit
the exchange of interests in FFP Partners for REIT shares based on the exchange
ratio provided therein. The FFP Amended Partnership Agreement will permit such
exchange to occur at any time. The FFP Amended Partnership Agreement will
prohibit the transfer of FFP units to third parties other than the general
partner. The exchange ratio initially will be one FFP unit for one REIT share.
The exchange ratio is subject to adjustment, however, upon the occurrence of
certain events such as the declaration of a dividend by the REIT in REIT shares,
the subdivision of the outstanding REIT shares or the combination of outstanding
REIT shares into a smaller number of shares. The exchange may only be effected
with respect to a minimum of 100 FFP units or, if the holder holds fewer than
100 FFP units, all such FFP units. If a unitholder owns 100 or more FFP units,
he must submit at least 100 units for exchange, in return for which he will
receive the same number of REIT shares. If the unitholder owns fewer than 100
FFP units, the unitholder must submit all of the FFP units he holds for exchange
if he wishes to exchange any of his FFP units. Unitholders will not receive any
fractional shares under any circumstances. In addition, the exchange right may
not be exercised if issuing the REIT shares in the exchange would be prohibited
under the REIT's Declaration of Trust. See "Description of Securities --FFP
Partners --Restrictions on Transfer."
The Contribution and Distribution
The restructuring will be accomplished by separating FFP Partners' real
estate activities from its fuel and merchandise marketing activities in a series
of steps. First, the Operating Partnership will distribute substantially all
the real estate it owns directly to its partners proportionately. Therefore,
FFP Partners will receive directly 99% of the real estate and FFP Partners
Management Company, Inc. will receive 1% of the real estate. FFP Partners and
FFP Partners Management Company, Inc. will then contribute the real estate to
FFP Properties in exchange for the same proportionate interest in FFP
Properties. FFP Partners Management Company, Inc., will then transfer its 1%
general partner interest in FFP Partners to the REIT in exchange for 75,210 REIT
shares, which through the REIT's ownership of FFP Partners, and FFP Partners'
ownership of FFP Properties, constitute a 1% interest in the assets held by FFP
Properties.
Second, FFP Partners and FFP's general partner (in its capacity as the
general partner of the Operating Partnership) will contribute their interests in
the Operating Partnership to the Marketing Company in exchange for all of the
outstanding stock of the Marketing Company. FFP Partners, the 99% limited
partner of the Operating Partnership, will receive 3,741,621 (99%) of the
Marketing Company shares and FFP Partners Management Company, Inc., the 1%
general partner of the Operating Partnership, will receive 37,794 (1%) of the
Marketing Company shares. FFP Partners will then distribute all of the
Marketing Company shares that it owns to its partners pro rata. The number of
Marketing Company shares to be distributed was determined solely by reference to
the equivalent number of FFP units and general partner interests. Each current
FFP unitholder will own the same number of Marketing Company shares as the
number of FFP units the FFP
10
<PAGE>
unitholder now owns. We anticipate that the record date for the distribution of
the Marketing Company shares will be December 28, 1997.
Lastly, in redemption of its interest in FFP Partners, the Harvison Family
will surrender to FFP Partners its 1,469,943 FFP units, which represent 39% of
the limited partner interests in FFP Partners, in exchange for 1,469,943 units
in FFP Properties, which will represent 39% of the limited partner interests in
FFP Properties. We cannot estimate the value of the FFP units the Harvison
Family will contribute to FFP Properties because the contribution will occur
after the real estate assets have been separated from FFP Partners' fuel and
merchandise marketing and other assets. Therefore, the value of the FFP units
contributed will be different than it is now.
When the restructuring is completed, each current FFP unitholder will
continue to own the same number of FFP units, which will remain listed for
trading on the American Stock Exchange (except the Harvison Family which will
own an equivalent number of units of FFP Properties). The conversion will occur
(if at all) under the merger alternative upon the receipt of a satisfactory
ruling from the Internal Revenue Service as to the tax-free nature of the
merger, or under the exchange alternative when FFP's general partner determines
that a market in the REIT shares would be viable. If the conversion occurs under
the merger alternative, your FFP units will automatically be replaced with the
same number of REIT shares. If the conversion occurs under the exchange
alternative, you will continue to own all of your FFP units, but your FFP units
will be nontransferable. Instead, your FFP units will be redeemable for either
REIT shares or cash, at the REIT's discretion, in a fully taxable transaction.
Your FFP units will be exchangeable for an equivalent number of REIT shares (or
cash at their fair market value).
Analysis of Alternatives Considered
Continuation of FFP Partners. In reaching our decision to recommend the
restructuring to you, we considered the alternative of continuing FFP Partners
in its current form as a publicly traded limited partnership. Until the
enactment of the Taxpayer Relief Act of 1997 in August, 1997, we were optimistic
that a "grandfather" provision would be passed by Congress which would have
allowed FFP Partners to continue in its present partnership structure and be
taxed as a partnership in the same way it has been since its formation. After
the expected grandfathering provision was not passed, we considered taking no
action, which would have resulted in FFP Partners being treated as a corporation
for federal income tax purposes beginning in 1998, as a result of the Omnibus
Budget Reconciliation Act of 1987. FFP Partners would pay taxes at corporate
rates and any distributions made to you would be treated as corporate dividends.
We also considered causing FFP Partners to elect, under provisions of the
Taxpayer Relief Act of 1997, to pay an excise tax of 3.5% of its "gross business
income." Based on FFP Partners' historical results of operations during its
last three fiscal years, the taxes due under this alternative would have been
equivalent to income taxes at a 33% to 54% rate. We determined, however, that
for the reasons discussed under "--Reasons for the Restructuring--Ownership of
REIT Shares," the separation of the business into a real estate company (and
ultimately a real estate investment trust) and a marketing company would likely
be more beneficial to you than either of these alternatives of continuing FFP
Partners in its existing form.
Incorporation. We considered the alternative of converting FFP Partners
from a limited partnership to a corporation. As a corporation, FFP Partners
would be governed by corporate laws rather than partnership laws and would be
taxed as a corporation rather than as a partnership. Again, we determined that
for the reasons discussed under "--Reasons for the Restructuring--Pass-Through
Tax Status" and "--Ownership of REIT Shares," the separation of the business
into a real estate and a marketing company would be more beneficial to you than
the alternative of converting FFP Partners to corporate form.
Sale of Real Estate Assets. We considered as an alternative the sale of a
significant portion of the real estate assets of FFP Partners. Our discussions
with an unrelated third party about such a sale did not result in an offer to
purchase the properties but rather yielded only an indication of some interest
at a price significantly less than approximately $6,000,000 for 22 properties
owned by FFP Partners. The Board concluded that further discussions with this
third party would not likely be advantageous to FFP Partners because the Board
of Directors did not believe, based on their business experience, that the third
party would be willing to pay an adequate price for the 22 properties. The
Board did not determine a specific price for these properties that they believed
to be adequate. We believe the possibility of achieving a greater value
outweighs the risks discussed under the caption "Risk Factors--Risks Relating to
the Restructuring." However, we did not determine a specific value that might
be received in the future, but based on the experience of management in the
convenience store and related industries, we believe the amount offered is less
than is likely to be realized in the future through a real estate investment
trust. Of course, there is no assurance that a higher value will actually be
realized.
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Immediate Election of Real Estate Investment Trust Status. We also
considered completing the restructuring as described in this Proxy Statement,
but immediately effecting the conversion, with the result that your FFP units
would immediately be nontransferable and the REIT shares would be publicly
traded instead. We determined, however, that this alternative was not desirable
because it was uncertain whether the REIT shares could be listed for trading on
any securities exchange or the Nasdaq Stock Market and that, even if the REIT
shares could be listed, it was uncertain whether a viable market in the REIT
shares could develop before a significant number of the FFP unitholders elected
to have their FFP units redeemed. Furthermore, this alternative created a
number of complex issues relating to the qualification of the REIT as a real
estate investment trust under the Code. Therefore, we determined that this
alternative was not as attractive as the restructuring.
Liquidation. We did not consider the alternative of liquidating FFP
Partners because we believe the continued conduct of the businesses now engaged
in by FFP Partners provides the prospect for growth and because investors who
wish to participate in other investment vehicles are able to sell their FFP
units on the American Stock Exchange and reinvest the proceeds.
Allocation of REIT Shares and Marketing Company Shares Among FFP Unitholders
We determined that each of you should receive in the restructuring one
Marketing Company share for each FFP unit held by you immediately prior to the
restructuring. Therefore, 3,704,205 Marketing Company shares will be
distributed on account of the limited partners' interest in FFP Partners.
Because FFP's general partner is entitled to an aggregate of 2% of all items of
income, loss and distributions in FFP Partners and certain of its subsidiaries,
we concluded that FFP's current general partner should receive 75,210 (2%) of
the Marketing Company shares and 75,210 of the REIT shares (which represents 2%
of the number of REIT shares that would be issued if all current FFP unitholders
were to be issued REIT shares at this time on the basis of one REIT share for
each FFP unit).
After the conversion under the merger alternative each of you will receive
one REIT share for each FFP unit you own. Under the exchange alternative, each
of you generally will be entitled to have your FFP units redeemed for one REIT
share (or the value of one REIT share in cash) for each FFP unit you own. The
REIT will have the right to decide whether you receive cash or REIT shares.
No Dissenters' Appraisal Rights
If you object to the restructuring, you will have no dissenters' appraisal
rights (i.e., the right to seek a judicial determination of the "fair value" of
your FFP units and to compel FFP Partners to purchase your FFP units for cash in
that amount) under state law or the FFP Partnership Agreement, nor will such
rights be voluntarily accorded to you by FFP Partners. Thus, approval of the
restructuring by the holders of a majority of all FFP units outstanding on the
Record Date will bind all FFP unitholders, and objecting FFP unitholders will
have no alternative to amendment of the FFP Partnership Agreement and all the
transactions in the restructuring other than selling their FFP units in the
market before completion of the restructuring. The FFP units are currently
listed on the American Stock Exchange under the symbol "FFP." The Marketing
Company shares are expected to be listed on the American Stock Exchange
effective at the time the restructuring is consummated under the symbol "____."
Costs of the Restructuring
We estimate the total cost and expense of the restructuring will be
approximately $550,000, whether or not completed. These costs and expenses
include registration fees, legal and accounting fees and expenses, recording and
filing expenses and printing fees and expenses. The costs of the restructuring,
whether or not successfully completed, will be paid by FFP Partners. Therefore,
FFP's general partner and the FFP unitholders will ultimately absorb the costs
of the proposal
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<PAGE>
to effect the restructuring, whether or not the restructuring is approved or
completed. The following is a statement of certain estimated fees and expenses
incurred in connection with the restructuring:
<TABLE>
<S> <C>
SEC filing fees............................... $ 5,000
American Stock Exchange listing fee........... 25,000
Legal fees and expenses....................... 300,000
Accounting fees and expenses.................. 100,000
Printing, engraving and mailing expenses...... 100,000
Miscellaneous (including solicitation costs).. 20,000
----------
TOTAL.................................... $550,000
==========
</TABLE>
Consequences If Restructuring Is Not Approved
If the restructuring is not approved by the FFP unitholders, or if the
restructuring is not completed for any other reason, it is expected that FFP
Partners will continue in its current partnership form and will be treated as a
corporation for federal income tax purposes. No other transaction is currently
being considered by FFP Partners as an alternative to the restructuring.
Accounting Treatment
For financial accounting purposes, assets and liabilities will be
transferred under the restructuring to the respective entities using historical
carrying values.
THE SPECIAL MEETING
The special meeting of FFP unitholders will be held on Friday, December 26,
1997, at 10:00 a.m. (local time), at Holiday Inn - North, 2540 Meacham
Boulevard, Fort Worth, Texas.
FFP Units Eligible to Vote on the Restructuring
We have established the close of business on December 5, 1997, as the
Record Date for determining FFP unitholders entitled to notice of, and to vote
at, the special meeting of FFP unitholders and at any adjournment thereof. On
that date, FFP Partners had issued and outstanding 3,529,205 Class A units and
175,000 Class B units. The holders of Class A and Class B units vote together
as a single class. No matters other than the restructuring and certain
procedural matters may be discussed or voted upon at the special meeting of FFP
unitholders.
The presence, in person or by proxy, of FFP unitholders holding more than
50% of the total number of outstanding FFP units will constitute a quorum at the
special meeting of FFP unitholders.
If you beneficially own FFP units issued to a broker or other nominee
holder, you must instruct such broker or nominee holder how to vote the FFP
units that you beneficially own. If you do not give such instructions, the
broker or other nominee holder will not vote your FFP units. Failure to vote any
FFP units on whether to approve the restructuring will have the same effect as
voting against the proposal because its approval requires a majority of the
outstanding eligible FFP units to vote in its favor. As of the Record Date,
there were 3,704,205 FFP units held by FFP unitholders that were eligible to
vote at the special meeting.
Required Legal Opinion
As required under the FFP Partnership Agreement, FFP Partners has obtained
an opinion from its legal counsel Jenkens & Gilchrist, a Professional
Corporation, that the proposed amendments to the FFP Partnership Agreement would
not cause: (i) the loss of limited liability of FFP Partners under the FFP
Partnership Agreement or of the FFP unitholders
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<PAGE>
under the existing FFP Partnership Agreement, or (ii) FFP Partners to be treated
as an association taxable as a corporation for federal income tax purposes.
Required Vote
We have proposed the approval of the restructuring and approved it in
writing. For the restructuring to take effect, more than 50% of the total
number of outstanding FFP units eligible to be voted must vote in favor of the
restructuring at the special meeting.
Only record holders are entitled to vote. If you are only the beneficial
owner of FFP units and you do not hold the FFP units of record, you must
instruct the record holder of your FFP units how to vote your FFP units. You
will have one vote for each FFP unit you hold. If you vote against the
restructuring, you will not possess any appraisal rights with respect to your
FFP units. See "The Restructuring--No Dissenters' Appraisal Rights."
Broker Non-Votes and Abstentions
Under the rules of the American Stock Exchange, brokers holding FFP units
on behalf of their clients may not vote the respective FFP units on whether to
approve the restructuring without their clients' authorization. A broker
therefore will not vote any FFP units on whether to approve the restructuring
without receiving instructions on how to vote from such broker's client.
Accordingly, there will be no broker non-votes to consider at the special
meeting.
With respect to the restructuring, abstentions will have the same effect as
a vote against approval because more than 50% of the total number of outstanding
eligible FFP units must approve the restructuring, rather than just a majority
of those eligible FFP units present at the special meeting.
Proxies
Proxyholders will vote the eligible FFP units represented by valid proxies
at the special meeting in accordance with the directions given on the Proxy Card
concerning whether to approve the restructuring. Moreover, the proxyholders
intend to vote such FFP units on any procedural matters coming before the
special meeting in accordance with their best judgment. Unless indicated to the
contrary thereon, the directions you give on a Proxy Card will be for all of
your eligible FFP units.
IF YOU SIGN AND RETURN A PROXY CARD WITHOUT GIVING ANY DIRECTIONS ON HOW TO
VOTE ON THE RESTRUCTURING, THE PROXYHOLDER WILL VOTE YOUR ELIGIBLE FFP UNITS FOR
THE APPROVAL OF THE RESTRUCTURING.
Revocation of Proxies
You may revoke your proxy at any time prior to the proxyholder's voting of
the FFP units to which such proxy applies by: (i) submitting a later dated
proxy to FFP Partners or someone else who attends the special meeting; (ii)
attending the special meeting and delivering a written notice of revocation of
the proxy to the representatives of FFP Partners present at the special
meeting; or (iii) delivering a written notice of revocation of the proxy to FFP
Partners at 2801 Glenda Avenue, Fort Worth, Texas 76117-4391, Attention: Steven
B. Hawkins, Secretary, which the Secretary receives before the date of the
special meeting.
Solicitations by FFP's General Partner
The directors, officers and employees of FFP's general partner and of FFP
Partners may solicit proxies in favor of the restructuring by mail, personal
interview, telephone, facsimile transmission or other means. They will receive
no additional compensation therefor, but will be reimbursed for any expenses
incurred in connection therewith.
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SELECTED HISTORICAL FINANCIAL
INFORMATION AND OTHER DATA OF FFP PARTNERS
The summary selected historical financial information presented in the
table below has been derived from the audited consolidated financial statements
of FFP Partners for each of the five fiscal years preceding December 29, 1996
and the unaudited interim results of FFP Partners for the nine months ended
September 28, 1997, and September 29, 1996. The summary historical financial
data is qualified in its entirety by and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, FFP Partners' Consolidated Financial Statements and the Pro Forma
Financial Statements of each of FFP Partners and the Marketing Company, giving
effect to the restructuring.
<TABLE>
<CAPTION>
As of and for the
nine months ended As of and for the fiscal year ended
--------------------------- ------------------------------------------------------------------------
Sept. 28, Sept. 29, December 29, December 31, December 25, December 26, December 27,
1997 1996 1996 1995 1994 1993 1992
----------- ------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Data (in thousands
except per unit data):
Revenues and Margins
Motor fuel sales............... $238,257 $241,685 $321,814 $296,887 $275,278 $246,023 $217,248
Motor fuel margins............. 15,571 16,286 20,672 22,813 22,332 21,650 16,963
Merchandise sales.............. 45,114 46,207 60,579 65,512 72,827 74,921 56,946
Merchandise margins............ 13,395 13,493 17,821 19,187 20,169 20,320 19,884
Miscellaneous revenues......... 4,702 6,101 7,759 7,646 7,408 5,706 5,086
Total revenues................. 288,073 293,993 390,152 370,045 355,513 326,650 279,280
Total margin................... 33,668 35,880 46,252 49,646 49,909 47,676 41,933
Direct store expenses........... 20,567 20,343 27,062 28,496 29,553 28,794 24,771
General and administrative
expenses....................... 8,901 8,987 11,506 11,795 11,056 10,527 9,415
Depreciation and amortization... 3,986 2,755 3,951 3,769 4,352 5,681 5,435
Total operating expenses........ 33,454 32,085 42,519 44,060 44,961 45,002 39,621
Operating income................ 214 3,795 3,733 5,586 4,948 2,674 2,312
Interest expense................ 1,108 968 1,246 1,176 1,173 1,565 1,724
Income/(loss) before income
taxes/other items.............. (894) 2,827 2,487 4,410 3,775 1,109 588
Deferred income taxes.......... 403 402 2,646 500 244 94 0
Income/(loss) before
nonrecurring items............ (1,297) 2,425
Gain on extinguishment of
debt.......................... 0 0 0 0 200 0 0
Change in accounting for
income taxes.................. 0 0 0 0 0 (297) 0
Net income/(loss)............... $ (1,297) $ 2,425 $ (159) $ 3,910 $ 3,731 $ 718 $ 588
Income/(loss) per unit
Before income taxes/other
items......................... $ (0.24) $ 0.76 $ 0.67 $ 1.20 $ 1.04 $ 0.31 $ 0.16
Net income/(loss).............. (0.35) 0.65 (0.04) 1.07 1.03 0.20 0.16
Cash distributions declared
per Class A and Class B Unit... $ 0.000 $ 0.415 $ 0.415 $ 0.870 $ 0.370 $ 0.000 $ 0.000
Total assets.................... $ 84,299 $ 75,259 $ 78,599 $ 69,332 $ 67,978 $ 70,277 $ 68,116
Long-term obligations........... 17,249 8,993 9,418 7,100 9,527 10,755 17,164
Book value per unit............. $ 6.11 $ 7.15 $ 6.45 $ 6.93 $ 6.82 $ 6.18 $ 5.98
Operating Data:
Gallons of motor fuel sold
(in thousands)
Retail......................... 149,517 148,059 197,687 193,233 196,246 187,267 170,410
Wholesale...................... 63,916 70,160 90,704 95,473 81,289 57,718 39,590
Fuel margin per gallon (in
cents)
Retail.......................... 9.2 9.8 9.3 10.9 10.1 10.0 9.2
Wholesale....................... 2.5 1.9 1.9 1.7 1.8 1.7 1.0
Average weekly merchandise
sales
Convenience stores............. $ 9,852 $ 9,587 $ 9,454 $ 9,560 $ 9,901 $ 10,289 $ 8,370
Truck stops.................... 18,115 17,282 17,192 17,506 18,160 17,798 15,709
Merchandise margin.............. 29.7% 29.2% 29.4% 29.3% 27.7% 27.1% 34.9%
Number of locations at
period end
Convenience stores............. 115 116 117 127 127 145 137
Truck stops.................... 11 10 10 10 10 10 9
Self-service fuel outlets...... 208 207 206 194 185 169 171
</TABLE>
15
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FFP PARTNERS
General
This discussion should be read in conjunction with the selected financial
and operating data, the description of FFP Partners' business operations, and
the financial statements and related notes and schedules included elsewhere in
this Proxy Statement.
FFP Partners reports its results of operations using a fiscal year which
ends on the last Sunday in December. Most fiscal years have 52 weeks but some
consist of 53 weeks. Fiscal 1995 was a 53-week year, while fiscal 1996, 1994,
1993, and 1992 were 52-week years. This variation in time periods most affects
revenues (and related costs of sales) and salary costs as other expenses (such
as rent and utilities) are usually recorded on a "monthly" basis. However,
differences in the number of weeks in a fiscal year should be considered in
reviewing financial data.
Nine Months Ended September 28, 1997 Compared with Nine Months Ended September
29, 1996
For the first nine months of 1997, retail fuel sales volume (in gallons)
was up 1.0% as compared to 1996 and the wholesale volume was down 8.9%. The
decline in wholesale volume resulted from a 13.6% decline in such sales in the
first quarter of 1997 due to the absence of a large volume of lower margin sales
to a customer that purchases fuel from FFP Partners infrequently. The average
weekly sales (in gallons) of fuel at FFP Partners' convenience stores and the
independently operated stores at which it has the fuel concession were flat (up
less than 1.0%) in 1997 but sales at its truck stops increased 5.4% over the
prior year period. The flat sales volumes at the convenience stores are
reflective of FFP Partners' attempt to maintain as high a margin per gallon as
possible on these sales, without foregoing any of its market share, in the face
of intense competitive retail pricing of motor fuel that has been occurring in
the last twelve to eighteen months. The increased truck stop sales resulted
from a lessening of the competitive pressures in this submarket of the retail
fuel business. Because of the reduced wholesale fuel volumes, FFP Partners'
motor fuel revenues declined $3,428,000 (1.4%) in the first nine months of 1997.
FFP Partners' gross profit on fuel was $715,000 (4.4%) less in 1997 than in
the prior year, partially due to the smaller volume of wholesale sales and
partly due to the decline in the retail margin per gallon to 9.2 cents in 1997
as compared to 9.8 cents in 1996. FFP Partners' wholesale margin per gallon
increased to 2.5 cents from 1.9 cents, in part because of the absence of the low
margin wholesale sales referred to above. However, wholesale margins were also
positively influenced by sales of fuel processed at FFP Partners' terminal,
which began operating in June 1997.
Merchandise sales declined $1,093,000 (2.4%) in the 1997 nine-month period
reflecting the 5.1% decline in the average number of convenience stores and
truck stops operated by FFP Partners offset by an increase of 3.3% in the
average weekly sales per outlet. Because of the reduced sales, merchandise
gross profit declined $98,000 (0.7%), although FFP Partners' merchandise margin
increased 0.5% in the 1997 period to 29.7%. The increase in average weekly
merchandise sales and merchandise margin are the result of management's efforts
to improve these key components of profitability.
The $1,399,000 (22.9%) drop in miscellaneous revenues in 1997 is due to the
decline in the sale of the merchandise operations at company-operated
convenience stores to independent operators. In the first nine months of 1996,
FFP Partners sold the merchandise operations at two stores compared to sixteen
such sales in the first nine months of 1997.
The increase in direct store expenses of $224,000 (1.1%) is due to
increased wage costs in the convenience stores and truck stops, offset by
reductions in cash over and short expense, and increased commissions on gasoline
sales paid to the operators of outlets at which FFP Partners has the fuel
concession. The increased wage costs are related to the increase in the
federally mandated minimum wage which took effect on September 1, 1997, while
the increased commissions on motor fuel sales are the result of operating an
average of 8.2 (4.1%) more such outlets.
A decline in bad debt expense, advertising and promotion, and professional
fees partially offset by increases in payroll costs resulted in the $86,000
(1.0%) decrease in general and administrative costs.
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<PAGE>
The $1,231,000 (44.7%) increase in depreciation and amortization expense
for the first nine months of 1997 was primarily the result of the start of
operations at FFP Partners' fuel terminal in June 1997 along with increased
charges related to the upgrading of FFP Partners' underground storage tanks to
meet 1998 environmental regulatory requirements.
The increase of $140,000 (14.5%) in interest expense during the 1997 period
is attributable to the generally higher level of interest rates during the 1997
period as compared to 1996 and to higher debt levels. The increased borrowings
were used to fund FFP Partners' investment in its fuel terminal and purchases of
equipment to upgrade its underground storage tanks.
The decline in revenues attributable to the sale of merchandise operations
at convenience stores and the increased depreciation and amortization expenses
are the primary cause for the loss of $1,297,000 for the first nine months of
1997 as compared to FFP Partners' income of $2,425,000 for the comparable period
in 1996.
Fiscal 1996 Compared with Fiscal 1995
FFP Partners' total revenues increased $20,107,000 (5.4%) in 1996 over
1995. This increase was the result of a $24,927,000 (8.4%) increase in motor
fuel sales offset by a $4,933,000 (7.5%) decline in merchandise sales.
Miscellaneous revenues were essentially flat between the two years.
The increased fuel revenues resulted from increased prices and an increase
of 4,454,000 gallons (2.3%) of fuel sold at retail offset by a 4,769,000 gallon
(5.0%) decline in wholesale gallons sold. The increase in retail fuel gallons
sold parallels the 2.4% increase in the average number of locations selling fuel
in 1996 as compared to 1995. The decrease in wholesale fuel gallons resulted
from the absence of large spot sales to certain customers in 1996. The majority
of FFP Partners' wholesale sales are to smaller independent retailers, many of
which are contractually committed to purchase from FFP Partners. However, FFP
Partners also markets to operators of larger convenience store chains and other
retail outlets but such customers are primarily motivated by price. Due to
increases in wholesale fuel prices in 1996, FFP Partners was not able to be as
aggressive in its pricing to these customers as in prior years.
Although fuel sales increased, fuel margin declined significantly,
$2,141,000 (9.4%), from the prior year. This decline was caused by
substantially reduced retail fuel margins in 1996 as compared to 1995. The 1996
retail fuel margin was 9.3 cents per gallon, a drop of 14.7% from the 10.9 cents
per gallon realized in 1995. The reduced margin resulted from increases in
wholesale prices that could not be fully passed on to retail customers due to
competitive pressures from non-traditional fuel retailers in FFP Partners'
market areas, such as grocery stores that have installed fuel islands. The
reduced retail margin was experienced by FFP Partners throughout 1996 with the
exception of its second fiscal quarter. Although the volumes of fuel sold on a
wholesale basis declined, the wholesale margin per gallon increased by 11.8%,
from 1.7 cents in 1995 to 1.9 cents in 1996.
The $4,933,000 decline in merchandise sales primarily relates to the
decline in the average number of convenience stores and truck stop restaurants
operated during the year. FFP Partners continued its program of selling the
merchandise operations of selected convenience stores to independent operators,
with 18 such sales in 1996. Under this program, begun in mid-1994, FFP Partners
sells the merchandise operations of outlets that it believes will contribute
more to its earnings if operated by independent operators than by FFP Partners.
The independent operators, because of their different overhead structure, are
able to operate the stores less expensively than can FFP Partners. These sales
are structured such that FFP Partners retains the real estate or leasehold
interest in the property and leases or subleases the land, building, and
equipment to the operator. FFP Partners also retains the motor fuel concession
at these outlets, which become self-service fuel outlets for FFP Partners. The
sales of these stores, offset to some extent by the conversion of certain gas
only outlets to convenience stores, reduced the average number of convenience
stores operated during the year by 5.0%. In addition, FFP Partners leased the
restaurant facilities at two of its truck stops to independent operators in
early 1996.
Total merchandise gross profit also declined due to the sales declines;
however, the margin on merchandise sales increased slightly in 1996, to 29.4%
from 29.3%. Shortly after year end 1996, FFP Partners reorganized its retail
operations placing convenience stores and truck stops, and their related food
service operations, under the supervision of one executive. Management believes
this supervisory structure will increase the focus on improving merchandise
margins and sales levels in its outlets.
17
<PAGE>
Although miscellaneous revenues in total were relatively unchanged between
1996 and 1995, the composition of the revenues shifted. Gains on the sales of
merchandise operations at convenience stores increased to $1,778,000 from
$791,000 (124.8%) while check cashing fees, food stamp commissions, and other
revenues related to check cashing booths declined $497,000 due to closing eight
such outlets. In addition, FFP Partners recognized a one-time gain of $353,000
from the sale of a fleet fueling franchise in 1995. Other items included in
miscellaneous revenue, such as lottery commissions and money order fees, were
relatively unchanged between the periods.
Direct store expenses consist of those costs directly attributable to the
operation of FFP Partners' retail outlets, such as salaries and other personnel
costs, supplies, utilities, repairs and maintenance, and commissions paid to the
operators of the self-service motor fuel outlets. These costs declined
$1,434,000 (5.0%) in 1996 from 1995. This decline was due to the reduction in
the average number of convenience stores operated during 1996 and to the closure
of the eight check cashing outlets, both discussed above, offset by increased
fuel commissions paid to operators of FFP Partners' self-service fuel outlets
due to an increase in the number of this type of outlet. FFP Partners leases
the land or land and buildings at 167 of its retail locations from affiliates of
FFP's general partner. As is customary in these types of agreements, these
leases provide for adjustments in the monthly rent based on the change in the
consumer price index. The adjustments are made every five years with the next
adjustment to be effective beginning in May 2002. The index on which
adjustments are currently based provides for increases of rents paid for these
locations by approximately $225,000 annually.
General and administrative expenses declined $289,000 (2.5%) in 1996 as
compared to the prior year principally due to declines in salaries and bad debts
although all categories of costs except legal and professional fees declined
slightly or were flat compared to 1995.
The modest increase in depreciation and amortization expense relates to the
increases in FFP Partners' fixed assets over the last few years. Because of the
significant asset additions during the current year, principally related to
environmental upgrades at FFP Partners' retail locations and to improvements at
the fuel terminal acquired in early 1996, which began operating in June 1997, it
is expected that depreciation and amortization in future years will increase
from the current level.
Interest expense was relatively unchanged in 1996 from the prior year,
increasing $70,000 (6.0%). Although FFP Partners' total debt (long- and short-
term and capital leases) increased by a total of $5,935,000, interest rates were
somewhat lower in 1996 than 1995, much of the additional indebtedness was
incurred late in the year, and a significant portion of the debt was incurred to
finance renovation of the fuel terminal and the interest expense related thereto
was capitalized. FFP Partners expects that its interest expense will increase
in 1997 over 1996 due to the rise in its debt levels; and the debt incurred to
finance renovation of the fuel terminal, which began operating in June 1997,
will begin to be expensed. If general interest rate increases occur, such
increases will, of course, increase FFP Partners' interest expense as much of
FFP Partners' debt carries a floating rate.
FFP Partners adopted Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes" ("SFAS 109") at the beginning of fiscal 1993. As
a result of adopting this accounting principle, FFP Partners is required to
record deferred income tax expense attributable to changes arising in the
current period in the temporary differences between financial and tax reporting
which are expected to reverse after 1997, when FFP Partners will become taxable
as a corporation, if the restructuring is not approved. These differences are
due primarily to temporary differences between the financial reporting amounts
and tax bases of FFP Partners' property and equipment.
In 1996, FFP Partners recorded deferred income taxes of $2,646,000, an
increase of $2,146,000 (429.2%) over the previous year. Of the total for the
current year, $2,089,000 was related to a change in the lives used by FFP
Partners to depreciate certain buildings for income tax reporting purposes. In
August 1996, Congress passed legislation clarifying that certain buildings used
in connection with the retail sale of motor fuel qualified for a substantially
shorter depreciable life for tax purposes than was being utilized by FFP
Partners. Substantially all of the buildings owned by FFP Partners qualified
for this shorter life. In January 1997, the Internal Revenue Service issued a
notice explaining how the tax deduction related to the change in the depreciable
lives on these assets should be determined. As a result, FFP Partners will take
a 1996 tax deduction for the difference between the tax depreciation previously
recorded and the depreciation available using the shorter life. However, it must
record deferred taxes on this timing difference. If FFP Partners were a taxable
entity, the deferred tax charge would have been offset by a current tax credit
of an equal amount with no impact on FFP Partners' reported net income.
However, since FFP Partners is a partnership and does not report any current
income tax expense or credit, the current tax benefit of this deduction will be
allocated to FFP Partners' unitholders but the deferred tax expense associated
with the acceleration of this depreciation deduction for tax purposes was
reflected on the FFP Partners income
18
<PAGE>
statement since it was contemplated that in the absence of the restructuring,
FFP Partners would have to pay these taxes because it would become taxable as a
corporation after 1997.
The 1996 deferred tax expense not related to the above described
clarification in the tax law, was $557,000, an increase of $57,000 (11.4%) over
the expense reported in 1995 and is principally due to additions to fixed assets
which are depreciated differently for financial reporting and tax purposes. The
deferred tax expense is expected to grow in 1997 as the date at which FFP
Partners will become taxable as a corporation grows closer since fewer of the
differences between tax and financial reporting will reverse prior to such date
and because of the significantly increased tax deduction available for the
deprecation of many of FFP Partners' buildings. However, the $2,089,000 expense
related to the "catch-up" in depreciation discussed above will not recur.
FFP Partners reported a net loss of $159,000 in 1996, as compared to net
income of $3,910,000 in 1995 primarily due to significant impact of reduced
retail fuel margins and to the non-recurring deferred tax provision related to
the change in the depreciable lives of certain buildings for tax purposes.
Fiscal 1995 Compared with Fiscal 1994
FFP Partners' motor fuel revenues for 1995 increased over the 1994 period
by $21,609,000 (7.8%) due to increased wholesale fuel sales. Wholesale fuel
sales increased 14,184,000 gallons (17.4%) over 1994. This increase resulted
from a full year of sales from a marketing arrangement begun in mid-1994 that
emphasizes sales to contractors and other commercial users of fuel as well as
from growth in these sales. However, the increase in wholesale fuel sales was
offset by a decline in retail fuel sales. Motor fuel sales at FFP Partners'
retail outlets declined by 3,013,000 gallons (1.5%) as a result of lower sales
volumes at FFP Partners' truck stops due to increased competition from new
outlets in several of FFP Partners' markets. The margin on fuel sales increased
$481,000 (2.2%) in 1995 over 1994. This increase resulted from improved retail
fuel margins (10.9 cents in 1995 compared with 10.1 cents in 1994) and the
additional margin from the increased wholesale activity.
Merchandise sales in 1995 declined by $7,315,000 (10.0%) from the previous
year due principally to the sale of the merchandise operations at ten
convenience stores under FFP Partners' program of selling these operations to
independent operators. The merchandise sales decline was also affected by the
absence of a full year's sales at the 15 outlets whose merchandise operations
were sold in the third and fourth quarters of 1994.
FFP Partners also experienced a decline in its average weekly per store
sales for convenience stores of $341 (3.4%) in 1995 as compared to 1994 and a
decline of 3.6% in sales at the truck stops (combined with their associated
restaurants). These declines are attributable to FFP Partners' efforts to
increase the margin on merchandise sales at all of its outlets. Total
merchandise margin declined by $982,000 due to the reduced merchandise sales but
the gross profit percentage on merchandise sales increased to 29.3% from 27.7%
reflecting FFP Partners' program of selectively increasing prices on less price
sensitive items.
Miscellaneous revenues were up $238,000 (3.2%) in 1995 over 1994. This
increase resulted primarily from increases in excise tax handling fees (due to
increased fuel volumes) and money order fees (due to increased numbers of items
sold and an increase in the per item fee) and a gain recognized from the sale of
FFP Partners' fleet fuel franchise offset by declines in food stamp commissions
(due to the adoption in Texas of a "debit" card for this activity) and in
commissions on the wholesale sale of cigarettes (due to a more competitive
market).
Direct store expenses in 1995 declined $1,057,000 (3.6%) from the prior
year. This reduction was due to the elimination of payroll (and related costs),
utilities, and other operating expenses at the convenience stores whose
merchandise operations were sold to independent operators offset by increases in
the fuel commissions paid to the operators of those stores, and increases in
wage and other personnel costs at the stores operated by FFP Partners.
General and administrative expenses increased $739,000 (6.7%) in 1995 over
1994. This increase was caused by increased professional fees, principally
attributable to the cost of consultants assisting in reorganizing certain of FFP
Partners' back office processes, increased rental expense, associated with FFP
Partners' increased use of leases to provide vehicles and to finance certain
equipment, increased insurance costs, and increases in bank charges, associated
with the trial use of a deposit pick up service at FFP Partners' convenience
stores and truck stops. These increases were offset by a reduction in bad debt
expense due to better monitoring of receivables.
19
<PAGE>
The $583,000 (13.4%) decline in depreciation and amortization expense is
due to the continued full depreciation of assets acquired upon FFP Partners'
formation in 1987 and the somewhat limited additions to property and equipment
over the past few years.
Even though FFP Partners' long-term bank debt declined by $3,580,000 from
1994 to 1995, interest expense was flat between the two years due to increased
use of capital leases, which carry a somewhat higher but fixed interest rate, to
fund capital expenditures.
The increase in the deferred tax expense in 1995 as compared to 1994 is
principally due to additions to fixed assets which are depreciated differently
for financial reporting and tax purposes.
The $263,000 (0.5%) decline in FFP Partners' total margin in 1995 as
compared to 1994 was offset by significant reductions in operating expenses and
depreciation and amortization such that income before income taxes and other
items increased $635,000 (16.8%). However, due to the increase in deferred
income taxes, discussed above, and the occurrence in 1994 of a $200,000 gain
from the early extinguishment of debt in connection with the refinancing of FFP
Partners' bank debt in early 1994, net income increased by $179,000 (4.8%)
between the two years.
Liquidity and Capital Resources
On November 3, 1997, FFP Partners completed a refinancing of its bank debt
with another lender. The new loan agreement provides FFP Partners with a
revolving credit line of up to $15,000,000 (the amount available is related to a
borrowing base comprised of FFP Partners' trade receivables and inventories) and
a term loan of $8,000,000. Both loans mature on November 1, 2000, and the term
loan requires monthly principal payments of $95,000. Both of the loans bear
interest, payable monthly, at the lending institution's prime rate but provide
options to fix the interest rate on all or a portion of the loans at rates of
LIBOR plus 2.25% for periods of three or six months or in the case of the term
loan at a rate tied to United States Treasury securities plus 2.50%. The loans
are secured by FFP Partners' accounts receivable and inventory, equipment, and a
negative pledge of other fixed assets.
Because of the restructuring of this debt, FFP Partners' working capital
position improved from a negative $7,410,000 at year end 1996 to a negative
$1,127,000 at September 28, 1997. Due to the availability of funds under FFP
Partners' revolving credit line which is used to fund working capital needs, the
availability of funds under its lease lines of credit which fund a significant
portion of routine capital expenditures, its traditional use of customary trade
credit, and the fact that most of FFP Partners' sales are for cash, management
believes that FFP Partners' operations can be conducted in a customary manner
while operating in a negative working capital position.
The loan agreement contains various requirements and restrictive covenants,
including a pledge of FFP Partners' accounts receivable and inventories, a
negative pledge of its fixed assets, limits on capital expenditures, and limits
on cash distributions, and the requirement to maintain certain financial ratios.
During the six months ended June 30, 1996, FFP Partners made aggregate cash
distributions to the FFP unitholders of $762,000 ($0.205 per FFP unit). During
the full year of 1996, FFP Partners made aggregate cash distributions to the FFP
unitholders of $1,545,000 ($0.415 per FFP unit). However, the distributions
were not made at regular, periodic intervals nor at fixed amounts. Because of
the losses incurred through the first six months of 1997 and the large tax loss
which was reported in 1996, FFP Partners currently anticipates that it will not
make cash distributions to FFP unitholders in the remainder of 1997. Beginning
in 1998, FFP Partners will become taxable as a corporation if the restructuring
is not approved. Accordingly, funds available for distribution will be reduced
by any income taxes that may be incurred by FFP Partners.
FFP Partners' cash flows from operating activities were $485,000 less in
1996 than in 1995. This decline was due principally to the $4,069,000 decline in
net income offset by the significant increase in deferred taxes related to the
change in depreciable lives for certain buildings for tax purposes and the
increased gain on the sales of the merchandise operations of certain convenience
stores. Cash used to purchase property and equipment increased $4,755,000 in
1996 due to expenditures to acquire and renovate the fuel terminal acquired by
FFP Partners in early 1996 and to continued environmental upgrades at FFP
Partners' retail outlets. Expenditures for environmental upgrading at the
retail outlets should continue at about the same pace in 1997 and 1998 as in
1996 but should decline significantly thereafter as all environmental upgrading
must be completed by year end 1998. FFP Partners has contracted with a firm to
install the necessary equipment and/or to modify existing installations to meet
current environmental requirements by the December 1998 deadline. The cost of
this upgrading is expected to be between $1,837,000 to $2,245,000 and will be
incurred during 1997 and 1998. FFP
20
<PAGE>
Partners will pay for some of its expected capital expenditures from operating
cash flow and expects to finance a portion of the expenditures by utilizing
lease lines of credit, as it has in the past.
FFP Partners' financing activities provided $4,331,000 of cash in 1996.
This amount represents a change of $7,183,000 from 1995 levels due to a net
increase of $5,528,000 in aggregate debt (balances due on FFP Partners'
revolving credit line, its long-term debt, and its capital lease obligations)
and a reduction of $1,659,000 in the amount of distributions paid to FFP
unitholders. The reduced distributions to FFP unitholders resulted from the
decline in FFP Partners' earnings in 1996.
FFP Partners is party to commodity futures contracts and forward contracts
to buy and sell fuel, both of which are used principally to satisfy balances
owed on exchange agreements. Both of these types of contracts have off-balance
sheet risk as they involve the risk of dealing with others and their ability to
meet the terms of the contracts and the risk associated with unmatched positions
and market fluctuations. The open positions under these contracts were not
significant at year end 1996. See Note 11 to the Consolidated Financial
Statements.
Inflation and Seasonality
We believe inflation has not had a material effect on operating results in
recent years except for the upward pressure placed on wages, primarily store
wages, by the federal minimum wage increase which took effect in 1996. The
additional increase in the minimum wage scheduled for October 1997 will again
place pressure on the level of store wages. However, we expect that operating
margins will be adversely affected for only a limited time as we believe that
prices can be increased fairly quickly in order to pass along this increased
cost to customers. We do not believe we will be at a competitive disadvantage
as we believe our wage structure is in line with that of other convenience store
operators. Apart from the impact of the minimum wage increase and the scheduled
rent increases discussed earlier, operations for the foreseeable future are also
not expected to be significantly impacted by inflation. Generally, increased
costs of in-store merchandise can be quickly reflected in higher prices to
customers. The price of motor fuel, adjusted for inflation, has declined over
recent years. However, significant increases in the retail price of motor fuels
could reduce fuel demand and FFP Partners' gross profit on fuel sales.
FFP Partners' businesses are subject to seasonal influences, with higher
sales being experienced in the second and third quarters of the year as
customers tend to purchase more motor fuel and convenience items, such as soft
drinks, other beverages, and snack items, during the warmer months.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS") No. 128, "Earnings Per Share," which is
effective for interim or annual periods ending after December 15, 1997. SFAS
No. 128 will change how FFP Partners calculates its earnings per FFP unit and
will require earnings per FFP unit amounts for all prior periods to be restated
to conform with the new presentation. Management does not believe that the
adoption of SFAS No. 128 will have a material effect on FFP Partners' earnings
per FFP unit amounts.
PRO FORMA FINANCIAL INFORMATION
OF FFP PARTNERS AND THE MARKETING COMPANY
The unaudited pro forma consolidated financial statements of FFP Partners
and the Marketing Company that follow are based on the historical consolidated
financial statements of FFP Partners with adjustments to reflect the
restructuring. Explanations of the pro forma adjustments follow the financial
statements. The pro forma balance sheet data below is presented as though the
restructuring had occurred on September 28, 1997. The pro forma revenue and
income/loss data is presented as though the restructuring had occurred at the
beginning of the respective fiscal periods presented. The unaudited pro forma
consolidated financial statements are not necessarily indicative of the
financial position or results of operations that actually would have been
obtained if the restructuring had occurred on the dates indicated or of the
results of operations in the future. These pro forma financial statements
should be read in conjunction with the historical consolidated financial
statements of FFP Partners appearing elsewhere in this Proxy Statement. The
unaudited pro forma consolidated financial statements do not contain all the
disclosures required by generally accepted accounting principles.
21
<PAGE>
FFP MARKETING COMPANY, INC. AND FFP PARTNERS, L.P.
Unaudited Pro Forma Consolidated Balance Sheets
September 28, 1997
<TABLE>
<CAPTION>
FFP Marketing FFP
Partners Pro Forma Company Partners
as reported Adjustments pro forma pro forma
------------- --------------- ------------- -------------
(in thousands)
ASSETS
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents.......................................... $ 7,254 $ 7,254 $ 0
Trade receivables, net............................................. 14,127 14,127 0
Notes receivable................................................... 821 821 0
Receivables from affiliated company................................ 408 408 0
Inventories........................................................ 12,818 12,818 0
Prepaid expenses and other current assets.......................... 799 799 0
------------- ------------- -------------
Total current assets............................................ 36,227 36,227 0
------------- ------------- -------------
Property and equipment, net...........................................
Land and improvements.............................................. 6,614 1,214 5,400
Buildings.......................................................... 12,191 65 12,126
Leasehold improvements............................................. 3,456 3,456 0
Fixtures and equipment............................................. 19,283 19,283 0
------------- ------------- -------------
Total property and equipment.................................... 41,544 24,018 17,526
------------- ------------- -------------
Noncurrent notes receivable, excluding current portion................ 1,544 1,544 0
Claims for reimbursement of environmental remediation
costs................................................................. 1,040 1,040 0
Other assets, net..................................................... 3,944 2,744 1,200
------------- ------------- -------------
Total Assets.................................................... $ 84,299 $ 0 $ 65,573 $ 18,726
============= =========== ============= =============
<CAPTION>
LIABILITIES AND EQUITY
<S> <C> <C> <C> <C>
Current Liabilities
Amount due under revolving credit line............................. $ 0 $ 0 $ 0
Current installments of long-term debt............................. 1,157 0 1,157
Current installments of obligations under capital leases........... 747 747 0
Accounts payable................................................... 13,566 650 {d} 13,566 650
Money orders payable............................................... 10,584 10,584 0
Accrued expenses................................................... 11,300 11,300 0
------------- ----------- ------------- -------------
Total current liabilities....................................... 37,354 650 36,197 1,807
Long-term debt, excluding current installments........................ 14,870 0 14,870
Obligations under capital leases, excluding current
installments.......................................................... 2,379 2,379 0
Deferred income taxes................................................. 4,185 (1,379) {a} 2,806 0
Other liabilities..................................................... 2,670 2,670 0
Minority interest in subsidiary....................................... 820 {e} 820
------------- ----------- ------------- -------------
Total Liabilities............................................... 61,458 91 44,052 17,497
------------- ----------- ------------- -------------
Commitments and contingencies.........................................
Partners'/Stockholders' Equity 22,841 (91) 21,521 1,229
------------- ----------- ------------- -------------
Total Liabilities and Partners'/Stockholders' Equity............ $ 84,299 $ 0 $ 65,573 $ 18,726
============= =========== ============= =============
</TABLE>
See accompanying explanation of pro forma adjustments to unaudited pro forma
consolidated financial statements.
22
<PAGE>
FFP MARKETING COMPANY, INC. AND FFP PARTNERS, L.P.
Unaudited Pro Forma Consolidated Statements of Operations
Year Ended December 29, 1996
<TABLE>
<CAPTION>
FFP Marketing FFP
Partners Pro Forma Company Partners
as reported Adjustment pro forma pro forma
------------- --------------- ------------- -------------
(in thousands, except per unit/share information)
<S> <C> <C> <C> <C>
Revenues
Motor fuel........................................... $ 321,814 $ 321,814
Merchandise.......................................... 60,579 60,579
Miscellaneous........................................ 7,759 2,430 {b} 7,759 2,430
------------- ----------- ------------- -------------
Total Revenues.................................... 390,152 2,430 390,152 2,430
------------- ----------- ------------- -------------
Costs and Expenses
Cost of motor fuel................................... 301,142 301,142
Cost of merchandise.................................. 42,758 42,758
Direct store expenses................................ 27,062 2,430 {b} 29,492
General and administrative expenses.................. 11,506 {c} 11,306 200
Depreciation and amortization........................ 3,951 2,657 1,294
------------- ----------- ------------- -------------
Total Costs and Expenses.......................... 386,419 2,430 387,355 1,494
------------- ----------- ------------- -------------
Operating Income........................................ 3,733 2,797 936
Interest Expense..................................... 1,246 295 951
------------- ----------- ------------- -------------
Income/(loss) before income taxes....................... 2,487 2,502 (15)
Minority interest in earnings of subsidiary............. (6){e} (6)
Income tax expense...................................... 2,646 (1,600){a} 1,046
------------- ----------- ------------- -------------
Net Income/(Loss)....................................... $ (159) $ 1,606 $ 1,456 $ (9)
============= ========== ============== =============
Income/(loss) per limited partner Unit or
Common Share......................................... $ (0.04) $ 0.39 $ 0.00
============= ============== =============
Distributions declared per unit......................... $ 0.415
Weighted average number of Units
or Common Shares outstanding......................... 3,684,525 3,759,538 2,251,801
</TABLE>
See accompanying explanation of pro forma adjustments to unaudited pro forma
consolidated financial statements.
23
<PAGE>
FFP MARKETING COMPANY, INC. AND FFP PARTNERS, L.P.
Unaudited Pro Forma Consolidated Statements of Operations
Nine Months Ended September 28, 1997
<TABLE>
<CAPTION>
FFP FFP FFP
Partners Pro Forma Marketing Real Estate
as reported Adjustments pro forma pro forma
------------- --------------- ------------- -------------
(in thousands, except per unit/share information)
<S> <C> <C> <C> <C>
Revenues
Motor fuel.......................................... $ 238,257 $ 238,257
Merchandise......................................... 45,114 45,114
Miscellaneous....................................... 4,702 1,823 {b} 4,702 1,823
------------- ----------- ------------- -------------
Total Revenues................................... 288,073 1,823 288,073 1,823
------------- ----------- ------------- -------------
Costs and Expenses
Cost of motor fuel.................................. 222,686 222,686
Cost of merchandise................................. 31,719 31,719
Direct store expenses............................... 20,567 1,823 {b} 22,390
General and administrative expenses................. 8,901 {c} 8,751 150
Depreciation and amortization....................... 3,986 3,206 780
------------- ----------- ------------- -------------
Total Costs and Expenses......................... 287,859 1,823 288,752 930
------------- ----------- ------------- -------------
Operating Income....................................... 214 0 (679) 893
Interest Expense.................................... 1,108 432 676
------------- ----------- ------------- -------------
Income/(loss) before income taxes...................... (894) 0 (1,111) 217
Minority interest in earnings of subsidiary............ 87 {e} 87
Income tax expense..................................... 403 (752){a} (349)
------------- ----------- ------------- -------------
Net Income/(Loss)...................................... $ (1,297) $ 665 $ (762) $ 130
============= =========== ============= =============
Income/(loss) per limited partner Unit or
Common Share........................................ $ (0.35) $ (0.20) $ 0.06
============= =========== ============= =============
Distributions declared per unit........................ $ 0.000
Weighted average number of Units
or Common Shares outstanding........................ 3,704,205 3,779,415 2,271,678
</TABLE>
See accompanying explanation of pro forma adjustments to unaudited pro forma
consolidated financial statements.
24
<PAGE>
FFP MARKETING COMPANY, INC. AND FFP PARTNERS, L.P.
Explanation of Pro Forma Adjustments to Unaudited Pro Forma Consolidated
Financial Statements
{a} Elimination of deferred taxes attributable to the change for tax
purposes in depreciable lives of certain buildings that are being transferred to
FFP Partners. See Note 10 to the Consolidated Financial Statements of FFP
Partners, L.P., appearing elsewhere in this Proxy Statement. FFP Partners will
be a publicly-traded partnership with "qualifying" income under the Code and,
accordingly, does not expect to pay income taxes. Consequently it will not make
any provision for income taxes in its financial statements. Also includes the
current and deferred tax implications of the restructuring.
{b} Represents rent to be paid by the Marketing Company to FFP Partners for
the properties being transferred to FFP Partners.
{c} FFP Partners and the Marketing Company expect to enter into a services
agreement under which FFP Partners will reimburse the Marketing Company for
general and administrative expenses, principally compensation of the officers of
the general partner, associated with managing FFP Partners. This reimbursement
is estimated to be approximately $200,000 per year. FFP Partners will also pay
directly expenses specifically attributable to its operations. We expect that
the actual aggregate general and administrative expenses of FFP Partners and the
Marketing Company following the restructuring will increase by approximately
$100,000 due to the additional costs (such as legal and annual audit expenses
and stock exchange listing fees) associated with operating two separate
entities.
{d} Reflect estimated costs of the restructuring. The actual costs of the
restructuring will be reflected in the statement of operations of FFP Partners
in the period of the restructuring.
{e} Reflect Harvison Family's 40% interest in FFP Properties.
25
<PAGE>
BUSINESS
General
FFP Partners, through its subsidiaries, currently owns and operates
convenience stores, truck stops, and self-service motor fuel outlets over an
eleven state area. It also operates a money order company, selling money orders
through its own outlets as well as through agents, sells motor fuel on a
wholesale basis, primarily in Texas, and owns and operates a fuel processing
facility and bulk storage terminal in Euless, Texas. The principal executive
offices of FFP Partners are located at 2801 Glenda Avenue, Fort Worth, Texas
76117-4391. The telephone number is (817) 838-4700.
After the restructuring is completed, FFP Partners will continue to
indirectly own the real estate it now owns through its subsidiaries that is used
in its retail operations. FFP Partners will lease the real estate it indirectly
owns to the Marketing Company for rents that management believes are at fair
market value. The Marketing Company will own all of the other assets now owned
by FFP Partners and will conduct all the businesses now conducted by FFP
Partners other than the ownership of real estate. FFP Partners, and after the
conversion , the REIT, and the Marketing Company will be separate, publicly-
traded entities that will deal with each other on an arm's-length basis in the
future.
Recent Developments
FFP Partners signed an agreement to purchase 104 convenience stores from E-
Z Serve Convenience Stores, Inc. on November 12, 1997 (the "E-Z Serve
Acquisition"). The outlets being acquired are in eight states, all of which FFP
Partners currently operates in, with about 80% of them located in Texas. FFP
Partners expects to complete the closing of the E-Z Serve Acquisition on a
store-by-store basis by year end. Field supervisory personnel will be added to
oversee these outlets, but we expect that the purchasing and accounting for
these stores will be handled with minimal additional administrative staff.
Because these outlets are currently operating, the E-Z Serve Acquisition will
have an immediate positive impact on FFP Partners' earnings and cash flow. FFP
Partners expects to sell ten of these convenience stores to an unrelated party
concurrently with the closing of the E-Z Serve Acquisition. The purchase price
for the stores acquired is determined in part by the wholesale value of the
merchandise and fuel remaining at the locations at the time the operations of
each of the locations is actually taken over by FFP Partners and is payable in
cash at that time. We estimate that the total purchase price will be
approximately $12 million.
The Marketing Company
The Marketing Company is a newly-formed Texas corporation that was
organized to succeed to the non-real estate operations of FFP Partners pursuant
to the restructuring. Prior to the restructuring, the Marketing Company will
have no substantial assets or operations. The Marketing Company has not engaged
in any activities other than in connection with its organization and the
restructuring. Upon consummation of the restructuring, the Marketing Company
will hold all of the non-real estate assets previously held by FFP Partners and
conduct the businesses previously conducted by FFP Partners other than the
ownership of real estate. The principal executive offices of the Marketing
Company are located at 2801 Glenda Avenue, Fort Worth, Texas 76117-4391. The
telephone number is (817) 838-4700.
Convenience Stores. The Marketing Company will operate 115 convenience
stores, a decrease of three stores from the number operated by FFP Partners at
fiscal year end 1996. This decrease is due to FFP Partners' sale of the
merchandise operations of outlets to independent operators during the first six
months of 1997. See "--Store Development." The Marketing Company's stores will
be open seven days a week, will offer extended hours (eleven of FFP Partners'
stores are currently open 24 hours a day, the remainder generally are open from
6:00 a.m. to midnight), and will emphasize convenience to the customer through
location, merchandise selection, and service. FFP Partners' convenience stores
sell groceries, tobacco products, take-out foods and beverages (including
alcoholic beverages where local laws permit), dairy products, and non-food
merchandise such as health and beauty aids and magazines and, at all except two
of the stores, motor fuel. Food service in the convenience stores varies from
pre-packaged sandwiches and fountain drinks to full food-service delicatessens
(at 41 stores), some with limited in-store seating. During late 1993, FFP
Partners began operating small "express" franchises of Kentucky Fried
Chicken(R) and Subway Sandwiches(R) in selected convenience stores and at
the end of 1996 five of FFP Partners' convenience stores had these or other
branded food outlets in them. See "--Store Development; Products, Store Design
and Operation." The convenience stores operate under several different trade
names, all of which were used by FFP Partners' predecessor companies. The
principal trade names are "Kwik Pantry," "Nu-Way," and "Economy Drive-Ins."
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<PAGE>
For the fiscal year 1996, the convenience stores had average weekly per
store merchandise sales of $9,454 and motor fuel sales of 11,901 gallons. In
fiscal 1995, average weekly sales were $9,560 of merchandise and 12,093 gallons
of fuel.
Truck Stops. The Marketing Company will initially operate eleven truck
stops, an increase of one from the number operated by FFP Partners at fiscal
year end 1996. The truck stops, which principally operate under the trade name
of "Drivers," are located on interstate and other highways and are similar in
their operations to the convenience stores, although the merchandise mix is
directed towards truck drivers and the traveling public. Five of the truck
stops have full service restaurants; the Marketing Company will operate two of
the restaurants and the other three will be operated by independent operators.
The other five outlets offer prepared-to-order food service, including two
outlets which have a combination Kentucky Fried Chicken/Taco Bell "express"
franchise and one which has a Pizza Hut franchise within the store. In 1996,
the truck stops had average weekly per outlet merchandise sales (including food
service sales) of $17,192 ($17,506 in 1995) and fuel sales of 66,973 gallons
(68,274 gallons in 1995).
Self-Service Gasoline Outlets. The Marketing Company will initially
operate 208 self-service gasoline outlets, the number operated by FFP Partners
immediately prior to the restructuring. The Marketing Company's self-service
gasoline outlets will consist of fuel pumps and related storage equipment
located at independently operated convenience stores. These outlets are
operated pursuant to contracts that generally obligate the Marketing Company to
provide motor fuel inventory, fuel storage and dispensing equipment, and
maintenance of the fuel equipment while the store operator agrees to collection
and remittance procedures. The store operators are compensated by commissions
based on profits and/or the volume of fuel sold. In addition, the contracts
generally grant the Marketing Company the right of first refusal to purchase the
operator's convenience store should it be offered for sale. Many of the
contracts have renewal options and, based on past experience, management
believes that a significant number of those contracts which do not have renewal
options will be renegotiated and renewed upon expiration. In addition to the
contractual arrangement between the store operator and the Marketing Company,
123 of these operators also will sublease the store building and land from the
Marketing Company.
During fiscal 1996, the self-service gasoline outlets had average weekly
per outlet fuel sales of 8,584 gallons as compared to 7,794 gallons in fiscal
1995.
Properties. The following table summarizes the status of the retail
outlets that will be leased by the Marketing Company upon completion of the
restructuring:
<TABLE>
<CAPTION>
Leased from Leased from
Leased from Affiliates of the Unrelated
FFP Partners Harvison Family Parties Total
------------ ----------------- ----------- --------
Number of Locations
<S> <C> <C> <C> <C>
Convenience Stores
Land 41/(1)/ 52 22/(2)/ 115/(3)/
Buildings 92/(1)/ 4 19/(2)/ 115/(3)/
Truck Stops
Land 2 8 1 11
Buildings 7 3 1 11
Self-Service Gasoline
Outlets
Land 16 107 85 208
Buildings 64 59 85 208
Other/Not Active
Land 5 4 5 14
Buildings 6 3 5 14
Total
Land 64/(1)/ 171 113/(2)/ 348/(3)/
Buildings 169/(1)/ 69 110/(2)/ 348/(3)/
</TABLE>
- --------------------------
/(1)/ Upon the closing of the E-Z Serve Acquisition, FFP Partners will own 1
additional convenience store location, which it will lease to the
Marketing Company.
/(2)/ Upon the closing of the E-Z Serve Acquisition, the Marketing Company will
lease 103 additional convenience store locations from unrelated third
parties.
/(3)/ Upon the closing of the E-Z Serve Acquisition, the Marketing Company will
lease a total of 104 additional convenience stores.
27
<PAGE>
The properties owned by FFP Partners will be leased to the Marketing
Company under leases that generally will expire on December 31, 2002, with two
five-year renewal periods, with renewal at the sole option of the Marketing
Company. The monthly rent upon each renewal will be adjusted by the increase in
the consumer price index since the leases were entered into. The Marketing
Company will determine the amount of rent it will pay for the properties leased
from FFP Partners based on its knowledge of the properties, the operations that
will be conducted by the Marketing Company and the general experience of its
management in acting as lessor and lessee for similar properties and operating
the types of locations that will be operated by the Marketing Company.
Management believes the terms and conditions of the leases with the Marketing
Company will be comparable to leases that could be entered into with third
parties. Management did not engage any third party advisors or refer to any
third party surveys or analyses of rental rates in making this determination.
The properties owned by affiliates of the Harvison Family will be covered
by the leases in place on such properties prior to the restructuring. Such
leases will be assigned to the Marketing Company concurrently with the
restructuring. These leases generally expire on May 31, 2002, and all but 29 of
them have one five-year renewal option with renewal at the sole option of the
Marketing Company. If the Marketing Company elects to exercise its renewal
option, the monthly rent will be adjusted by the increase in the consumer price
index since the leases were entered into. Eleven of the properties are
currently leased on a month-to-month basis. We believe the terms and conditions
of the leases with affiliates of the Harvison Family are more favorable than
could be obtained from unrelated third parties. Management did not engage any
third party advisors or refer to any third party surveys or analyses of rental
rates in making this determination.
Wholesale Fuel Sales. FFP Partners has sold motor fuel on a wholesale
basis to smaller independent and regional chains of fuel retailers since it
commenced operations. The wholesale fuel operation was expanded in later years
to include sales to commercial end-users of motor fuels, such as local
governmental units, operators of vehicle fleets, and public utilities.
During 1996, FFP Partners did not have facilities for the bulk storage of
motor fuel. Accordingly, purchases were made to fill specific customer orders.
In March 1996, FFP Partners completed the purchase of a non-operating fuel
processing facility and bulk storage terminal located in Euless, Texas. The
facility has been undergoing renovation and began operating in June 1997. This
facility gives the Marketing Company the ability to provide terminaling services
(storage and delivery services) for other wholesalers of motor fuel and to
separate commingled refined products into their component parts for sale to
retailers and end users. The facility has total storage for 235,000 barrels
(9,879,000 gallons) of motor fuel and the capacity to process approximately
1,500 barrels per day of commingled product. The motor fuel obtained by
separating commingled products will be used by the Marketing Company to satisfy
a portion of the fuel supply needs for its retail outlets and wholesale
customers. At the time it acquired the facility, FFP Partners conducted an
environmental assessment of the property, which did not reveal any material
environmental liabilities existing with respect to the property.
FFP Partners has been designated a "jobber" for Citgo, Chevron, Fina,
Conoco, Texaco, Coastal, Diamond Shamrock, Sinclair, and Phillips 66. This
designation will continue with the Marketing Company and will enable the
Marketing Company to work with independent fuel retailers to qualify the
retailers to operate as a branded outlet for the large oil company. The
Marketing Company will then supply motor fuel to such retailers on a wholesale
basis under contracts ranging from five to ten years.
Management believes the Marketing Company's fuel wholesale activities will
enhance its relationships with its fuel vendors by increasing the volume of
purchases from such vendors. In addition, the wholesale activities will permit
the Marketing Company to develop relationships with smaller fuel retailers that
may, at some future time, be interested in entering into a self-service gasoline
marketing arrangement with the Marketing Company. See "--Self-Service Gasoline
Outlets."
Business Strategy. The Marketing Company intends to seek to operate
additional locations, particularly self-service gasoline outlets where the
associated convenience store is operated by a third party. The Marketing
Company expects that any agreements it reaches for a self-service gasoline
outlet will be for a term of at least ten years with renewal at the option of
the Marketing Company and will be similar in other respects to the agreements it
currently has with such operators. Although the Marketing Company expects to
emphasize the addition of self-service gasoline outlets, it will also endeavor
to expand its convenience store base. Management expects that any additional
convenience stores it operates will be leased from a third party or will be
purchased by FFP Partners, or, upon the conversion , the REIT, and leased to the
Marketing
28
<PAGE>
Company at a fair value rent under leases that are similar to those it
will have with FFP Partners following the restructuring, and with the REIT upon
the conversion.
Market Strategy. The Marketing Company's market strategy will emphasize
the operation and development of existing stores and retail outlets in small
communities rather than metropolitan markets. In general, the Marketing Company
believes stores in communities with populations of 50,000 or less experience a
more favorable operating environment, primarily due to less competition from
larger national or regional chains and access to a higher quality and more
stable labor force. In addition, costs of land, reflected in both new store
development costs and acquisition prices for existing stores and retail outlets,
are generally lower in small communities. As a result of these factors,
management believes this market strategy enables it to achieve a higher average
return on investment than would be achieved by operating primarily in
metropolitan markets.
Store Development. In early 1994 in its continuing endeavor to increase
the productivity and operating efficiency of its existing store base, FFP
Partners identified outlets that it believed would contribute more to its
earnings if operated by independent operators rather than by FFP Partners and
undertook a program to sell the merchandise operations of these outlets to
independent operators. In 1996, 1995, and 1994 FFP Partners sold the merchandise
operations at 18, 10, and 15 of these outlets, respectively. Because of their
different overhead structure, independent operators are often able to operate
the stores less expensively than can FFP Partners. These sales were structured
such that FFP Partners retained the real estate or leasehold interest and leased
or subleased the land and building to the operator for a five year period with a
five year renewal option. FFP Partners also entered into a self-service
gasoline agreement covering the fuel sales at these locations. We believe that
the sales of these stores and the resulting combination of rents, fuel profits,
and other income enhance the profitability of these outlets. In the
restructuring, the real estate owned by FFP Partners at these locations will be
retained by it, and the self-service gasoline agreements will be assumed by the
Marketing Company.
In addition to the sales of the merchandise operations at certain
convenience stores, discussed above, we are seeking other ways to increase the
productivity of the present base of convenience store and truck stop outlets. A
part of this effort involves the installation of limited-menu "express" outlets
of national food franchises in the Marketing Company's outlets. In 1994 and
1995, FFP Partners commenced operating combination Kentucky Fried Chicken/Taco
Bell outlets in two truck stops, a Pizza Hut outlet in one truck stop, Kentucky
Fried Chicken outlets in two convenience stores, and a Subway Sandwich franchise
in one convenience store. Our experience with this type of food service
operation indicates that it increases store traffic, especially in the truck
stops, as it offers the advantage of national name-brand recognition and
advertising. In addition, the training and operational programs of these
franchisors provide a consistent and high-quality product to customers. We are
evaluating the existing operations to determine if it would be appropriate to
install additional outlets of this type in other locations. We are also
evaluating the relative merits of the various types of franchises.
Opportunities to expand self-service gasoline outlets are limited by
competitive factors, including the existence of established facilities at most
independent convenience stores. However, the Marketing Company intends to
continue to pursue the acquisition of this type of outlet principally through
the development of relationships through its fuel wholesaling operations.
Products, Store Design and Operation. The number and type of merchandise
items stocked in the convenience stores vary from one store to another depending
upon the size and location of the store and the type of products desired by the
customer base served by the store. However, the stores generally carry national
or regional brand name merchandise of the type customarily carried by competing
convenience stores. Substantially all the convenience stores and truck stops
offer ready-to-eat foods such as hot dogs, pre-packaged sandwiches and other
foods, and fountain drinks. Forty-one of the convenience stores have facilities
for daily preparation of fresh food catering to local tastes, including fried
chicken and catfish, tacos, french fries, and made-to-order sandwiches. Also,
as discussed above, five convenience stores and three truck stops have "express"
outlets of national fast-food franchises or other branded food service.
As FFP Partners currently does, the Marketing Company intends to utilize a
team approach to its marketing function rather than having a specific person who
is responsible for that activity. Senior operations executives and other
management personnel continually review and evaluate products and services for
possible inclusion in the retail outlets. Special emphasis is given to those
goods or services that carry a higher gross profit margin than the overall
average, will increase customer traffic within the stores, or complement other
items already carried by the stores. The marketing teams, which include the
regional managers, in conjunction with the Marketing Company's vendors, will
develop and implement promotional programs and incentives on selected items,
such as fountain drinks and fast food items. In addition, new products and
services will be reviewed on a periodic basis to ensure a competitive product
selection. Due to the geographic distribution
29
<PAGE>
of the Marketing Company's stores and the variety of trade names under which
they are operated, the use of advertising will be limited to location signage,
point-of-sale promotional materials, advertisements in local newspapers, and
locally distributed flyers.
Over the last several years, FFP Partners has increased the number of its
"branded" outlets, those which are affiliated with a large oil company. In
March 1997, FFP Partners had 221 (209 in 1996) retail outlets which were
branded, as compared to 65 such outlets in 1990. FFP Partners has outlets that
are branded Citgo, Chevron, Fina, Conoco, Diamond Shamrock, Texaco, and Coastal.
Branded locations generally have higher fuel sales volumes (in gallons) than
non-branded outlets due to the advertising and promotional activities of the
respective major oil company and the acceptance of such oil company's
proprietary credit cards. The increased customer traffic associated with higher
fuel sales tends to increase merchandise sales volumes, as well. The Marketing
Company will continue to evaluate the desirability of branding additional
outlets. In addition to its own convenience stores, truck stops, and self-
service fuel outlets that are branded, the Marketing Company will serve as a
wholesale distributor to approximately 160 branded retail outlets.
Merchandise Supply. Based on competitive bids, FFP Partners has selected a
single company as the primary grocery and merchandise supplier to its
convenience stores and truck stops, which the Marketing Company will continue.
However, some merchandise items, such as bakery goods, dairy products, salty
snacks, soft drinks, beer, and other perishable products, are generally
purchased from local vendors and/or wholesale route salespeople. The Marketing
Company believes it could replace any of its merchandise suppliers, including
its primary merchandise supplier, with no significant adverse effect on its
operations.
Motor Fuel Supply. FFP Partners purchases and the Marketing Company will
continue to purchase fuel for its branded retail outlets and branded wholesale
customers from the respective oil company which branded the outlet and for its
unbranded outlets from large integrated oil companies and independent
refineries. We purchase fuel from approximately 50 vendors, with 41% of our
purchases being made from or through Citgo Petroleum Corporation, 12% from Koch
Refining Company, L.P., 11% from Conoco, Inc., and 10% from Chevron U.S.A., Inc.
Although our purchases are concentrated from a few vendors, largely due to the
volume of our branded outlets, we believe that the competitiveness for retail
outlets among oil companies is such that we could find alternative sources of
supply if the need to do so arose.
During recent years, FFP Partners has not experienced any difficulties in
obtaining sufficient quantities of motor fuel to satisfy retail and wholesale
sales requirements. However, unanticipated national or international events
could result in a curtailment of motor fuel supplies to the Marketing Company,
thereby adversely affecting motor fuel sales. In addition, management believes
a significant portion of its merchandise sales are to customers who also
purchase motor fuel. Accordingly, reduced availability of motor fuel could
negatively impact other facets of the Marketing Company's operations, as well.
Competition. The convenience store industry is highly competitive. Most
convenience stores and an increasing number of traditional grocery stores in the
Marketing Company's market areas sell motor fuel. Additionally, merchandise
similar or identical to that sold by the Marketing Company's stores is generally
available to competitors. The Marketing Company will compete with local and
national chains of supermarkets, drug stores, fast-food operations, and motor
fuel retailers. It will also compete with independently operated convenience
stores and national chains of convenience stores such as "7-Eleven" and "Circle
K." Major oil companies are also becoming a significant factor in the
convenience store industry as they convert outlets that previously sold only
motor fuel to convenience stores. However, major oil company stores generally
carry a more limited selection of merchandise than that carried by the Marketing
Company's outlets and operate principally in metropolitan areas, where the
Marketing Company has few outlets. Some of the Marketing Company's competitors
have large sales volumes, benefit from national or regional advertising, and
have greater financial resources than the Marketing Company.
Management believes each of the Marketing Company's retail outlets competes
with other retailers in its immediately surrounding area, generally within a
radius of one to two miles. Management believes the Marketing Company's outlets
compete based on location, accessibility, the variety of products and services
offered, extended hours of operation, price, and prompt check-out service.
The Marketing Company's wholesale fuel operation is also subject to
competition. Management believes this business is highly price sensitive,
although the ability to compete is also dependent upon providing quality
products and reliable delivery schedules. The Marketing Company's wholesale
fuel operation will compete for customers with large integrated oil companies
and smaller, independent refiners, and fuel jobbers, some of which have greater
financial resources
30
<PAGE>
than the Marketing Company. Management believes it can compete effectively in
this business because of the Marketing Company's purchasing economies, numerous
supply sources, and the reluctance of many larger suppliers to sell to smaller
customers.
Employees. The Marketing Company will initially employ approximately 1,175
people (including part-time employees). There are no collective bargaining
agreements between FFP Partners and any of its employees. Management believes
the relationship with employees of the Marketing Company is good.
Trademarks and Trade Names. FFP Partners' convenience stores and truck
stops are operated under a variety of trade names, including "Kwik Pantry," "Nu-
Way," "Economy," "Dynamic Minute Mart," "Drivers," and "Drivers Diner." The
Marketing Company will sell money orders in its outlets, and through agents,
under the service mark "Financial Express Money Order Company." The money orders
are produced using a computer controlled laser printing system developed by FFP
Partners. The rights to this system will be owned by the Marketing Company.
Eight of the Marketing Company's truck stops will operate under the trade
name of "Drivers"; the two other truck stops will use the same trade name as the
Marketing Company's convenience stores in the areas in which they are located.
The names "FFP Partners," "Kwik Pantry," "Drivers," "Drivers Diner,"
"Financial Express Money Order Company," and "Lazer Wizard" are registered as
service marks or trademarks under federal law, and will be owned by the
Marketing Company.
Insurance. FFP Partners carries and the Marketing Company will carry
workers' compensation insurance in all states in which it operates, and
liability coverages for its vehicles which meet or exceed state requirements but
FFP Partners does not and the Marketing Company will not carry automobile
physical damage insurance. Insurance covering physical damage to assets owned
by the Marketing Company will generally be carried only for selected locations.
The Marketing Company will maintain property damage coverage on leased
properties as required by the terms of the leases thereon. The Marketing
Company does not expect that it will carry physical damage insurance on
properties that will be leased from FFP Partners. However, the Marketing
Company will be responsible for repairing any damage that occurs at a location
leased from FFP Partners, and for compensating it for the fair value of any
buildings or improvements owned by it should they be destroyed, while the
facilities are under lease to the Marketing Company.
The Marketing Company will maintain general liability insurance with limits
and deductibles management believes prudent in light of the exposure of the
Marketing Company to loss and the cost of the insurance. The Marketing Company
will not maintain any insurance covering losses due to environmental
contamination. See "Government Regulation--Environmental."
The Marketing Company will monitor the insurance markets and will obtain
such additional insurance coverages as it believes appropriate at such time as
they might become available at costs management believes reasonable.
Government Regulation - Alcoholic Beverage Licenses. FFP Partners' retail
outlets sell and the Marketing Company's retail outlets will sell alcoholic
beverages in areas where such sales are legally permitted. The sale of
alcoholic beverages is generally regulated by state and local laws which grant
to various agencies the authority to approve, revoke, or suspend permits and
licenses relating to the sale of such beverages. In most states, such agencies
have wide-ranging discretion to determine if a licensee or applicant is
qualified to be licensed. The State of Texas requires that licenses for the
sale of alcoholic beverages be held, directly or indirectly, only by individual
residents of Texas or by companies controlled by such persons. Therefore, FFP
Partners has, and the Marketing Company will succeed to, an agreement with a
corporation controlled by John H. Harvison, the Chairman of the Board and Chief
Executive Officer of FFP's general partner and the Marketing Company, which
permits that corporation to sell alcoholic beverages in FFP Partners' Texas
outlets where such sales are legal.
In many states, sellers of alcoholic beverages have been held responsible
for damages caused by persons who purchased alcoholic beverages from them and
who were at the time of the purchase, or subsequently became, intoxicated.
Although the retail operations have adopted procedures which are designed to
minimize such liability, the potential exposure to the Marketing Company as a
seller of alcoholic beverages is substantial. FFP Partners' present liability
insurance, which will be assumed by the Marketing Company upon consummation of
the restructuring, provides coverage, within its limits and subject to its
deductibles, for this type of liability.
31
<PAGE>
Government Regulation - Environmental Regulation. FFP Partners is and the
Marketing Company will be subject to various federal, state, and local
environmental, health, and safety laws and regulations. In particular, federal
regulations issued in late 1988 regarding underground storage tanks established
requirements for, among other things, underground storage tank leak detection
systems, upgrading of underground tanks with respect to corrosion resistance,
corrective actions in the event of leaks, and the demonstration of financial
responsibility to undertake corrective actions and compensate third parties for
damages in the event of leaks. Certain of these requirements were effective
immediately and others are being phased in over a ten year period. However, all
underground storage tanks must comply with all requirements by December 1998.
FFP Partners has implemented a plan, which the Marketing Company will continue,
to bring all of its existing underground storage tanks and related equipment
into compliance with these laws and regulations and currently estimates the
costs to do so will total from approximately $2,000,000 over the next thirteen
months.
All states in which the Marketing Company will initially have underground
storage tanks have established trust funds for the sharing, recovering, and
reimbursing of certain cleanup costs and liabilities incurred as a result of
leaks in such tanks. These trust funds, which essentially provide insurance
coverage for the cleanup of environmental damages caused by an underground
storage tank leak, are funded by a tax on underground storage tanks or the levy
of a "loading fee" or other tax on the wholesale purchase of motor fuels within
each respective state. The coverages afforded by each state vary but generally
provide up to $1,000,000 for the cleanup of environmental contamination and most
provide coverage for third-party liability, as well. Some of the funds require
FFP Partners, and will require the Marketing Company, to pay deductibles up to
$25,000 per occurrence.
Management believes FFP Partners complies in all material respects with
existing environmental laws and regulations and is not currently aware of any
material capital expenditures, other than as discussed above, that will be
required to further comply with such existing laws and regulations. However,
new laws and regulations could be adopted which could require the Marketing
Company to incur significant additional costs.
The REIT and FFP Partners
The REIT is a newly-formed real estate investment trust under the Texas
Real Estate Investment Trust Act (the "TRA"). After the restructuring and until
the conversion, the REIT will act only as the general partner of FFP Partners.
After the conversion, the REIT will succeed to the real estate holdings of FFP
Partners pursuant to the restructuring. Prior to the restructuring, the REIT
will have no substantial assets or operations. The REIT has not engaged in any
activities other than in connection with its organization and the restructuring.
Upon consummation of the restructuring, the REIT will be the general partner of
FFP Partners. The REIT's only business will be the management of the assets and
business of FFP Partners. After the restructuring, FFP Partners' only assets
will be the general partner interest in FFP Properties which will own certain
real estate on which the convenience store, truck stop and self-service gasoline
outlet businesses of the Marketing Company will be conducted. The principal
executive offices of the REIT are located at 2801 Glenda Avenue, Fort Worth,
Texas 76117-4391. The telephone number is (817) 838-4700. For purposes of this
discussion, references to the REIT include FFP Partners and FFP Properties.
Properties. Upon completion of the restructuring, the REIT will own the
land and buildings at 64 locations (65 upon the closing of the E-Z Serve
Acquisition), all of which will be leased to the Marketing Company for use in
its retail operations. In addition, the REIT will own 102 buildings located on
land owned by the Harvison Family. For these locations, the Marketing Company
will lease the land from the Harvison Family and will lease the buildings from
the REIT. The REIT will determine the amount of rent that it will accept for
the leased buildings based on its knowledge of the properties, the operations
that will be conducted by the Marketing Company and the general experience of
its management in acting as lessor and lessee for similar properties and
operating the types of locations that will be leased by the Marketing Company.
Management believes that the rental payments that will be paid by the Marketing
Company will be a fair rental value. Management did not engage any third party
advisors or refer to any third party surveys or analyses of rental rates in
making this determination. Substantially all the leases of both the land and the
buildings terminate in May 2002 with the option to renew, at the discretion of
the Marketing Company, for another five years. If the leases are renewed, the
monthly rent will be adjusted by the change in the consumer price index since
the leases were entered into. See also "--The Marketing Company--Properties."
Business Strategy. The REIT intends to acquire additional convenience
store, truck stop and similar types of properties, such as locations that may be
used for restaurants or other retail purposes. Properties may be acquired for
cash, debt or other consideration and through FFP Partners for FFP units. In
particular, after the restructuring is completed, the REIT intends to negotiate
with the Harvison Family concerning the acquisition by the REIT of the
properties owned by the
32
<PAGE>
Harvison Family that are now leased to and operated by FFP Partners and that
after the restructuring will be leased to the Marketing Company. We contemplate
that any such acquisition would be accomplished primarily in exchange for
additional limited partner interests in FFP Properties being issued to the
Harvison Family. However, we have no agreement or understanding with the
Harvison Family concerning the acquisition of their additional properties and
there can be no assurance that any such acquisition will occur or of the terms
on which it may be accomplished if it does occur. The determination whether and
on what terms to acquire the additional properties will be made by the
independent members of the Board of Trust Managers of the REIT. If the REIT
acquires the additional properties, they will remain subject to the existing
leases to the Marketing Company, many of which we believe provide for rental
payments that are less than what could be received for new leases under current
market conditions.
As a real estate investment trust, the REIT will not operate any of the
locations it acquires, but will lease the locations to third parties. The
Marketing Company may lease and operate additional convenience store and truck
stop properties acquired by the REIT, but the REIT may also lease these and
other types of locations to persons other than the Marketing Company. If the
Marketing Company agrees to operate additional locations on property acquired by
the REIT, the leases between the Marketing Company and the REIT will be on an
arms-length basis and will likely be similar to the leases existing between the
Marketing Company and the REIT at the time of the restructuring.
Competition. Numerous entities and individuals, many of which have greater
financial resources than will the REIT, will compete with the REIT to acquire
real estate used by convenience stores, motor fuel retailers and other retail
operations. These entities and individuals may be able to accept more risk than
the REIT is willing to undertake. Competition generally may reduce the number
of suitable investment opportunities available to the REIT and may increase the
bargaining power of property owners seeking to sell.
Employees. The REIT will initially employ two executive officers, both of
whom will hold similar positions with the Marketing Company, but will have no
other employees. The REIT will utilize employees of the Marketing Company for
administrative and other needs. The REIT will enter into a reimbursement
agreement with the Marketing Company pursuant to which the REIT will reimburse
the Marketing Company for all of its direct and indirect costs allocable to the
REIT.
Government Regulation - Environmental Regulation. As the owner and
operator of the tanks and under the leases between the REIT and the Marketing
Company, the Marketing Company will be responsible for compliance with all
environmental regulations. However, if for any reason the Marketing Company is
unable or unwilling to take all actions that may be required, the REIT may be
responsible for compliance. See "--The Marketing Company--Government
Regulation--Environmental Regulation."
33
<PAGE>
MANAGEMENT
Directors and Executive Officers
FFP Partners. As a limited partnership, FFP Partners does not and will not
have directors and officers. Instead, the directors and officers of FFP's
general partner manage all operations of FFP Partners. Upon consummation of the
restructuring, FFP's general partner will be the REIT.
The REIT. Upon consummation of the restructuring, the REIT will be managed
by members of the REIT's Board of Trust Managers initially comprised of John H.
Harvison, Robert E. Garrison, II, Joseph F. Leonardo, J.D. St. Clair, and
Randall W. Harvison. The Board will be divided into three classes as nearly
equal in number as possible, with the term of office of one class expiring in
each year. The trust managers will be responsible for electing the REIT's
executive officers, who will serve at the discretion of the REIT's Board. Set
forth below are the names, ages and positions of persons who will be trust
managers and executive officers of the REIT following consummation of the
restructuring:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- -----------------------------------------
<S> <C> <C>
John H. Harvison 63 Chairman of the Board of Trust Managers,
President and Chief Executive Officer
Steven B. Hawkins 50 Vice President-Finance and
Administration, Secretary, Treasurer and
Chief Financial Officer
Robert E. Garrison, II (1) 55 Trust Manager
Joseph F. Leonardo (1) 51 Trust Manager
J.D. St. Clair 62 Trust Manager
Randall W. Harvison 40 Trust Manager
</TABLE>
- ----------------
(1) Member of Audit Committee
The Marketing Company. Upon consummation of the restructuring, the
Marketing Company will be managed by members of the Marketing Company's Board of
Directors initially comprised of all the members of the Board of Directors of
FFP's current general partner, except Mr. Garrison. The Marketing Company's
Board of Directors will be divided into three classes as nearly equal in number
as possible, with the term of office of one class expiring in each year. The
directors will be responsible for electing the Marketing Company's executive
officers, who will serve at the discretion of the Marketing Company's Board.
After the restructuring, certain members of the current management of FFP
Partners will serve as executive officers of the Marketing Company. Set forth
below are the names, ages and positions of persons who will be directors and
executive officers of the Marketing Company following consummation of the
restructuring:
34
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John H. Harvison (1) 63 Chairman of the Board and Chief
Executive Officer
Robert J. Byrnes (1) 56 President, Chief Operating Officer and
Director
Steven B. Hawkins 50 Vice President - Finance and
Administration, Secretary, Treasurer, and
Chief Financial Officer
J. D. St. Clair 62 Vice President - Fuel Supply and
Distribution and Director
Michael Triantafellou 43 Vice President - Retail Operations and
Director
John W. Hughes (1)(2) 55 Director
Garland R. McDonald 59 Director
John D. Harvison 40 Director
E. Michael Gregory (2) 45 Director
</TABLE>
- -------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Business Experience of Directors and Executive Officers
John H. Harvison has been Chairman of the Board and Chief Executive Officer
of FFP's general partner since the commencement of FFP Partners' operations in
May 1987. Mr. Harvison is a founder and an executive officer of each of the
companies from which FFP Partners acquired its initial base of retail outlets,
and has been active in the retail gasoline business since 1958 and in the
convenience store business since 1973. In addition, he has been involved in oil
and gas exploration and production, the ownership and management of an oil
refinery and other personal investments. In January 1995, Mr. Harvison consented
to the entry of a cease and desist order by the United States Office of Thrift
Supervision that, among other things, prohibits him from participating in any
manner in the conduct of the affairs of federally insured depository
institutions. This Order was issued in connection with Mr. Harvison's ownership
in a federal savings bank and transactions between him (and companies in which
he had an ownership interest) and that institution. In consenting to the
issuance of the Order, Mr. Harvison did not admit any of the allegations against
him and consented to the issuance of the Order solely to avoid the cost and
distraction that would be caused by prolonged litigation to contest the
positions taken by the Office of Thrift Supervision. Mr. Harvison is the father
of John D. Harvison and Randall W. Harvison.
Robert J. Byrnes has been the President of FFP's general partner since
April 1989 and has been a director of FFP's general partner since May 1987.
From May 1987 to April 1989, Mr. Byrnes served as Vice President - Truck Stop
Operations for FFP Partners. Mr. Byrnes has been, since 1985, the President of
Swifty Distributors, Inc., one of the companies from which FFP Partners acquired
its initial retail outlets. From 1975 through 1984, Mr. Byrnes was President of
Independent Enterprises, Inc., which owned and operated convenience stores and a
truck stop. During that period, he was also President of Enterprise
Distributing, Inc., a wholesaler of motor fuels. Prior to 1975, Mr. Byrnes was
President of Foremost Petroleum Corporation (which is now a subsidiary of Citgo
Petroleum Corporation) and was a distribution manager for ARCO Oil & Gas
Company. He is currently a director of Plaid Pantries, Inc., an operator of
convenience stores headquartered in Beaverton, Oregon.
Steven B. Hawkins has been Vice President - Finance and Administration,
Secretary and Treasurer of FFP's general partner since May 1987. From April
1980 through December 1987, Mr. Hawkins was employed as Secretary/Treasurer,
Controller and Chief Financial Officer by various companies affiliated with
FFP's general partner. Prior to joining such affiliates, Mr. Hawkins was
employed for nine years by Arthur Andersen & Co., an international public
accounting firm. He is a member of both the American Institute of Certified
Public Accountants and the Texas Society of CPAs.
J. D. St. Clair has been Vice President - Fuel Supply and Distribution and
a director of FFP's general partner since May 1987. Mr. St. Clair is a founder
and an executive officer of several of the companies from which FFP Partners
acquired its initial retail outlets. He has been involved in the retail
gasoline marketing and convenience store business since 1971. Mr. St. Clair
performed operations research and system analysis for Bell Helicopter, Inc.,
from 1967 to 1971; for the National Aeronautics and Space Administration from
1962 to 1967; and for Western Electric Company from 1957 to 1962.
35
<PAGE>
Michael Triantafellou was elected Vice President - Retail Operations and a
director of FFP's general partner in February 1997. He had served as Director
of Truck Stops and Food Service Operations for FFP Partners since January 1994.
Mr. Triantafellou has been engaged in the truck stop and food service industries
since 1976, having held various middle and upper management positions in the
truck stop businesses of Truckstops of America (from 1975 to 1980), Bar-B
Management (from 1980 to 1985), Greyhound-Dial Corp. (from 1985 to 1993), and
Knox Oil of Texas (from 1993 to 1994). Mr. Triantafellou is a 1975 graduate of
the Wharton School of the University of Pennsylvania.
Robert E. Garrison, II has been a director of FFP's general partner since
May 1987. Mr. Garrison is a managing partner of Harris, Webb & Garrison, a
regional merchant and investment bank, and is also Chairman and Chief Executive
Officer of Pinnacle Management & Trust Co., a state chartered independent trust
company. From October 1992 through February 1994, Mr. Garrison was Chairman of
Healthcare Capital Group, Inc., a regional investment bank focusing on the
health care industry. From April 1991 through October 1992, Mr. Garrison was
Chairman and Chief Executive Officer of Med Center Bank & Trust, one of the
leading independent banks in Houston, Texas. Mr. Garrison served as President
of Iroquois Brands, Ltd. ("IBL"), a manufacturer of material handling and
construction equipment, pharmaceutical and personal care products, and operator
of convenience stores and retail fuel outlets in the United Kingdom from 1989
until September 1990. From 1982 through March 1989, Mr. Garrison served as
Executive Vice President and director of Lovett Mitchell Webb & Garrison, Inc.
("LMW&G"), one of the representatives of the underwriters in the initial public
offering of FFP Partners in May 1987, where he managed the Investment Research
and Investment Banking Division, and Boettcher & Company, Inc., which acquired
LMW&G in September 1987. From 1971 to 1982, Mr. Garrison was First Vice
President and Director of Institutional Research at Underwood Neuhaus & Co.
From 1969 to 1971, Mr. Garrison was Vice President of BDSI, a venture capital
subsidiary of General Electric.
John W. Hughes has been a director of FFP's general partner since May 1987.
Mr. Hughes is an attorney with the law firm of Garrison & Hughes, L.L.P., in
Fort Worth, Texas. From 1991 to 1995 he was an attorney with the firm of Simon,
Anisman, Doby & Wilson, P.C., in Fort Worth, Texas. Since 1963, Mr. Hughes has
been a partner of Hughes Enterprises, which invests in venture capital
opportunities, real estate, and oil and gas.
Garland R. McDonald is employed by FFP Partners to oversee and direct a
variety of special projects. He was elected to the Board of FFP's general
partner in January 1990. He had previously served as a director of FFP's
general partner from May 1987 through May 1989 and served as a Vice President of
FFP's general partner from May 1987 to October 1987. Mr. McDonald is a founder
and the Chief Executive Officer of Hi-Lo Distributors, Inc. and Gas-Go, Inc.,
two of the companies from which FFP Partners initially acquired its retail
outlets. He has been actively involved in the convenience store and retail
gasoline businesses since 1967.
John D. Harvison was elected a director of FFP's general partner in April
1995. Mr. Harvison has been Vice President of Dynamic Production, Inc.
("Dynamic"), an independent oil and gas exploration and production company,
since 1977. He previously served as Operations Manager for Dynamic from 1977 to
1987. He also serves as an officer of various other companies that are
affiliated with Dynamic that are involved in real estate and various other
investment activities. Mr. Harvison is the son of John H. Harvison and the
brother of Randall W. Harvison.
E. Michael Gregory was elected to the Board of FFP's general partner in
September 1995. Mr. Gregory is the founder and President of Gregory Consulting,
Inc., an engineering and consulting firm involved in the development of products
related to the distribution and storage of petroleum products and computer
software for a variety of purposes including work on such products and software
for FFP Partners. Prior to founding Gregory Consulting, Inc., in 1988, Mr.
Gregory was the Chief Electronic Engineer for Tidel Systems (a division of The
Southland Corporation) where he was responsible for new product concept
development and was involved in projects involving the monitoring of fuel levels
in underground storage tanks. He is a Registered Professional Engineer in
Texas.
Joseph F. Leonardo was elected to the Board of Trust Managers of the REIT
in October 1997. Since August 1992, Mr. Leonardo has been President and Chief
Executive Officer of Leonardo Management Corporation, which provides strategic
planning, market positioning, and other sales and marketing consulting. Mr.
Leonardo also operates Convenience Directions which publishes Info Marketing, a
convenience store industry newsletter. Prior to forming Leonardo Management,
Mr. Leonardo served in various executive positions with several convenience
store operators.
Randall W. Harvison is an attorney and has been engaged in a solo practice
in Fort Worth, Texas, since 1994. Since 1987, Mr. Harvison has also been an
employee of a subsidiary of FFP Partners and of various companies controlled
36
<PAGE>
by the Harvison Family that are engaged in real estate investment and management
and other investment activities. Randall W. Harvison is the son of John H.
Harvison and the brother of John D. Harvison.
Executive Compensation
The REIT and the Marketing Company will not begin paying any cash
compensation to their executive officers and directors until the consummation of
the restructuring, which is expected to be on or about December 28, 1997.
Management anticipates that the compensation to be paid by the REIT to its trust
managers and by the Marketing Company to its executive officers and directors
will be commensurate with that paid by FFP Partners, which is described below.
Executive officers of the REIT who are also executive officers of the Marketing
Company will receive a salary from the Marketing Company and not from the REIT.
The REIT and the Marketing Company intend to enter into a reimbursement
agreement pursuant to which the REIT will reimburse the Marketing Company for
all of its direct and indirect costs (principally officers' compensation and
other general and administrative costs) allocable to the REIT. The
reimbursement for officers' compensation costs incurred by the Marketing Company
in connection with the REIT's activities will be determined by the amount of
time management and other personnel spend conducting the activities of the REIT
compared to the amount of time they spend conducting the activities of the
Marketing Company. Since the REIT's only activity after the restructuring will
be serving as the general partner of FFP Partners, all of the REIT's costs and
expenses will be borne by FFP Partners. We estimate that the costs to be
reimbursed to the Marketing Company by FFP Partners under the reimbursement
agreement would be approximately $200,000 for fiscal year 1998.
Each director who is not an officer or employee of FFP's general partner or
FFP Partners receives an annual retainer of $4,000 plus $1,000 for each board
meeting, or committee meeting not held in conjunction with a board meeting,
which he attends and $500 for each telephone meeting in which he participates.
Each director is also reimbursed for expenses related to attendance at board
meetings. The REIT and the Marketing Company intend to follow this practice.
In addition, upon their election to the Board, non-employee directors are
generally granted options to acquire 25,000 Class A Units at the fair market
value of the underlying units on the date of grant. The options become
exercisable with respect to one-third of the units covered thereby on each of
the anniversary dates following the grant and expire ten years after the date of
the grant. In the event of a change in control of FFP Partners, any
unexercisable portion of the options will become immediately exercisable. Upon
exercise, the option price may be paid, in whole or in part, in Class A Units
owned by the director. It has not yet been determined whether non-employee
directors of the REIT and the Marketing Company will be granted options on a
similar basis.
Directors who are officers or employees of FFP's general partner or FFP
Partners receive no additional compensation for attendance at board or committee
meetings. The REIT and the Marketing Company intend to follow this practice.
FFP's general partner has employment agreements with Messrs. Harvison,
Byrnes, Hawkins and St. Clair which provide that if the employment of any such
officer is terminated for any reason other than the commission of an act of
fraud or dishonesty with respect to FFP Partners or for the intentional neglect
or nonperformance of his duties, such officer is to receive an amount equal to
twice his then current annual salary plus a continuation of certain benefits
provided by FFP Partners for a period of two years. Any cost incurred under
these agreements is to be borne by FFP Partners. The Marketing Company intends
to enter into substantially similar employment agreements with these individuals
after the restructuring.
The following table provides information regarding compensation paid during
each of FFP Partners' last three fiscal years to FFP Partners' Chief Executive
Officer and to each of FFP Partners' other executive officers who earned salary
and bonus of more than $100,000 in the latest fiscal year:
37
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-----------------------
Other Annual
Name and Salary Compensation
Principal Position Year ($) ($)
------------------ ---- -------- -------------
<S> <C> <C> <C>
John H. Harvison 1996 137,597(1) -
Chairman and Chief Executive Officer 1995 135,000 -
1994 135,000 -
Robert J. Byrnes 1996 137,597(1) -
President, Chief Operating Officer and 1995 135,000 -
Director 1994 135,000 -
Avry Davidovich (2) 1996 127,404(1) -
Executive Vice President - Convenience 1995 125,000 -
Stores and Director 1994 125,000 -
</TABLE>
- ----------------
(1) The annual salaries did not change from 1995 to 1996. FFP Partners pays its
employees on a weekly basis and there were 53 pay periods in 1996 versus 52
pay periods in 1995.
(2) Mr. Davidovich resigned as an officer and director in February 1997.
There were no long-term compensation awards or payouts during any of the last
three years.
Class A Unit Options Exercised during Fiscal 1996 and Fiscal Year End Option
Values. The following table provides information about options exercised during
FFP Partners' last fiscal year and the value of unexercised options held at the
end of the fiscal year by the named executive officers:
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Units Unexercised In-the-Money
Acquired Options/SARs Options/SARs
on Value at 1996 Fiscal at 1996 Fiscal
Name and Exercise Realized Year End Year End
Principal Position (#) ($) (#) ($) (1)
------------------ -------- -------- -------------- --------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
<S> <C> <C> <C> <C>
John H. Harvison
Chairman and Chief Executive
Officer - 0 - - 0 - 40,000/0 $ 65,000/$0
Robert J. Byrnes
President, Chief Operating Officer
and Director -0- -0- 35,000/0 $ 56,875/$0
Avry Davidovich (2)
Executive Vice President -
Convenience Stores and Director -0- -0- 0/0 $ 0/$0
</TABLE>
- ----------------------
(1) The closing price for FFP Partners' Class A Units as reported by the
American Stock Exchange on December 29, 1996, was $5.375. The value shown
is calculated by multiplying the difference between this closing price and
the option exercise price times the number of units underlying the option.
(2) Mr. Davidovich resigned as an officer and director in February 1997.
38
<PAGE>
Upon completion of the restructuring, existing options will be divided into
separate options to purchase FFP units and Marketing Company shares. Each
current option to purchase one FFP unit will be separated into an option to
purchase one FFP unit and an option to purchase one Marketing Company share.
The exercise price of the existing FFP unit option will also be divided between
the two new options in proportion to the average of the closing market price of
the FFP units and the Marketing Company shares during the first month of trading
after completion of the restructuring.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table and the notes thereto set forth certain information
regarding the beneficial ownership of FFP units as of the Record Date, by (i)
each current director of FFP's general partner; (ii) each officer of FFP's
general partner who received at least $100,000 in salary and bonus in fiscal
1996; (iii) all present executive officers and directors of FFP's general
partner as a group and (iv) each other person known to FFP Partners to own
beneficially more than five percent of the presently outstanding FFP units; and
the number of FFP units and Marketing Company shares that will be held
immediately after the restructuring by (i) each of the foregoing persons; (ii)
each director or trust manager of the REIT and the Marketing Company; (iii) each
officer of the REIT and the Marketing Company who is expected to receive at
least $100,000 in salary and bonus in fiscal 1998; (iv) all executive officers
and directors or trust managers of the REIT and the Marketing Company as a group
and (v) each other person known to FFP Partners, the REIT or the Marketing
Company who will own beneficially more than five percent of the FFP units or the
Marketing Shares based on their ownership on the Record Date.
39
<PAGE>
<TABLE>
<CAPTION>
Before the Restructuring After the Restructuring
--------------------------------------- -----------------------
Name and Address Number of FFP
of Beneficial Units Owned Percent Owned Number of FFP Units
Owner(1) Beneficially Beneficially(2) Owned Beneficially
-------- ------------ ---------------- ------------------
<S> <C> <C> <C> <C> <C>
John H. Harvison 1,509,943 (3) 40.3% 40,000 (16)
Robert J. Byrnes 51,833 (4) 1.4% 35,000 (16)
Steven B. Hawkins 26,300 (5) * 26,300 (5)
J.D. St. Clair 118,417 (6) 3.2% 35,000 (17)
Michael Triantafellou 6,666 (7) * 6,666 (7)
Robert E. Garrison, II 86,805 (8) 2.3% 86,805 (8)
John W. Hughes 0 * 0
Garland R. McDonald 219,167 (9) 5.9% 25,000 (16)
John D. Harvison 1,468,610 (10) 40.0% 16,667 (16)
E. Michael Gregory 16,667 (11) * 16,667 (11)
Joseph F. Leonardo 0 * 0
Randall W. Harvison 1,451,943 (12) ___ 0 (16)
Edmund & Mary Shea
Real Property Trust 126,700 3.4% 126,700
7HBF, Ltd 699,333 (13) 18.9% 0
HBF Financial, Ltd. 738,443 (14) 19.9% 0
All directors and executive officers,
as a group, of --
FFP's general partner 1,664,943 (15) 42.7% 153,105
(10 persons before and
6 persons after the
restructuring)
The Marketing Company
(9 persons after the restructuring)
<CAPTION>
After the Restructuring
-----------------------------------------------------------
Number of
Name and Address Marketing Co.
of Beneficial Percent Owned Shares Owned Percent Owned
Owner(1) Beneficially(2) Beneficially Beneficially(2)
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
John H. Harvison 1.8% 1,552,986 (3) 40.7%
Robert J. Byrnes 1.6% 51,833 (4) 1.4%
Steven B. Hawkins 1.2% 26,300 (5) *
J.D. St. Clair 1.6% 118,417 (6) 3.1%
Michael Triantafellou * 6,666 (7) *
Robert E. Garrison, II 3.9% 86,805 (8) 2.3%
John W. Hughes * 0 *
Garland R. McDonald 1.1% 219,167 (9) 5.8%
John D. Harvison * 1,529,653 (10) 40.3%
E. Michael Gregory * 16,667 (11) *
Joseph F. Leonardo * 0 *
Randall W. Harvison * ___ (12) ___
Edmund & Mary Shea
Real Property Trust 5.7% 126,700 3.4%
7HBF, Ltd * 736,749 (13) 19.5%
HBF Financial, Ltd. * 738,443 (14) 19.5%
All directors and executive officers,
as a group, of --
FFP's general partner 6.9%
(10 persons before and
6 persons after the
restructuring)
The Marketing Company __________ (15) _____%
(9 persons after the restructuring)
- --------------------
</TABLE>
40
<PAGE>
* less than one percent
(1) All of the directors and officers of FFP's general partner and principal
unitholders of FFP Partners may be contacted at FFP Partners' offices,
2801 Glenda Avenue, Fort Worth, Texas 76117-4391.
(2) Based on 3,704,205 issued and outstanding FFP units at the Record Date,
2,234,262 FFP units outstanding after the restructuring and 3,779,415
Marketing Company shares outstanding after the restructuring. FFP units
and Marketing Company shares that an individual has the right to acquire
within 60 days pursuant to the exercise of options are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person or group shown in
the table. Class A Units and Class B Units have been combined for purposes
of calculating the percent beneficially owned because each class has
identical voting and economic rights.
(3) Includes options to acquire 40,000 Class A Units and 40,000 Marketing
Company shares. Also includes 524,333 Class A Units, 175,000 Class B Units
and 699,333 Marketing Company shares beneficially owned by 7HBF, Ltd. (a
Texas limited partnership of which John H. Harvison and members of his
family are partners); 738,443 Class A Units and 738,443 Marketing Company
shares beneficially owned by HBF Financial, Ltd. (a Texas limited
liability company which is 98%-owned by trusts for the benefit of the
children of John H. Harvison); and 32,167 Class A Units and 75,210
Marketing Company shares owned by a company of which John H. Harvison is
an officer and director and one-third of which is owned by trusts for the
benefit of his children. 7HBF, Ltd., may be deemed to share beneficial
ownership of 144,417 Units and 144,417 Marketing Company shares with
Garland R. McDonald, 49,750 Units and 49,750 Marketing Company shares with
Garland R. McDonald and Barbara J. Smith (John H. Harvison's sister),
83,417 Units and 83,417 Marketing Company shares with J. D. St. Clair, and
16,833 Units and 16,833 Marketing Company shares with Robert J. Byrnes.
The beneficial ownership of the 175,000 Class B Units is in dispute based
on the prior ownership of Economy Oil Company, the record holder of the
units. The dispute is being resolved in the State District Court of
Texas.
(4) Includes options to acquire 35,000 Class A Units and 35,000 Marketing
Company shares; also includes 16,833 Class A Units and 16,833 Marketing
Company shares held by a company of which Mr. Byrnes is a director,
executive officer, and 50% owner. Mr. Byrnes may be deemed to share
beneficial ownership of the 16,833 Class A Units and 16833 Marketing
Company shares with 7HBF Financial, Ltd.
(5) Includes options to acquire 25,000 Class A Units and 25,000 Marketing
Company shares and 1,300 Class A Units and 25,000 Marketing Company shares
held by an Individual Retirement Account for the benefit of Mr. Hawkins.
(6) Includes options to acquire 30,000 Class A Units and 30,000 Marketing
Company shares and 5,000 Class A Units and 5,000 Marketing Company shares
held directly; also includes 83,417 Class A Units and 83,417 Marketing
Company shares held by a company of which Mr. St. Clair is a director,
executive officer, and a one-third owner. Mr. St. Clair may be deemed to
share beneficial ownership of the 83,417 Class A Units and 83,417
Marketing Company shares with 7HBF Financial, Ltd.
(7) Includes options to acquire 6,666 Class A Units and 6,666 Marketing
Company shares.
(8) Includes 79,751 Class A Units and 79,751 Marketing Company shares held
directly and 7,054 Class A Units and 7,054 Marketing Company shares held
by an Individual Retirement Account for the benefit of Mr. Garrison.
(9) Includes options to acquire 25,000 Class A Units and 25,000 Marketing
Company shares; also includes 194,167 Class A Units and 194,167 Marketing
Company shares held by two companies of which Mr. McDonald is a director,
executive officer, and a 50% owner. Mr. McDonald may be deemed to share
beneficial ownership of 144,417 Class A Units and 144,417 Marketing
Company shares with 7HBF, Ltd., and of 49,750 Units and 49,750 Marketing
Company shares with 7HBF, Ltd., and Barbara J. Smith.
(10) Includes options to acquire 16,667 Class A Units and 16,667 Marketing
Company shares; also includes 524,333 Class A Units, 175,000 Class B Units
and 699,333 Marketing Company shares beneficially owned by 7HBF, Ltd. (a
Texas limited partnership of which John D. Harvison and members of his
family are partners); and 738,443 Class A Units and 738,443 Marketing
Company shares beneficially owned by HBF Financial, Ltd. (a Texas limited
liability company which is 98%-owned by trusts for the benefit of the
siblings of John D. Harvison); and 32,167 Class A Units and 75,210
Marketing Company shares owned by a company one-third of which is owned by
trusts for the benefit of John D. Harvison and his siblings. 7HBF, Ltd.,
may be deemed to share beneficial ownership of 144,417 Units and 144,417
Marketing Company shares with Garland R. McDonald, 49,750 Units and 49,750
Marketing Company shares with Garland R. McDonald and Barbara J. Smith
(John H. Harvison's sister), 83,417 Units and 83,417 Marketing Company
shares with J. D. St. Clair, and 16,833 Units and 16,833 Marketing Company
shares with Robert J. Byrnes. The beneficial ownership of the 175,000
Class B Units is in dispute based on the prior ownership of Economy Oil
Company, the record holder of the units. The dispute is being resolved in
the State District Court of Texas.
(11) Includes options to acquire 16,667 Class A Units and 16,667 Marketing
Company shares.
(12) Includes 524,333 Class A Units, 175,000 Class B Units and 699,333
Marketing Company shares beneficially owned by 7HBF, Ltd. (a Texas limited
partnership of which Randall W. Harvison and members of his family are
partners); and 738,443 Class A Units and 738,443 Marketing Company shares
beneficially owned by HBF Financial, Ltd. (a Texas limited liability
company which is 98%-owned by trusts for the benefit of the siblings of
Randall W. Harvison); and 32,167 Class A Units and 75,210 Marketing
Company shares owned by a company one-third of which is owned by trusts
for the benefit of Randall W. Harvison and his siblings. 7HBF, Ltd., may
be deemed to share beneficial ownership of 144,417 Units and 144,417
Marketing Company shares with Garland R. McDonald, 49,750 Units and 49,750
Marketing Company shares with Garland R. McDonald and Barbara J. Smith
(John D. Harvison's sister), 83,417 Units and 83,417 Marketing Company
shares with J.D. St. Clair, and 16,833 Units and 16,833 Marketing Company
shares with Robert J. Byrnes. The beneficial ownership of the 175,000
Class B Units is in dispute based on the prior ownership of Economy Oil
Company, the record holder of the units. The dispute is being resolved in
the State District Court of Texas.
(13) Includes 524,333 Class A Units, 175,000 Class B Units and 699,333
Marketing Company shares owned by eight companies which are owned or
controlled by 7HBF, Ltd., a limited partnership owned by John H. Harvison
and members of his immediate family. 7HBF, Ltd., may be deemed to share
beneficial ownership of 144,417 Units and 144,417 Marketing Company shares
with Garland R. McDonald, 49,750 Units and 49,750 Marketing Company
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shares with Garland R. McDonald and Barbara J. Smith (John H. Harvison's
sister), 83,417 Units and 83,417 Marketing Company shares with J.D. St.
Clair, and 16,833 Units and 16,833 Marketing Company shares with Robert J.
Byrnes.
(14) Includes 738,443 Class A Units and 738,443 Marketing Company shares owned
by a company which is owned by HBF Financial, Ltd., a limited liability
company 98% owned by trusts for the benefit of the children of John H.
Harvison and 2% owned by one of his sisters. In addition, HBF Financial,
Ltd., owns 31% of the general partner of 7HBF, Ltd.
(15) Includes the Units and Marketing Company shares discussed in notes 12 and
13.
(16) Consists of options to acquire Class A Units of FFP Partners, L.P., or
shares of Common Stock of the Marketing Company, as appropriate.
(17) Consists of 5,000 Class A Units held directly and options to acquire
30,000 Class A Units.
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CONFLICTS OF INTEREST
General
The restructuring and the recommendation by FFP's general partner to
approve the restructuring, as well as the planned operations of FFP Partners,
the REIT and the Marketing Company after the restructuring, involve potential
conflicts of interest. The duties of the FFP Partners' current general partner,
a Delaware corporation, the Board of Trust Managers of the REIT, a Texas real
estate investment trust, and the Board of Directors of the Marketing Company, a
Texas company, are determined by the law of the state where each of them is
organized. See "Summary Comparison of FFP Units, REIT Shares and Marketing
Company Shares." Under the law of each of these states, in resolving these
conflicts of interest, the general partner and the Board of Directors of the
Marketing Company must act in accordance with their fiduciary duties to the FFP
unitholders, the holders of REIT shares and the holders of Marketing Company
shares, which are described in "Summary Comparison of FFP Units, REIT Shares and
Marketing Company Shares--Fiduciary Duties." In resolving specific conflicts of
interest, the Board of Directors of the Marketing Company and the Board of Trust
Managers of the REIT intend generally to obtain a vote of disinterested
directors or trust managers. However, other methods of resolving the conflicts
may also be used from time to time depending on the circumstances. We cannot
predict whether or when any such alternative methods of resolving conflicts will
be used, or whether any such conflicts will be resolved in a manner favorable to
the FFP unitholders or shareholders of the Marketing Company.
The REIT and the Marketing Company intend to enter into a reimbursement
agreement pursuant to which the REIT will reimburse the Marketing Company for
all of its direct and indirect costs (principally officers' compensation and
other general and administrative costs) allocable to the REIT. The reimbursement
for officers' compensation costs incurred by the Marketing Company in connection
with the REIT's activities will be determined by the amount of time management
and other personnel spend conducting the activities of the REIT compared to the
amount of time they spend conducting the activities of the Marketing Company.
Since the REIT's only activity after the restructuring will be serving as the
general partner of FFP Partners, all of the REIT's costs and expenses will be
borne by FFP Partners.
Under employment agreements with Messrs. Harvison, Byrnes, Hawkins and St.
Clair, if the employment of the officer is terminated for any reason other than
the commission of an act of fraud or dishonesty with respect to FFP Partners or
for the intentional neglect or nonperformance of his duties, the officer is to
receive an amount equal to twice his then current annual salary plus a
continuation of certain benefits provided by FFP Partners for a period of two
years. After the restructuring, FFP Partners will terminate the agreements with
Messrs. Byrnes and St. Clair and will modify the agreements with Messrs.
Harvison and Hawkins to provide that their severance payments will be based on
the amount of their compensation allocated to FFP Partners or the REIT. The
Marketing Company will then enter into substantially similar employment
agreements with all four individuals, which for Messrs. Harvison and Hawkins
will provide that their severance payments for the Marketing Company will be
based on the amount of their compensation allocated to the Marketing Company.
The Restructuring
FFP's general partner will receive no cash or other property in connection
with the restructuring other than the distribution of 1% of the Operating
Partnership's real property, which it will contribute to FFP Properties in
exchange for interests in FFP Properties, 75,210 REIT shares which it will
receive in exchange for its 1% general partner interest in FFP Partners and
certain subsidiary partnerships of FFP Partners and 2% of the Marketing Company
shares, which it will receive for its 1% general partner interest in FFP
Partners and its 1% interest in certain of FFP Partners' current operating
subsidiaries. In the restructuring, the Harvison Family will exchange the FFP
units it owns for economically equivalent limited partner interests in FFP
Properties. The limited partner interests in FFP Properties that the Harvison
Family will receive in the restructuring will not provide that they are
redeemable for REIT shares or cash after the conversion, unlike the FFP units
which generally will be redeemable.
To avoid potential conflicts of interest arising because of the Harvison
Family's control of FFP's general partner, the decision to recommend the
restructuring was approved by the members of the Board of Directors of FFP's
general partner who are not otherwise affiliated with FFP Partners and are not
members of the Harvison Family.
Operations of FFP Partners, the REIT and the Marketing Company
We lease and the Marketing Company will lease land or land and buildings
for some of its retail outlets and some administrative and executive office
facilities from various entities directly or indirectly owned by the Harvison
Family and Messrs. Byrnes, St. Clair, and McDonald. During fiscal 1996, FFP
Partners paid $847,000 to such entities with respect to
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these leases. We believe the leases with these affiliates are on terms that are
more favorable to FFP Partners than terms that could have been obtained from
unaffiliated third parties for similar properties.
The rental payments to be paid by the Marketing Company to FFP Properties
upon consummation of the restructuring have been established based on what we
believe the fair market value of the properties to be. We have not obtained an
independent appraisal of the properties.
Determinations are made by FFP's general partner with respect to costs
incurred by FFP's general partner (whether directly or indirectly through its
affiliates) that will be reimbursed by FFP Partners. FFP Partners reimburses
FFP's general partner and any of its affiliates for direct and indirect general
and administrative costs, principally officers' compensation and associated
expenses, related to the business of FFP Partners. The reimbursement is based
on the time devoted by employees to FFP Partners' business or upon such other
reasonable basis as may be determined by FFP's general partner. In fiscal 1996,
FFP Partners reimbursed FFP's general partner and its affiliates $745,000 for
such expenses.
As described in "Management," employees of the Marketing Company initially
will conduct all operations of FFP Partners and the REIT under the management
and supervision of the Board of Trust Managers of the REIT, pursuant to a
management agreement between the Marketing Company, the REIT and FFP Partners.
The Marketing Company is not prohibited from engaging in any business or
arrangement that may be in competition with FFP Partners or the REIT or from
acquiring or holding real property interests of any kind, including real
property interests of the same type to be held by FFP Partners. The Marketing
Company has no current plans to acquire real property interests, however, and
the Board of Directors of FFP's general partner does not anticipate that this
will have an adverse effect on FFP Partners' operations. Similarly, the Board
of Directors of FFP's general partner does not anticipate that there will be any
effect on the employees' loyalty and care in connection with the day-to-day
operations of the Marketing Company.
Certain Other Relationships and Transactions
John H. Harvison, Chairman of FFP's general partner, owns 50% of Product
Supply Services, Inc. ("Product Supply"), which provides consulting services and
acts as an agent for FFP Partners in connection with the procurement of motor
fuel for sale by FFP Partners. Product Supply provides such services to FFP
Partners pursuant to an agreement providing that FFP Partners will pay Product
Supply $5,000 per month, supply it with office space and support services, such
as telephone and clerical assistance, and pay its reasonable out-of-pocket costs
in providing such services. The agreement may be canceled either by FFP
Partners or Product Supply upon sixty days' written notice. During fiscal year
1996, FFP Partners paid $68,000 to Product Supply under this agreement.
E. Michael Gregory, a Director of FFP's general partner, is the owner and
president of Gregory Consulting, Inc., which provides engineering, consulting,
and other similar services to FFP Partners. During fiscal year 1996, FFP
Partners paid Gregory Consulting, Inc. $246,000 for such services.
Under Texas law, FFP Partners is not permitted to hold licenses to sell
alcoholic beverages in Texas. Consequently, FFP Partners has entered into
agreements with Nu-Way Beverage Company ("Nu-Way Beverage"), a company wholly
owned by John H. Harvison, under which Nu-Way Beverage sells alcoholic beverages
at FFP Partners' Texas outlets. Under this agreement, FFP Partners receives
rent and a management fee relative to the sale of alcoholic beverages and it
loans funds to Nu-Way Beverage to pay for alcoholic beverage purchases. FFP
Partners receives interest on such funds at 1/2% above the prime rate charged
by a major commercial bank and the loan is secured by the alcoholic beverage
inventory located in FFP Partners' Texas outlets. During 1996, the highest
balance due under this loan was $433,000 and the balance at the end of the year
was $420,000. During 1996, Nu-Way Beverage sold $8,240,000 of alcoholic
beverages at FFP Partners' Texas outlets. After deducting cost of sales and
other expenses related to these sales, including $1,265,000 of rent, management
fees, and interest paid to FFP Partners, Nu-Way Beverage had earnings of $82,000
from sales of alcoholic beverages at FFP Partners' outlets.
In June 1994, FFP Partners concluded the settlement of a lawsuit which it
had filed against Nu-Way Oil Company and Nu-Way Distributing Company (the "Nu-
Way Companies"), both of which are now controlled by the Harvison Family, and a
related suit which the Nu-Way Companies had filed against FFP Partners. In the
initial public offering of FFP Partners' units, FFP Partners acquired certain
convenience store and related businesses of the Nu-Way Companies. After the
offering, in order to maintain necessary relationships with a supplier, FFP
Partners paid certain obligations of the Nu-Way Companies to that supplier
relating to the businesses acquired by FFP Partners, and withheld distributions
attributable to the Nu-Way Companies' interest in FFP Partners. At that time the
Nu-Way Companies were owned jointly by the Harvison Family and a third party and
the third party controlled the operations of the Nu-Way Companies. FFP Partners
filed its suit to seek recovery under the terms of an indemnity agreement
executed by the companies from which it had
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acquired the businesses, of the amounts it had paid to the supplier and for
legal fees it had expended in connection with a lawsuit filed by an unrelated
third party against another company from which FFP Partners had acquired its
convenience store businesses, which company's ownership was the same as that of
the Nu-Way Companies. The Nu-Way Companies then filed suit claiming damages for
the withholding of distributions.
FFP Partners' claim approximated $1,000,000, plus interest. Under the
settlement, all claims in both of the lawsuits were dismissed and FFP Partners
received cash, a promissory note from Nu-Way Oil Company (secured by first and
second liens on real estate), and title to a convenience store which was being
leased by FFP Partners from Nu-Way Oil Company. FFP Partners estimated the
assets it received had an aggregate value of $485,000. Nu-Way Oil Company
received approximately $65,000 in cash held in the registry of the court as a
result of the distributions on the units owned by the Nu-Way Companies and
30,000 Class B FFP units owned by Nu-Way Oil Company that were being held by an
escrow agent. This agreement was approved by the disinterested directors of
FFP's general partner. The note which FFP Partners received in connection with
this settlement is to be repaid over five years, with interest at 9.5%; the
highest balance outstanding during 1996 under the note was $89,000, and the
balance outstanding at year end 1996 was $69,000.
In 1980 and 1982, certain affiliated companies of FFP Partners granted to
E-Z Serve, Inc. ("E-Z Serve"), the right to sell motor fuel at retail for a
period of ten years at self-serve gasoline stations owned or leased by the
affiliated companies or their affiliates. All rights to commissions under these
agreements and the right to sell motor fuel at wholesale to E-Z Serve at such
locations were assigned to FFP Partners on May 21, 1987, in connection with the
acquisition of its initial base of retail operations. In December 1990, in
connection with the expiration or termination of the agreements with E-Z Serve,
FFP Partners entered into agreements with Thrift Financial Co., a company owned
and controlled by the Harvison Family, which grant to FFP Partners the exclusive
right to sell motor fuel at certain retail locations. The terms of these
agreements are comparable to agreements that FFP Partners has with other
unrelated parties. During fiscal 1996, FFP Partners paid Thrift Financial Co.
$276,000 under these agreements.
DESCRIPTION OF SECURITIES
FFP Partners
The summary of the terms of FFP Partners' limited partner interests set
forth below does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the FFP Amended Partnership Agreement, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Proxy Statement constitutes a part, and the Delaware RULPA. See "Additional
Information." You should also review "Summary Comparison of FFP Units, REIT
Shares and Marketing Company Shares."
FFP Units. The FFP units represent limited partnership interests in FFP
Partners. There is no limitation on the total number of limited partnership
interests that may be issued by FFP Partners. Immediately upon completion of the
restructuring, 2,234,262 FFP units will be issued and outstanding. Holders of
FFP units are entitled to participate in such distributions of partnership funds
as may be properly made from time to time in the sole discretion of FFP's
general partner and, in the event of any liquidation or winding up of FFP
Partners, to receive any assets of FFP Partners remaining after satisfaction of
FFP Partners' liabilities and capital account requirements. Except to the
extent a limited partner takes part in the control of the business of FFP
Partners, the FFP units are fully paid and FFP unitholders will not be required
to make additional contributions to FFP Partners.
The percentage interest in FFP Partners ("Percentage Interest") represented
by an FFP unit is equal to the ratio that it bears at the time of such
determination of the total number of FFP units outstanding, multiplied by 99%,
which is the aggregate Percentage Interest represented by all of the FFP units.
Each FFP unit evidences entitlement to participate in a percentage of FFP
Partners' income, gains, losses, deductions, credits, and distributions
generally equal to the Percentage Interest represented thereby. The Percentage
Interest evidenced by each FFP unit will be subject to dilution in the event
that FFP Partners issues more FFP units or issues other securities ranking
senior or junior to the FFP units. In this regard, FFP's general partner has
the authority under the FFP Amended Partnership Agreement to cause FFP Partners
to issue additional FFP units or classes or series of limited partners' interest
that may rank senior to the FFP units as to distributions, allocations of profit
and loss, liquidation, and voting rights. FFP Partners may not issue additional
limited partner interests to the general partner, however, unless (i) (a) the
additional limited partner interests are issued in connection with an issuance
of REIT shares or other interests in the REIT that have substantially the same
economic rights as the additional limited partnership interests and (b) the
general partner makes a capital contribution to FFP Partners equal to the amount
the REIT receives from the sale of the REIT shares or other interests in the
REIT; or (ii) the additional limited partner interests are issued to all
partners of FFP Partners in proportion to their respective Percentage Interests.
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The authority of the general partner is limited in certain respects. The
general partner is prohibited, without the prior approval of holders of more
than 50% of the total Percentage Interest in FFP Partners, from, among other
things, selling or exchanging all or substantially all of FFP Partners' assets
in a single transaction, a series of related transactions, or causing FFP
Partners to merge with or into another entity. Generally, any amendment to a
provision of FFP's Amended Partnership Agreement that would adversely affect the
interests of the FFP unitholders in any material respect will require the
approval of the holders of at least 50% of the total Percentage Interest in FFP
Partners.
Unitholders will have only limited voting rights on matters affecting FFP
Partners' business. Matters that require the prior approval of a majority of the
total Percentage Interest in FFP Partners include a sale or exchange of all or
substantially all of FFP Partners' assets, a plan of liquidation, a merger of
FFP Partners, and most amendments to the FFP Amended Partnership Agreement other
than amendments that would not adversely affect the interests of FFP unitholders
in any material respect. Approval of such matters may be proposed solely by, or
otherwise require the consent of, FFP's general partner. The Class A and Class
B units have equal voting rights and will vote as a single class on all matters
voted upon by the limited partners.
FFP unitholders will have no right to elect FFP's general partner on an
annual or other ongoing basis. If FFP's general partner resigns or is removed,
however, its successor may be elected by a majority of the total Percentage
Interests in FFP Partners. In addition, the FFP unitholders have no rights to
elect the Board of Directors of FFP's general partner.
FFP Rights Units. In August 1989, FFP Partners entered into a Rights
Agreement and distributed to the FFP unitholders rights to purchase FFP rights
units (substantially equivalent to a Class A unit) under certain circumstances.
Due to the announcement in August 1994 by a group of FFP unitholders that held
approximately 25% of the then outstanding Class A units that they would vote
their FFP units together as a block, the rights became exercisable in October
1994, and certificates evidencing the rights were distributed to the FFP
unitholders.
The rights currently represent the right to purchase an FFP rights unit
(which is substantially equivalent to a Class A unit) of FFP Partners at a price
of $20.00 per unit. However, the Rights Agreement provides, among other things,
that if any person acquires 30% or more of the Class A units or of all classes
of outstanding FFP units then each holder of a right, other than an acquiring
person, will have the right to receive, upon exercise, FFP rights units (or in
certain circumstances, other property) having a value of $40.00 per unit. The
rights will expire on August 13, 1999, and do not have any voting rights or
rights to cash distributions.
Exchange Rights. After the date of the conversion under the exchange
alternative, each limited partner will have the right to require the REIT to
acquire all or a portion of the FFP units held by such limited partner in
exchange for, in the REIT's discretion, either cash at their current market
value or REIT shares based on the exchange ratio provided in the FFP Amended
Partnership Agreement, which initially will be one FFP unit for one REIT share.
The exchange ratio will be subject to adjustment, however, upon the occurrence
of certain events such as the declaration of a dividend by the REIT in REIT
shares, the subdivision of the outstanding REIT shares or the combination of
outstanding REIT shares into a smaller number of shares. The exchange may only
be effected with respect to a minimum of 100 FFP units or, if the holder holds
fewer than 100 FFP units, all such FFP units. The FFP Amended Partnership
Agreement will permit such exchange to occur at any time. However, the exchange
right may not be exercised if issuing the REIT shares in the exchange would be
prohibited under the REIT's Declaration of Trust.
Restrictions on Transfer. For FFP Partners to maintain its partnership
status for federal income tax purposes after the restructuring, the FFP Amended
Partnership Agreement will provide that no unitholder (with certain limited
exceptions) may own, directly or indirectly, in excess of 4.9% of the units of
FFP Partners. Any transfer of FFP units after the restructuring that would (i)
result in any person owning, directly or indirectly, FFP units in excess of 4.9%
of the outstanding FFP units or (ii) cause FFP Partners to own, directly or
indirectly, an interest in a tenant the rents received or accrued from whom
would not qualify as rents from real property under Section 7704(e)(3) of the
Code and would cause FFP Partners to fail to satisfy any of the gross income
requirements of Section 7704(c)(3) of the Code, shall be null and void ab
initio, and the intended transferee will acquire no rights in such FFP units.
Such FFP units will be designated "Excess Units" and transferred automatically
to a trust effective on the day before the purported transfer of such FFP units.
The record holder of the FFP units that are designated as Excess Units will be
required to submit such number of units to FFP Partners for registration in the
name of the trust. The trustee of the trust will be FFP Partners.
Excess Units will remain issued and outstanding units of FFP Partners.
Excess Units shall not be entitled to distributions, except as otherwise
provided in the FFP Amended Partnership Agreement. Holders of Excess Units
shall not be entitled to vote on any matters. The prohibited owner generally
may designate a permitted transferee of the Excess Units, provided that (i) the
permitted transferee acquires such Excess Units without such acquisition
resulting in the redesignation
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of such FFP units as Excess Units and (ii) the prohibited owner does not receive
a price for designating such beneficiary in excess of the price he paid in the
purported transfer (or, in the case of a gift or devise, the Market Price of the
units on the date of the purported transfer).
The prohibited owner with respect to Excess Units will be required to repay
the partnership the amount of any distributions received by the prohibited owner
prior to the discovery by the Partnership that the Units had been exchanged for
Excess Units.
The Excess Units will be deemed to have been offered for sale to FFP
Partners, or its designee, at a price per unit equal to the lesser of (i) the
price per unit in the transaction that created such Excess Units (or, in the
case of a gift or devise, the Market Price per unit on the date of such
transfer) or (ii) the Market Price per unit on the date that FFP Partners, or
its designee, accepts such offer. FFP Partners will have the right to accept
such offer for a period of 90 days after the later of (i) the date of the
purported transfer which resulted in such Excess Units and (ii) the date FFP
Partners determines in good faith that a transfer resulting in such Excess Units
occurred.
"Market Price" means the average of the Closing Prices for the ten (10)
consecutive Trading Days immediately preceding the relevant date. "Closing
Price" on any day means the last sale price, regular way on such day, or, if no
such sale takes place on that day, the average of the closing bid and asked
prices, regular way, in either case as reported on the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the American Stock Exchange, or if the affected class or series of
capital stock is not so listed or admitted to trading, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange (including the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation System) on which the affected class or series of capital stock is
listed or admitted to trading or, if the affected class or series of capital
stock is not so listed or admitted to trading, the last quoted price or, if not
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or, if such system is no longer in use, the principal
automated quotation system then in use or, if the affected class or series of
capital stock is not so quoted by any such system, the average of the closing
bid and asked prices as furnished by a professional market maker selected by
FFP's general partner making a market in the affected class or series of capital
stock, or, if there is no such market maker or such closing prices otherwise are
not available, the fair market value of the affected class or series of capital
stock as of such day, as determined by FFP's general partner in its discretion.
Any person who acquires or attempts to acquire FFP units in violation of the
foregoing restrictions, or any person who owned FFP units that were transferred
to a trust, will be required (i) to give immediate written notice to FFP
Partners of such event and (ii) to provide to FFP Partners such other
information as FFP Partners may request in order to determine the effect, if
any, of such transfer on FFP Partners' status as a partnership for federal
income tax purposes.
After the date of the conversion under the exchange alternative, the FFP
units may not be sold, pledged, hypothecated or otherwise transferred to any
third party (other than an immediate family member), except in accordance with
the exchange rights described above.
Harvison Family Ownership of FFP Properties. The Harvison Family will own
directly and indirectly all of the limited partner interests in FFP Properties,
constituting 39% of the economic interests in FFP Properties. Because the
Harvison Family will own all of the limited partner interests, the Harvison
Family will be able to remove FFP Partners as the general partner of FFP
Properties at any time. If the Harvison Family removes FFP Partners as general
partner of FFP Properties, then FFP Partners will have no control over its
assets, all of which are held through FFP Properties, but will continue as a
limited partner of and retain its economic interest in FFP Properties.
In addition, the Harvison Family generally will have the right under the
Partnership Agreement of FFP Properties to offer their Partnership Interests in
FFP Properties for sale to the REIT for either cash or REIT Shares. The Board of
Trust Managers may, in its sole and absolute discretion, accept or reject the
offer to sell a Partnership Interest in FFP Properties to the REIT. In addition,
the Harvison Family may not offer to sell a Partnership Interest in FFP
Properties to the REIT if the delivery of REIT shares by the REIT in exchange
for such offered Partnership Interest would cause the Harvison Family to violate
any transfer or ownership restriction set forth in either the Declaration of
Trust of the REIT or the Partnership Agreement of FFP Partners.
The REIT
The summary of the terms of the REIT's capital stock set forth below does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the Declaration of Trust and the REIT's Bylaws, copies of which
have been
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filed as exhibits to the Registration Statement of which this Proxy Statement
constitutes a part, and the TRA. See "Additional Information." You should also
review "Summary Comparison of FFP Units, REIT Shares and Marketing Company
Shares."
General. The authorized capital stock of the REIT consists of 50 million
REIT common shares, par value $0.01 per share, 5 million REIT preferred shares,
par value $0.01 per share, and 55 million REIT excess shares, par value $0.01
per share. Upon completion of the restructuring and until the conversion,
75,210 REIT common shares will be issued and outstanding, all of which will be
held by the Harvison Family.
Common Shares. All REIT common shares offered hereby will be duly
authorized, fully paid and nonassessable. Subject to the preferential rights of
the holders of REIT preferred shares and any other shares or series of stock
hereinafter designated by the REIT's Board of Trust Managers, holders of REIT
common shares will be entitled to receive dividends on the stock if, as and when
authorized and declared by the REIT's Board out of assets legally available
therefor and to share ratably in the assets of the REIT legally available for
distribution to its shareholders in the event of its liquidation, dissolution or
winding-up after payment of, or adequate provision for payment of, all known
debts and liabilities of the REIT.
Each outstanding REIT common share will entitle the holder thereof to one
vote on all matters submitted to a vote of shareholders, including the election
of trust managers and, except as otherwise required by law or except as provided
with respect to any other class or series of stock, the holders of REIT common
shares will possess the exclusive voting power. Matters submitted for
shareholder approval will generally require a majority vote of the shares
present and voting thereon. There is no cumulative voting in the election of
trust managers, which means that the holders of a majority of the outstanding
REIT common shares will be able to elect all of the trust managers then standing
for election and the holders of the remaining shares will not be able to elect
any trust managers. Holders of REIT common shares will have no subscription,
redemption, conversion or preemptive rights. Holders of REIT common shares will
have equal dividend, distribution, liquidation and other rights and will have no
preference or exchange rights.
Preferred Shares. REIT preferred shares may be issued from time to time, in
one or more series, as authorized by the REIT's Board of Trust Managers. Prior
to issuance of shares of each series, the REIT's Board is required by the TRA
and the Declaration of Trust to fix for each such series the number of shares to
be included in each series, and the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, as are
permitted by the TRA. The REIT's Board could authorize the issuance of REIT
preferred shares with terms and conditions that could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority of, REIT common shares might receive a premium for their REIT common
shares over the then-prevailing market price of REIT common shares. No REIT
preferred shares are outstanding and the REIT has no present plans to issue any
REIT preferred shares.
Restrictions on Transfer. For the REIT to qualify as a real estate
investment trust under the Code, it must meet certain requirements concerning
the ownership of its outstanding shares of capital stock. Specifically, not
more than 50% in value of the issued and outstanding shares of capital stock of
the REIT may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year, and the REIT must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year.
Because the REIT's Board of Trust Managers believes it will be essential
for the REIT to qualify as a real estate investment trust after the conversion,
the Declaration of Trust, subject to certain exceptions described below,
provides that no person (other than the Harvison Family) may own, or be deemed
to own by virtue of the attribution provisions of the Code, more than (i) 4.9%
of the outstanding REIT common shares (the "REIT Common Stock Limitation"), or
(ii) 4.9% of the outstanding REIT preferred shares of any series of REIT
preferred shares (the "REIT Preferred Stock Limitation") (together, the
"Ownership Limitation"). The Declaration of Trust further provides that the
Harvison Family, after the consummation of the restructuring, (i) shall not
initially own more than 30% of the outstanding REIT common shares, or such
lesser percentage of the outstanding REIT common shares as the REIT's Board may
establish from time to time pursuant to the authority expressly vested in the
REIT's Board by the Declaration of Trust (the "Existing Holder Limitation"), and
(ii) shall not own REIT preferred shares in excess of the REIT Preferred Stock
Limitation. For purposes of the Existing Holder Limitation, the Existing Holder
shall be deemed to own the sum of (i) the REIT common shares beneficially or
constructively owned by the Existing Holder and (ii) the REIT common shares the
Existing Holder would beneficially or constructively own upon exercise of any
conversion right, option or other right (without regard to any temporal
restrictions on the exercise thereof) to directly or indirectly acquire
beneficial or constructive ownership of such REIT common shares.
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Any transfer of REIT common shares or REIT preferred shares after the
conversion that would (i) result in any person (other than the Harvison Family)
owning, directly or indirectly, REIT common shares in excess of the REIT Common
Stock Limitation, (ii) result in any person owning, directly or indirectly, REIT
preferred shares in excess of the REIT Preferred Stock Limitation, (iii) result
in the Harvison Family owning, directly or indirectly, REIT common shares in
excess of the Existing Holder Limitation, (iv) result in the REIT common shares
and REIT preferred shares being owned by fewer than 100 persons (determined
without reference to any rules of attribution), (v) result in the REIT being
"closely held" within the meaning of Section 856(h) of the Code, or (vi) cause
the REIT to own, directly or constructively, 10% or more of the ownership
interests in a tenant of the REIT's real property, within the meaning of Section
856(d)(2)(B) of the Code, shall be null and void ab initio, and the intended
transferee will acquire no rights in such REIT common shares or REIT preferred
shares. Such REIT common shares or REIT preferred shares will be designated as
"Excess Shares" and transferred automatically to a trust effective on the day
before the purported transfer of such REIT common shares or REIT preferred
shares. The record holder of the shares of REIT common shares or REIT preferred
shares that are designated as Excess Shares will be required to submit such
number of shares of REIT common shares or REIT preferred shares to the REIT for
registration in the name of the trust. The trustee of the trust will be the
REIT.
Excess Shares will remain issued and outstanding shares of REIT common
shares or REIT preferred shares. Excess Shares shall not be entitled to any
dividends or distributions, except as otherwise provided in the Declaration of
Trust. Excess Shares shall not be entitled to vote on any matters. The
prohibited owner generally may designate a permitted transferee of the Excess
Shares, provided that (i) the prohibited owner does not receive a price for
designating such beneficiary in excess of the price he paid in the purported
transfer (or, in the case of a gift or devise, the Market Price of the Units on
the date of the purported transfer) and (ii) the permitted transferee acquires
such Excess Shares without such acquisition resulting in the redesignation of
such REIT shares as Excess Shares.
The prohibited owner with respect to Excess Shares will be required to
repay the trust the amount of any dividends or distributions received by the
prohibited owner prior to the discovery by the REIT that the REIT shares had
been exchanged for Excess Shares.
The Excess Shares will be deemed to have been offered for sale to the REIT,
or its designee, at a price per share equal to the lesser of (i) the price per
share in the transaction that created such Excess Shares (or, in the case of a
gift or devise, the Market Price per share on the date of such transfer) or (ii)
the Market Price per share on the date that the REIT, or its designee, accepts
such offer. The REIT will have the right to accept such offer for a period of
90 days after the later of (i) the date of the purported transfer which resulted
in such Excess Shares and (ii) the date the REIT determines in good faith that a
transfer resulting in such Excess Shares occurred.
"Market Price" means the average of the Closing Prices for the ten (10)
consecutive Trading Days immediately preceding the relevant date. "Closing
Price" on any day means the last sale price, regular way on such day, or, if no
such sale takes place on that day, the average of the closing bid and asked
prices, regular way, in either case as reported on the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the American Stock Exchange, or if the affected class or series of
capital stock is not so listed or admitted to trading, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange (including the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation System) on which the affected class or series of capital stock is
listed or admitted to trading or, if the affected class or series of capital
stock is not so listed or admitted to trading, the last quoted price or, if not
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or, if such system is no longer in use, the principal
automated quotation system then in use or, if the affected class or series of
capital stock is not so quoted by any such system, the average of the closing
bid and asked prices as furnished by a professional market maker selected by the
REIT's Board making a market in the affected class or series of capital stock,
or, if there is no such market maker or such closing prices otherwise are not
available, the fair market value of the affected class or series of capital
stock as of such day, as determined by the REIT's Board in its discretion. Any
person who acquires or attempts to acquire REIT common shares or REIT preferred
shares in violation of the foregoing restrictions, or any person who owned REIT
common shares or REIT preferred shares that were transferred to a trust, will be
required (i) to give immediate written notice to the REIT of such event and (ii)
to provide to the REIT such other information as the REIT may request in order
to determine the effect, if any, of such transfer on the REIT's status as a real
estate investment trust.
The Declaration of Trust requires all persons who own, directly or
indirectly, more than 4.9% (or such lower percentages as required pursuant to
regulations under the Code or as may be requested by the REIT's Board, in its
sole discretion) of the outstanding REIT common shares and REIT preferred
shares, no later than January 31 of each calendar year, to provide to the REIT a
written statement or affidavit stating the name and address of such direct or
indirect owner,
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the number of REIT common shares and REIT preferred shares owned directly or
indirectly, and a description of how such shares are held. In addition, each
direct or indirect shareholder shall provide to the REIT such additional
information as the REIT may request in order to determine the effect, if any, of
such ownership on the REIT's status as a real estate investment trust and to
ensure compliance with the Ownership Limitation and the Existing Holder
Limitation.
The Ownership Limitation generally will not apply to the acquisition of
REIT common shares or REIT preferred shares by an underwriter that participates
in a public offering of such shares. In addition, the REIT's Board, upon receipt
of a ruling from the IRS or an opinion of counsel and upon such other conditions
as the REIT's Board may direct, may exempt a person from the Ownership
Limitation under certain circumstances. However, the REIT's Board may not grant
an exemption from the Ownership Limitation to any proposed transferee whose
ownership, direct or indirect, of shares of beneficial interest of the REIT in
excess of the Ownership Limitation would result in the termination of the REIT's
status as a real estate investment trust. The foregoing restrictions will
continue to apply until the REIT's Board determines that it is no longer in the
best interests of the REIT to attempt to qualify, or to continue to qualify, as
a real estate investment trust.
All certificates representing REIT common shares or REIT preferred shares
will bear a legend referring to the restrictions described above.
The Ownership Limitation could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of REIT shares
might receive a premium for their shares over the then-prevailing market price
or which these holders might believe to be otherwise in their best interest.
The Marketing Company
The summary of the terms of the Marketing Company's capital stock set forth
below does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the Articles of Incorporation and the Marketing
Company's Bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this Proxy Statement constitutes a part, and the
TBCA. See "Additional Information." You should also review "Summary Comparison
of FFP Units, REIT Shares and Marketing Company Shares."
General. The authorized capital stock of the Marketing Company consists of
9 million Marketing Company common shares, par value $0.01 per share, and 1
million Marketing Company preferred shares, par value $0.01 per share. Upon
completion of the restructuring, 3,779,415 Marketing Company common shares will
be issued and outstanding.
Common Shares. All of the Marketing Company common shares offered hereby
will be duly authorized, fully paid and nonassessable. Subject to the
preferential rights of the holders of Marketing Company preferred shares and any
other shares or series of stock hereinafter designated by the Marketing
Company's Board of Directors, holders of Marketing Company common shares will be
entitled to receive dividends on the stock as may be declared by the Marketing
Company's Board out of funds legally available therefor. In the event of any
voluntary or involuntary liquidation, dissolution or winding up, or any
distribution of the assets of the Marketing Company, holders of Marketing
Company common shares will be entitled to a distribution, either in cash or in
kind, of their pro rata share of the properties and assets of the Marketing
Company remaining after the Marketing Company has paid, satisfied or discharged
all its debts, liabilities and obligations, or made adequate provision for
payment, satisfaction or discharge thereof.
Each outstanding Marketing Company common share will entitle the holder
thereof to one vote on all matters submitted to shareholders, including the
election of directors and, except as otherwise required by law or except as
provided with respect to any other class or series of stock, the holders of
Marketing Company common shares will possess the exclusive voting power on all
matters. Matters submitted for shareholder approval will generally require a
majority vote of the shares present and voting thereon. Holders of Marketing
Company common shares will not have cumulative votes in the election of
directors, which means that the holders of a majority of the outstanding
Marketing Company shares will be able to elect all of the directors then
standing for election and the holders of the remaining shares will not be able
to elect any directors. Holders of Marketing Company common shares will have no
subscription, redemption, conversion or preemptive rights. Holders of Marketing
Company common shares will have equal dividend, distribution, liquidation and
other rights and will have no preference or exchange rights.
The transfer agent and registrar for the Marketing Company common shares is
ChaseMellon Shareholder Services, L.L.C.
Preferred Shares. Marketing Company preferred shares may be issued from
time to time, in one or more series, as authorized by the Marketing Company's
Board. Prior to issuance of shares of each series, the Marketing Company's
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Board is required by the TBCA and the Articles of Incorporation to fix for each
such series the number of shares to be included in each series, and the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption, as are permitted by the TBCA. The Marketing Company's
Board could authorize the issuance of Marketing Company preferred shares with
terms and conditions that could have the effect of discouraging a takeover or
other transaction in which holders of some, or a majority of, Marketing Company
common shares might receive a premium for their Marketing Company common shares
over the then-prevailing market price of those shares. No Marketing Company
preferred shares are outstanding and the Marketing Company has no present plans
to issue any Marketing Company preferred shares.
CERTAIN ANTI-TAKEOVER PROVISIONS OF DELAWARE AND TEXAS LAW
AND OF THE ORGANIZATIONAL DOCUMENTS OF
THE REIT AND THE MARKETING COMPANY
The Declaration of Trust, the Bylaws of the REIT, the Articles of
Incorporation, and the Bylaws of the Marketing Company contain certain
provisions that may inhibit or impede the acquisition or attempted acquisition
of control of the REIT and the Marketing Company by means of a tender offer, a
proxy contest or otherwise. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the REIT or the Marketing
Company to negotiate first with the boards of these entities. Management
believes that these provisions increase the likelihood that proposals initially
will be on more attractive terms than would be the case in their absence and
increase the likelihood of negotiations, which might outweigh the potential
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals might result in improvement of terms. The
description set forth below is only a summary of certain provisions of the
Declaration of Trust, the REIT's Bylaws, the TRA, the Marketing Company's
Articles of Incorporation and Bylaws and the Texas Business Corporation Act.
This summary does not purport to be complete and is subject to and qualified in
its entirety by reference to the Declaration of Trust, the REIT Bylaws and the
Marketing Company's Articles of Incorporation and Bylaws, copies of which have
been filed as exhibits to this Proxy Statement or the Registration Statements of
which this Proxy Statement constitutes a part. See "Additional Information."
FFP Unitholders Have No Ability to Elect the Board of FFP's General Partner
The general partner of FFP Partners is currently FFP Partners Management
Company, Inc. FFP Partners Management Company, Inc. is owned and controlled by
the Harvison Family, which elects all of the members of the Board of Directors.
After the restructuring, the REIT will be the general partner of FFP Partners.
Until the conversion, the REIT will be owned and controlled by the Harvison
Family, which will be able to elect all of the members of the Board of Trust
Managers. FFP unitholders will have no right to nominate or elect members of
the Board of Trust Managers of FFP's general partner. After the conversion, the
REIT will have other shareholders and the REIT shares will be traded in a public
market. At that time the holders of the REIT shares will be able to participate
in the election of the members of the Board of Trust Managers, but FFP
unitholders will have no such right unless their FFP units are redeemed for REIT
shares.
Staggered Board of Trust Managers and Directors
The Declaration of Trust and the REIT's Bylaws provide for a classified
board of trust managers of the REIT, and the Articles of Incorporation and the
Marketing Company's Bylaws provide for a classified board of directors of the
Marketing Company. At such time as the Board of the REIT or the Marketing
Company shall consist of three or more trust managers or directors, as the case
may be, the REIT's Board or the Marketing Company's Board, as the case may be,
will be divided into three classes of trust managers or directors, each class
constituting approximately one-third of the total number of trust managers or
directors, with the classes serving staggered three-year terms. The
classification of the REIT's Board and the Marketing Company's Board will have
the effect of making it more difficult for shareholders to change the
composition of the respective boards because only a minority of the trust
managers or directors are up for election, and may be replaced by a vote of the
shareholders, at any one time. Management believes, however, that the longer
terms associated with the classified boards will help to ensure continuity and
stability of the management and policies of the REIT and the Marketing Company.
The classification provisions also could have the effect of discouraging a
third party from accumulating a large block of the capital shares of the REIT or
the Marketing Company or attempting to obtain control of such entities, even
though such an attempt might be beneficial to such entities and some, or a
majority, of their shareholders. Accordingly, under certain circumstances
shareholders could be deprived of opportunities to sell their REIT shares or
Marketing Company shares at a higher price than might otherwise be available.
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Number of Trust Managers and Directors; Removal; Filling Vacancies
Subject to any rights of holders of REIT preferred shares or Marketing
Company preferred shares to elect additional trust managers or directors under
specified circumstances ("Preferred Holders' Rights"), the Declaration of Trust
and the Articles of Incorporation, respectively, provide that the number of
trust managers or directors will be fixed by, or in the manner provided in, the
REIT's Bylaws or the Marketing Company's Bylaws, respectively, but must not be
more than 25 nor less than one. In addition, the REIT's Bylaws and the
Marketing Company's Bylaws provide that, subject to any Preferred Holders'
Rights, the number of trust managers or directors will be fixed by the REIT's
Board or the Marketing Company's Board, as applicable, but must not be more than
25 or less than one. In addition, the Bylaws of the REIT and the Marketing
Company provide that, subject to any Preferred Holders' Rights, and unless the
REIT's Board or the Marketing Company's Board, as applicable, otherwise
determine, any vacancies (other than vacancies created by an increase in the
total number of trust managers or directors or by removal of a trust manager or
director) will be filled by the affirmative vote of a majority of the remaining
trust managers or directors, although less than a quorum, and any vacancies
created by an increase in the total number of trust managers or directors may be
filled by a majority of the entire REIT's Board or the entire Marketing
Company's Board, as applicable. Accordingly, the Boards of the REIT and the
Marketing Company could temporarily prevent any shareholder from enlarging the
respective Boards of the REIT and the Marketing Company and then filling the new
positions with such shareholder's own nominees.
The REIT's Declaration of Trust and Bylaws and the Marketing Company's
Articles of Incorporation and Bylaws provide that, subject to any Preferred
Holders' Rights, trust managers and directors may be removed only for cause upon
the affirmative vote of holders of at least 80% of the entire voting power of
all the then-outstanding shares entitled to vote in the election of trust
managers or directors, voting together as a single class.
Relevant Factors to be Considered by the Board of Trust Managers and the Board
of Directors
The Declaration of Trust provides that, in determining what is in the best
interest of the REIT in evaluating a "business combination," "change in control"
or other transaction, a trust manager of the REIT shall consider all of the
relevant factors, which may include (i) the immediate and long-term effects of
the transaction on the REIT's shareholders, including shareholders, if any, who
do not participate in the transaction; (ii) the social and economic effects of
the transaction on the REIT's employees, suppliers, creditors and customers and
others dealing with the REIT and on the communities in which the REIT operates
and is located; (iii) whether the transaction is acceptable, based on the
historical and current operating results and financial condition of the REIT;
(iv) whether a more favorable price may be obtained for the REIT's stock or
other securities in the future; (v) the reputation and business practices of the
other party or parties to the proposed transaction, including its or their
management and affiliates, as they would affect employees of the REIT; (vi) the
expected future value of the REIT's securities; (vii) any legal or regulatory
issues raised by the transaction; and (viii) the business and financial
condition and earnings prospects of the other party or parties to the proposed
transaction including, without limitation, debt service and other existing
financial obligations, financial obligations to be incurred in connection with
the transaction, and other foreseeable financial obligations of such other party
or parties. The Articles of Incorporation provide that, in determining what is
in the best interest of the Marketing Company in evaluating a "business
combination," "change in control" or other transaction, a director of the
Marketing Company shall consider all of the relevant factors, which may include
each of the factors listed in (i) through (viii) above. Pursuant to these
provisions, the REIT's Board and the Marketing Company's Board may consider
subjective factors affecting a proposal, including certain nonfinancial matters,
and, on the basis of these considerations, may oppose a business combination or
other transaction which, evaluated only in terms of its financial merits, might
be attractive to some, or a majority, of the REIT's or the Marketing Company's
shareholders.
Advance Notice Provisions for Shareholder Nominations and Shareholder Proposals
The Bylaws of the REIT and the Marketing Company provide for an advance
notice procedure for shareholders to make nominations of candidates for trust
manager or director, respectively, or to bring other business before an annual
meeting of shareholders of the REIT or the Marketing Company (the "Shareholder
Notice Procedure").
Pursuant to the Shareholder Notice Procedure (i) only persons who are
nominated by, or at the direction of, the respective Boards of the REIT and the
Marketing Company, or by a shareholder who has given timely written notice
containing specified information to the Secretary of the REIT or the Marketing
Company prior to the meeting at which trust managers or directors are to be
elected, will be eligible for election as trust managers of the REIT or
directors of the Marketing Company and (ii) at an annual meeting, only such
business may be conducted as has been brought before the meeting by, or at the
direction of the REIT's Board or the Marketing Company's Board or by a
shareholder who has given timely written notice to the Secretary of the REIT or
the Secretary of the Marketing Company, as applicable, of such
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shareholder's intention to bring such business before such meeting. In general,
for notice of shareholder nominations or proposed business to be conducted at an
annual meeting to be timely, such notice must be received by the REIT or the
Marketing Company not less than 70 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting.
The purpose of requiring shareholders to give the REIT and the Marketing
Company advance notice of nominations and other business is to afford the
respective Boards a meaningful opportunity to consider the qualifications of the
proposed nominees or the advisability of the other proposed business and, to the
extent deemed necessary or desirable by the respective Board, to inform
shareholders and make recommendations about such nominees or business, as well
as to ensure an orderly procedure for conducting meetings of shareholders.
Although the Bylaws of the REIT and the Marketing Company do not give the REIT's
Board or the Marketing Company's Board power to block shareholder nominations
for the election of trust managers or directors or proposals for action, they
may have the effect of discouraging a shareholder from proposing nominees or
business, precluding a contest for the election of trust managers or directors
or the consideration of shareholder proposals if procedural requirements are not
met, and deterring third parties from soliciting proxies for a non-management
proposal or slate of trust managers or directors, without regard to the merits
of such proposal or slate.
Preferred Shares
The Declaration of Trust and the Articles of Incorporation authorize the
REIT's Board and the Marketing Company's Board to establish one or more series
of REIT preferred shares and Marketing Company preferred shares, respectively,
and to determine, with respect to any series of REIT preferred shares or
Marketing Company preferred shares, the preferences, rights and other terms of
such series. See "Description of Securities--The REIT--Preferred Shares" and
"--The Marketing Company-- Preferred Shares." The REIT and the Marketing Company
believe that their ability to issue one or more series of REIT preferred shares
and Marketing Company preferred shares, respectively, will provide the REIT and
the Marketing Company with increased flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs. The
authorized REIT preferred shares and the authorized Marketing Company preferred
shares are available for issuance without further action by the REIT's
shareholders and the Marketing Company's shareholders, respectively, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which the REIT's or the Marketing Company's
securities may be listed or traded. Although the REIT's Board and the Marketing
Company's Board have no present intention to do so, they could, in the future,
issue a series of REIT preferred shares and Marketing Company preferred shares,
respectively, which, due to their terms, could impede a merger, tender offer or
other transaction that some, or a majority, of the REIT's shareholders or the
Marketing Company's shareholders might believe to be in their best interests or
in which shareholders might receive a premium over then prevailing market prices
for their REIT common shares or their Marketing Company common shares.
Amendment of the Declaration of Trust and Articles of Incorporation
The Declaration of Trust and the Articles of Incorporation provide that
they may be amended only by the affirmative vote of the holders of not less than
a majority of the votes entitled to be cast, except that the provisions of the
Declaration of Trust and the Articles of Incorporation relating to "business
combinations" (as described below under "--Business Combinations") may be
amended only by the affirmative vote of 80% of the votes entitled to be cast,
voting together as a single class.
Rights to Purchase Securities and Other Property
The Declaration of Trust authorize the REIT's Board, subject to any rights
of holders of any series of REIT preferred shares, to create and issue rights
entitling the holders thereof to purchase from the REIT shares of beneficial
interest or other securities or property. The times at which and terms upon
which such rights are to be issued are within the discretion of the REIT's
Board. This provision is intended to confirm the authority of the REIT's Board
to issue share purchase rights which could have terms that would impede a
merger, tender offer or other takeover attempt, or other rights to purchase
securities of the REIT or any other entity.
Business Combinations
The Declaration of Trust and the Articles of Incorporation establish
special requirements with respect to "business combinations" (including a
merger, consolidation, share exchange, or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities) between the REIT
or the Marketing Company and any person who beneficially owns, directly or
indirectly, 10% or more of the voting power of the REIT shares or the Marketing
Company shares, respectively (an "Interested Shareholder"), subject to certain
exemptions. The Harvison Family is not treated as an Interested Shareholder
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for these purposes. In general, the Declaration of Trust and the Articles of
Incorporation provide that an Interested Shareholder or any affiliate thereof
may not engage in a "business combination" with the REIT or the Marketing
Company for a period of five years following the date he becomes an Interested
Shareholder. Thereafter, such transactions must be recommended by the REIT's
Board or the Marketing Company's Board and approved by the affirmative vote of
at least: (i) 80% of the votes entitled to be cast by holders of shares entitled
to vote generally in the election of trust managers or directors, voting
together as a single group, and (ii) two-thirds of the votes entitled to be cast
by holders of shares entitled to vote generally in the election of trust
managers or directors other than such shares held by an Interested Shareholder
who will be a party to the business combination or by an affiliate of the
Interested Shareholder, voting together as a single group, unless, among other
things, the holders of REIT common shares or Marketing Company common shares
receive a minimum price (as defined in the Declaration of Trust and the Articles
of Incorporation) for their shares and the consideration is received in cash or
in the same form as previously paid by the Interested Shareholder for his
shares. These provisions of the Declaration of Trust and the Articles of
Incorporation do not apply, however, to business combinations that are approved
or exempted by the REIT's Board or the Marketing Company's Board prior to the
time that the Interested Shareholder becomes an Interested Shareholder or, for
the REIT, prior to the conversion.
For the Marketing Company, the TBCA imposes a special voting requirement for
the approval of certain business combinations and related party transactions
between public corporations and affiliated shareholders unless the transaction
or the acquisition of shares by the affiliated shareholder is approved by the
board of directors of the corporation prior to the affiliated shareholder
becoming an affiliated shareholder. The TBCA prohibits certain mergers, sales
of assets, reclassifications and other transactions (defined as business
combinations) between shareholders beneficially owning 20% or more of the
outstanding stock of a Texas public corporation and (ii) shareholders that,
within the preceding three-year period, were the beneficial owners of 20% or
more of the corporation's voting power (such shareholders being defined as an
affiliated shareholder), unless two-thirds of the unaffiliated shareholders
approve the transaction at a meeting held no earlier than six months after the
shareholder acquires that ownership. The provisions requiring such a vote of
shareholders does not apply to any transaction with an affiliated shareholder if
the transaction or the purchase of shares by the affiliated shareholder is
approved by the board of directors before the affiliated shareholder acquires
beneficial ownership of 20% of the shares.
Ownership Limit
The limitation on ownership of REIT shares set forth in the Declaration of
Trust, as well as the provisions of the TRA, could have the effect of
discouraging offers to acquire the REIT and of increasing the difficulty of
consummating any such offer. See "Description of Securities--The REIT--
Restrictions on Transfer."
SUMMARY COMPARISON OF FFP UNITS,
REIT SHARES AND MARKETING COMPANY SHARES
FFP Partners is organized as a Delaware limited partnership and is subject
to the Delaware RULPA and the FFP Partnership Agreement. After the
restructuring, FFP Partners will be subject to the FFP Amended Partnership
Agreement. The REIT is organized as a Texas real estate investment trust and is
subject to the TRA, the Declaration of Trust and the REIT's Bylaws. FFP
unitholders will be able to become holders of REIT shares after the conversion.
The Marketing Company is organized as a Texas corporation and is subject to the
TBCA, the Articles of Incorporation, and the Marketing Company's Bylaws. There
are a number of differences between the attributes of the FFP units and the REIT
shares and the Marketing Company shares, as well as the rights and privileges of
the holders of each of them. The following summary compares the principal
differences.
The following summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the Delaware RULPA, the TRA, the TBCA
and also to the FFP Partnership Agreement, the FFP Amended Partnership
Agreement, the Declaration of Trust, the REIT's Bylaws, the Articles of
Incorporation and the Marketing Company's Bylaws.
<TABLE>
<CAPTION>
FFP Units REIT Shares Marketing Company Shares
--------- ----------- ------------------------
Management
<S> <C> <C>
The FFP Partnership Agreement Pursuant to the TRA, the business and Pursuant to the TBCA, the business
provides that, with certain limited affairs of a real estate investment and affairs of a Texas corporation
exceptions, FFP's general partner trust are managed by or under the are managed by or under the direction
has exclusive discretion to manage direction of its board of trust of its board of directors. In
and control the business and managers. In accordance accordance with the TBCA,
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
FFP Units REIT Shares Marketing Company Shares
--------- ----------- ------------------------
<S> <C> <C>
affairs of FFP Partners. FFP's general with the TRA, the Declaration of Trust the Articles of Incorporation provide
partner may be removed only upon provides for three classes of trust managers for three classes of directors, as
the affirmative vote of owners of at as nearly equal in number as possible nearly equal in number as possible
least 75% of the total number of all (not to exceed 25) at such time as (not to exceed 25) at such time as the
outstanding FFP units, exclusive of the REIT's Board shall consist of Marketing Company's Board consists of
any FFP units held by FFP's general three or more trust managers. Under three or more directors. Under the
partner or any affiliate thereof. the Declaration of Trust, a trust Bylaws, a director may be removed at
manager may be removed at any time, any time, but only for cause and only
but only for cause and only by the by the affirmative vote of the
affirmative vote of the holders of holders of at least 80% of the
80% of the outstanding REIT shares outstanding Market Company Shares
entitled to vote generally in the entitled to vote generally in the
election of trust managers, voting election of directors, voting
together as a single class. Any together as a single class. Any
vacancy relating to a then-existing vacancy relating to a then-existing
Board position may be filled by the Board position may be filled by the
affirmative vote of a majority of affirmative vote of a majority of the
the remaining trust managers, though remaining directors, though less than
less than a quorum, and newly a quorum, and newly created
created trust\managerships shall be directorships resulting from an
filled by the affirmative vote of a increase in the authorized number of
majority of the whole Board. directors shall be filled by the
Vacancies on the Board due to the affirmative vote of a majority of the
removal of a trust manager may be whole Board. Vacancies on the Board
filled by the shareholders at an due to the removal of a director may
annual or special meeting called for be filled by the shareholders at an
that purpose. annual or special meeting called for
that purpose.
<CAPTION>
Voting Rights and Rights to Submit Proposals
<S> <C> <C>
Under the FFP Partnership Agreement, The Declaration of Trust provides that, The Articles of Incorporation provide
FFP unitholders have only limited voting subject to the express terms of any series of that, subject to the express terms of
rights on matters affecting FFP Partners' REIT preferred shares, the holders of REIT any series of Marketing Company
business. FFP unitholders have no right to common shares will have the exclusive preferred shares, the holders of
elect the general partner of FFP Partners on right to vote on all matters as to which Marketing Company common shares will
an annual or other ongoing basis. FFP a common shareholder shall be entitled to have the exclusive right to vote on
unitholders have voting rights with respect vote pursuant to applicable law at all all matters as to which a common
to (i) the removal and replacement of FFP's meetings of the REIT shareholders. Each shareholder shall be entitled to vote
general partner; (ii) the merger of FFP REIT share entitles a shareholder to cast pursuant to applicable law at all
Partners; (iii) the sale of substantially all one vote on all matters presented to the meetings of the Marketing Company
of FFP Partners' assets; (iv) the dissolution shareholders. There will be no cumulative shareholders. Each Marketing Company
of FFP Partners; and (v) material amendments voting rights in the election of trust share entitles a shareholder to cast
to the FFP Partnership Agreement. Each managers. Generally, under the TRA, matters one vote on all matters presented to
FFP unit entitles the FFP unitholder to cast submitted to the shareholders, other than the the shareholders. The Articles of
one vote on all matters presented to the election of trust managers, require the Incorporation expressly prohibit
FFP unitholders. Class A and Class B units affirmative vote of the holders of a cumulative voting rights in the
have equal voting rights and vote as a majority of the outstanding REIT shares election of directors. Generally,
single class on all matters voted upon by present in person or by proxy entitled under the TBCA, matters submitted
limited partners. Generally, approval of to vote thereon at a meeting of shareholders to the shareholders, other than the
matters submitted to the FFP unitholders at which a quorum is present. The TRA election of directors, require the
requires the affirmative vote of FFP provides that trust managers shall be affirmative vote of the holders of a
unitholders owning more than 50% of the elected by two-thirds of the votes cast majority of the outstanding shares
FFP units then outstanding. Certain by holders of shares entitled to vote in the entitled to vote on the matter and
limited matters require the approval of a election of trust managers at a meeting of represented in person or by proxy
specified super-majority of the FFP units shareholders at which a quorum is present, at a meeting of shareholders at
then outstanding. unless otherwise provided in the declaration which a quorum is present. Pursuant
of trust or bylaws. The Declaration of to the TBCA, directors shall be
Record holders of FFP units on the Record Trust provides that trust managers shall elected by a plurality of the votes
Date will be entitled to notice of, and to be elected by a plurality of the votes cast cast by the holders of shares
vote at, meetings of limited partners and to by the holders of shares entitled to vote in entitled to vote in the election of
act with respect to matters as to which the election of trust managers at a meeting directors at a meeting of
written consents may be solicited. of shareholders at which a quorum is present. shareholders at which a quorum
Pursuant to the Declaration of Trust, action is present. The TBCA permits
may not be shareholders to take action without
a meeting, without prior notice
and without a vote, if a written
consent is signed by the holders
of all shares entitled to vote.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
FFP Units REIT Shares Marketing Company Shares
--------- ----------- ------------------------
<S> <C> <C>
taken by written consent of the The Marketing Company Bylaws require
shareholders as provided under Texas law. notice at least 70 days and not more
than 90 days before the anniversary
The REIT Bylaws require notice at least 70 of the prior annual meeting of
days and not more than 90 days before shareholders in order for a
the anniversary of the prior annual shareholder (a) to nominate a
meeting of shareholders in order for a director or (b) to propose
shareholder (a) to nominate a trust manager new business other than pursuant to
or (b) to propose new business other than notice of the meeting. The
pursuant to notice of the meeting. The Marketing Company Bylaws contain a
REIT Bylaws contain a similar notice similar notice requirement in
requirement in connection with the connection with the nomination of
nomination of trust managers at a directors at a special meeting of
special meeting of shareholders called for shareholders called for the purpose
the purpose of electing one or more trust of electing one or more directors.
managers. Accordingly, failure to act in Accordingly, failure to act in
compliance with the notice provisions compliance with the notice provisions
will make shareholders unable to nominate will make shareholders unable to
trust managers or propose new business. nominate directors or propose new
business.
<CAPTION>
Special Meetings
<S> <C> <C>
Special meetings of FFP unitholders Subject to the rights, if any, of the Subject to the rights, if any, of the
may be called by FFP's general partner holders of any series of REIT preferred holders of any series of Marketing
or by FFP unitholders owning at least shares to elect additional trust managers Company preferred shares to elect
20% of the outstanding FFP units. under specified circumstances, special additional directors under specified
meetings of the shareholders of the REIT circumstances, special meetings of
may be called only by the Chairman of the the shareholders of the Marketing
Board, the Vice Chairman of the Board, the Company may be called only by the
Chief Executive Officer, the President, Chairman of the Board, the Vice
or the Board of Trust Managers pursuant Chairman of the Board, the Chief
to a resolution adopted by a majority of Executive Officer, the President,
all trust managers or by the Secretary of or the Board of Directors pursuant
the REIT upon the written request of the to a resolution adopted by a majority
holders of 50% or more of all shares then of all directors or by the Secretary
outstanding and entitled to vote at such of the Marketing Company upon the
meeting. written request of the holders of
50% or more of all shares then
outstanding and entitled to vote
at such meeting.
<CAPTION>
Amendments
<S> <C> <C>
Amendments to the FFP Partnership Agreement Under the TRA and the Declaration of Trust, Under the TBCA, the Articles of
may be proposed by FFP's general partner or the Declaration of Trust may be amended upon Incorporation may be amended upon
by limited partners owning at least 10% of the recommendation of the Board of Trust the recommendation of the Board
the FFP units owned by limitedpartners. Managers and theaffirmative vote of at least and the affirmative vote of at
FFP's general partner is not required to a majority of the outstanding shares least a majority of the outstanding
submit any proposed amendment to the FFP entitled to vote on the proposed amendment shares entitled to vote on the
unitholders for consideration if FFP's present in person or by proxy at a duly proposed amendment present in
general partner has received written convened meeting of shareholders. The person or by proxy at a duly
consent to such amendment from limited Declaration of Trust provides that any convened meeting of shareholders,
partners holding the requisite percentage amendment or repeal of the provisions unless the Articles of Incorporation
interest required to approve the proposed relating to the limitation of liability provide for some other specified
amendment. Proposed amendments (other of trust managers, indemnification or portion of shareholder approval.
than those described below) must be amendment of the Declaration of Trust may not The Marketing Company's Articles
approved by limited partners owning more adversely affect any right or protection of Incorporation provide that the
than 50% of the FFP units then outstanding. existing under the Declaration of Trust Articles may be amended upon
immediately prior to such amendment or recommendation of the Board and
FFP's general partner may make amendments repeal. Article XI, which relates to the affirmative vote of at least
to the FFP Partnership special voting requirements in connection a majority of the outstanding
with business combinations, may be shares entitled to vote on the
amended only upon the affirmative proposed amendment. The Articles
of Incorporation provide that any
amendment or repeal of the provisions
relating to the limitation of
liability of directors,
indemnification or amendment of
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
FFP Units REIT Shares Marketing Company Shares
--------- ----------- ------------------------
<S> <C> <C>
Agreement without the approval of the vote of the holders of 80% of all shares the Articles of Incorporation may not
limited partners if, among other things, entitled to be voted on the matter, adversely affect any right or
such amendments do not adversely affect voting together as a single class. protection existing under the
such persons in any material respect; Articles of Incorporation immediately
are necessary or desirable to satisfy prior to such amendment or repeal.
any requirement, condition or guideline The Articles of Incorporation provide
contained in any opinion, directive, that any Article dealing with voting
order, ruling or regulation of any rights may be amended only upon the
federal or state agency or judicial affirmative vote of 80% of the votes
authority or contained in any federal entitled to be cast by outstanding
or state statute; are necessary or voting shares of Marketing Company,
desirable to implement certain voting together as a single class.
tax-related provisions to the FFP
Partnership Agreement; are necessary
or desirable to facilitate the trading
of the FFP units or to comply with any
rule, regulation, guideline or requirement
of any securities exchange on which the
FFP units are or will be listed
for trading, compliance with any of
which FFP's general partner deems to
be in the best interests of FFP
Partners and the FFP unitholders;
or are required or contemplated by
the FFP Partnership Agreement.
<CAPTION>
Limited Liability
<S> <C> <C>
Pursuant to the Delaware RULPA, FFP In accordance with the TRA, the Pursuant to the TBCA, a shareholder
unitholders are not liable for the Declaration of Trust limits the shall be under no obligation to the
obligations of FFP Partners unless liability of a holder of REIT shares Marketing Company or to its obligees
they are also a general partner or, in to his obligation to pay to the REIT with respect to Marketing Company
addition to the exercise of rights and the full amount of the consideration for shares, other than the obligation to
powers as an FFP unitholder, they which the REIT shares were issued. pay to the Marketing Company the full
participate in the control of FFP A holder of REIT shares is not under an amount of the consideration for which
Partners. However, if an FFP unitholder obligation and shall have no liability such shares were issued. A holder of
does participate in the control of FFP to the REIT or its obligees for any Marketing Company shares is not under
Partners, he is liable only to persons who contractual obligation of the REIT an obligation and shall have no
transact business with FFP Partners on the basis of an alter ego theory, liability to the REIT or its obligees
reasonably believing, based upon the FFP actual fraud, constructive fraud or for any contractual obligation of the
unitholder's conduct, that the FFP the failure to observe any formality. Marketing Company on the basis of
unitholder is a general partner. an alter ego theory, actual fraud,
constructive fraud or the failure
to observe any formality.
<CAPTION>
Dissolution and Termination of REIT Status
<S> <C> <C>
Under the terms of the FFP Partnership Under the TRA and the Declaration of Trust, Under the TBCA, the Marketing Company
Agreement, the FFP unitholders may compel the REIT may voluntarily dissolve upon the may voluntarily dissolve upon the
the dissolution of FFP Partners prior to affirmative vote of the holders of at affirmative vote of the holders of
the expiration of its term on December least a majority of the outstanding REIT at least two-thirds of the outstanding
31, 2037 by the affirmative vote of more shares entitled to vote on the dissolution. Marketing Company shares entitled to
than fifty percent (50%) of the total Under the Declaration of Trust, the vote on dissolution, unless the
number of all outstanding FFP units held affirmative vote of the holders of a majority Articles of Incorporation provide for
by all FFP unitholders of record. of the outstanding some other specified portion of
FFP Partners is subject to dissolution shareholder approval. Under the
upon a sale of all or substantially all Marketing Company's Articles of
of FFP Partners' properties, which sale Incorporation, the affirmative vote of
may be made with the approval of FFP's the holders of a majority of the
general partner and a majority in outstanding Marketing Company
interest of the FFP unitholders. REIT shares entitled to vote and the
shares entitled to vote and the approval approval of the Board of Directors is
of the Board of Trust Managers is required required to voluntarily dissolve the
to terminate voluntarily the REIT's status Marketing Company.
as a real estate investment trust.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
FFP Units REIT Shares Marketing Company Shares
--------- ----------- ------------------------
Liquidation Rights
<S> <C> <C>
In the event of liquidation, dissolution In the event of liquidation, dissolution In the event of liquidation,
or winding up of FFP Partners, holders or winding up of the REIT, the holders dissolution or winding up of the
of all FFP units and FFP's general of REIT common shares will be entitled Marketing Company, the holders of
partner would be entitled to share to a distribution, either in cash or in Marketing Company common shares
ratably, in accordance with their kind, of their pro rata share of the will be entitled to a distribution,
percentage interests, in any assets properties and assets of the REIT remaining either in cash or in kind, of their
remaining after the satisfaction of after the REIT has paid, satisfied or pro rata share of the properties and
obligations to creditors. discharged all its debts, liabilities and assets of the Marketing Company
obligations, or making adequate remaining after the Marketing
provision for payment, satisfaction or Company has paid, satisfied or
discharge thereof. discharged all its debts, liabilities
and obligations, or making adequate
provision for payment, satisfaction
or discharge thereof.
<CAPTION>
Limitations of Liability of Management
<S> <C> <C>
The FFP Partnership Agreement The Declaration of Trust eliminates The Articles of Incorporation provide
provides that FFP's general partner, the personal liability of a trust that a director of the Marketing
its affiliates and all officers, manager for any act, omission, loss, Company shall not be personally
directors, employees, shareholders damage or expense arising from the liable to the Marketing Company or
and agents of FFP's general partner performance of his duties as a trust its shareholders for monetary damages
and its affiliates shall not be manager except for liability for (i) for breach of fiduciary duty except
liable to FFP Partners or the FFP willful malfeasance or (ii) gross for liability (i) for any breach of
unitholders for losses sustained or negligence. The Declaration of Trust the director's duty of loyalty, (ii)
liabilities incurred as a result of contains a provision eliminating the for acts or omissions not in good
any errors in judgement or for any personal liability of trust manager faith or which involve intentional
acts or omissions taken in good to the a REIT or its shareholders misconduct or knowing violation of
faith. for monetary damages to the fullest the law, or (iii) for any transaction
extent permitted under the laws of from which the director derived an
the State of Texas, as the same exist improper personal benefit. The
or by Texas statutory or decisional law, Articles of Incorporation provide
as amended or interpreted (but, in the that the liability of a director of
case of any such amendment or the Marketing Company shall be
interpretation, only to the extent that eliminated or limited to the fullest
such amendment or interpretation permits extent permitted by the TBCA, as
broader elimination or limitation of amended from time to time.
liability of a trust manager than
said law permitted prior to such
amendment or interpretation).
<CAPTION>
Indemnification
<S> <C> <C>
The FFP Partnership Agreement provides The Declaration of Trust provides that The Articles of Incorporation provide
that FFP Partners shall indemnify and the REIT shall indemnify and hold that the Marketing Company shall
hold harmless FFP's general partner, harmless all its officers and trust indemnify and hold harmless all of
its affiliates and all officers, directors, managers and may indemnify its its officers and directors and may
employees and agents of FFP's general employees and agents to the fullest indemnify its employees and agents
partner and its affiliates to the maximum extent permitted by law, and shall pay to the fullest extent permitted by
extent permitted by law provided that on such person's behalf or reimburse law and shall pay on such person's
the indemnitee's conduct did not such person for reasonable expenses in behalf or reimburse such person for
constitute gross negligence or advance of final disposition of a reasonable expenses in advance of
willful or wanton misconduct and provided proceeding, to the full extent permitted final disposition of a proceeding,
further that the indemnitee acted in good by law. to the fullest extent permitted by
faith and in a manner it believed to be law.
in, or not opposed to, the best interests
of FFP Partners, and, with respect to any
criminal proceeding, had no reasonable
cause to believe its conduct was unlawful.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
FFP Units REIT Shares Marketing Company Shares
--------- ----------- ------------------------
Derivative Actions
<S> <C> <C>
In accordance with the Delaware RULPA, The TRA does not provide for derivative Under the TBCA, a shareholder may
an FFP unitholder may institute actions by shareholders. However, bring an action on behalf of the
legal action on behalf of FFP Partners because analogous provisions of the Marketing Company to recover a
(a derivative action) to recover TBCA apply to Texas real estate judgment in its favor (a derivative
damages from a third party or from a investment trusts on issues not action) where a proper written
general partner where the general provided for in the TRA, shareholders of demand setting forth the claim
partner has failed to institute the the REIT should be able to bring an has been filed with the corporation
action or where an effort to cause the action on behalf of the REIT pursuant and where 90 days have expired from
general partner to bring the action to the derivative action provisions the date the demand was made or the
is not likely to succeed. In addition, of the TBCA. corporation has rejected the demand
an FFP unitholder may institute legal or irreparable injury to the
action on behalf of himself and other corporation would result by waiting
similarly situated FFP unitholders (a for the expiration of the 90-day
class action) to recover damages from period.
FFP's general partner for violations
of its fiduciary duties to the FFP
unitholders. FFP unitholders may
also have rights to bring actions in
federal court to enforce federal rights.
<CAPTION>
Inspection of Books and Records
<S> <C> <C>
Upon twenty (20) days prior written Under the TRA, upon written demand Under the TBCA, upon written demand
notice, at his own expense and for a stating the purpose thereof, any stating the purpose thereof, any
valid business purpose related to person who has been a shareholder of person who has been a shareholder of
the conduct of FFP Partners' record of the REIT for at least six record of the Marketing Company for
business, an FFP unitholder may have months immediately preceding his at least six months immediately
access to non-confidential, demand, or who is the holder of preceding his demand, or who is the
non-proprietary information record of at least 5% of all the holder of record of at least 5% of
regarding FFP Partners, including outstanding REIT shares will be all the outstanding Marketing Company
tax returns, a current list of the granted the right to examine and shares will be granted the right to
name and last known business, copy, at any reasonable time, for any examine and copy, at any reasonable
residence or mailing address of each proper purpose, the REIT's books and time, for any proper purpose, the
partner, a copy of FFP Partners' records of account, minutes and Marketing Company's books and records
governing instruments, and certain record of shareholders. of account, minutes and records
other information regarding of shareholders.
the affairs of FFP Partners. The
foregoing is subject to FFP's
general partner's right to keep
confidential from FFP unitholders,
for such period of time as FFP's
general partner deems reasonable,
any information which FFP's general
partner reasonably believes to be in
the nature of trade secrets or other
information the disclosure of which
FFP's general partner in good faith
believes is not in the best
interests of FFP Partners or could
damage FFP Partners or its business.
<CAPTION>
Distributions and Dividends
<S> <C> <C>
Under the FFP Partnership Agreement, Under the TRA, the REIT may make a Under the TBCA, the Marketing Company
distributions on the FFP units may be distribution, unless, after giving may make a distribution, unless, after
paid from time to time in the sole effect thereto, the REIT would be giving effect thereto, the Marketing
discretion of FFP's general partner. insolvent or the distribution exceeds Company would be insolvent or the
To the extent of available resources, the surplus of the REIT. The term distribution exceeds the surplus
FFP's general partner is currently "surplus," under the TRA, means the of the Marketing Company. The term
required to make distributions on excess of the net assets of the real "surplus," under the TBCA, means the
the Class A units in an amount equal estate investment trust over its excess of the net assets of the
to the aggregate average taxable income stated capital. The Declaration of corporation over its stated capital.
allocable to the Class A units as Trust and Bylaws permit the trust The Bylaws provide that the Board of
estimated by FFP's general partner. managers to declare dividends or make Directors may declare and the
This requirement will be eliminated in other distributions on the REIT shares Marketing Company may pay dividends
the restructuring. in their discretion. The Declaration on its outstanding shares in cash,
of Trust property or its
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
FFP Units REIT Shares Marketing Company Shares
--------- ----------- ------------------------
<S> <C> <C>
provides that the holders of such own shares pursuant to applicable law
dividends as may be declared by the trust and the Articles of Incorporation.
managers out of funds legally available
therefor.
<CAPTION>
Special Vote Required for Certain Business Combinations
<S> <C> <C>
Neither the Delaware RULPA nor the The Declaration of Trust establishes The TBCA imposes a special voting
FFP Partnership Agreement contain special requirements with respect to requirement for the approval of
any special voting provisions "business combinations" (including a certain business combinations and
applicable to combinations or other merger, consolidation, share related party transactions between
transactions with persons who have exchange, or, in certain public corporations and affiliated
acquired a significant percentage of circumstances, an asset transfer or shareholders unless the transaction
FFP units. issuance or reclassification of or the acquisition of shares by the
equity securities) between the REIT affiliated shareholder is approved
and any person who beneficially owns, by the board of directors of the
directly or indirectly, 10% or more corporation prior to the affiliated
of the voting power of the REIT shareholder becoming an affiliated
shares (an "Interested Shareholder"), shareholder. The TBCA prohibits
subject to certain exemptions. In certain mergers, sales of assets,
general, the Declaration of Trust reclassifications and other
provides that an Interested transactions (defined as business
Shareholder or any affiliate thereof combinations) between shareholders
may not engage in a "business beneficially owning 20% or more of
combination" with the REIT for a the outstanding stock of a Texas
period of five years following the public corporation (such
date he becomes an Interested shareholders being defined as an
Shareholder. Thereafter, such affiliated shareholder) for a period
transactions must be recommended by of three years following the
the REIT's Board and approved by the shareholder acquiring shares
affirmative vote of at least: (i) representing 20% or more of the
80% of the votes entitled to be cast corporation's voting power unless
by holders of shares entitled to vote two-thirds of the unaffiliated
generally in the election of trust shareholders approve the transaction
managers, voting together as a single at a meeting held no earlier than
group, and (ii) two-thirds of the six months after the shareholder
votes entitled to be cast by holders acquires that ownership. The
of shares entitled to vote generally provisions requiring such a vote of
in the election of trust managers shareholders does not apply to any
other than such shares held by an transaction with an affiliated
Interested Shareholder who will be a shareholder if the transaction or
party to the business combination or the purchase of shares by the
by an affiliate of the Interested affiliated shareholder is approved
Shareholder, voting together as a by the board of directors before the
single group, unless, among other affiliated shareholder
things, the holders of REIT common acquires beneficial ownership of 20%
shares receive a minimum price (as of the shares.
defined in the Declaration of Trust)
for their shares and the The Articles of Incorporation
consideration is received in cash or establish special requirements with
in the same form as previously paid respect to "business combinations"
by the Interested Shareholder for his (including a merger, consolidation,
shares. This provision of the share exchange, or, in certain
Declaration of Trust does not apply, circumstances, an asset transfer or
however, to business combinations issuance or reclassification of
that are approved or exempted by the equity securities) between the
REIT's Board prior to the time that Marketing Company and any person who
the Interested Shareholder becomes an beneficially owns, directly or
Interested Shareholder, or prior to indirectly, 10% or more of the
the conversion. voting power of the Marketing
Company shares (an "Interested
Shareholder"), subject to certain
exemptions. In general, the
Articles of Incorporation provide
that an Interested Shareholder or
any affiliate thereof may not engage
in a "business combination" with the
Marketing Company for a period of
five years following the date he
becomes an Interested Shareholder.
Thereafter, such
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
FFP Units REIT Shares Marketing Company Shares
--------- ----------- ------------------------
<S> <C> <C>
transactions must be recommended
by the Marketing Company's Board
and approved by the affirmative
vote of at least: (i) 80% of
the votes entitled to be cast
by holders of shares entitled to
vote generally in the election of
directors voting together as a
single group, and (ii) two-thirds of
the votes entitled to be cast by
holders of shares entitled to vote
generally in the election of
directors other than such shares
held by an Interested Shareholder
who will be a party to the business
combination or by an affiliate of
the Interested Shareholder, voting
together as a single group, unless,
among other things, the holders of
Marketing Company common shares
receive a minimum price (as defined
in the Articles of Incorporation)
for their shares and the
consideration is received in cash or
in the same form as previously paid
by the Interested Shareholder for
his shares. This provision of the
Articles of Incorporation does not
apply, however, to business
combinations that are approved or
exempted by the Marketing Company's
Board prior to the time that the
Interested Shareholder becomes an
Interested Shareholder.
<CAPTION>
Transferability
<S> <C> <C>
The FFP Partnership Agreement permits For the REIT to qualify as a real The Marketing Company shares are
the transfer of FFP units in estate investment trust under the transferable on the Marketing
accordance with applicable law, Code, it must meet certain Company's books, pursuant to
provided that the transferee requirements concerning the ownership applicable law and any rules as the
executes and delivers a satisfactory of its outstanding shares of capital Board may prescribe from time to time.
transfer application to FFP stock. Specifically, not more than
Partners' transfer agent. 50% in value of the issued and
outstanding shares of capital stock
Immediately after the restructuring, of the REIT may be owned, directly or
the FFP Amended Partnership indirectly, by five or fewer
Agreement will prohibit the transfer individuals (as defined in the Code
of FFP units if such transfer would to include certain entities) during
result in any person owning, the last half of a taxable year, and
directly or indirectly, FFP units in the REIT must be beneficially owned
excess of 4.9% of the outstanding by 100 or more persons during at
FFP units. This restriction is least 335 days of a taxable year of
necessary so that FFP Partners may 12 months or during a
maintain its partnership status for proportionate part of a shorter
federal income tax purposes after taxable year. Because the REIT's
the restructuring. Board of Trust Managers believes it
will be essential for the REIT to
After the conversion through the continue to qualify as a real estate
exchange alternative, the FFP investment trust after the
Amended Partnership Agreement will conversion, the Declaration of Trust
not permit the transfer of FFP restricts the transfer of REIT
units. However, at that time the FFP shares. See "Description of
units generally may be redeemed for Securities--The REIT--Restrictions
either cash or REIT shares, at the on Transfer" for a discussion of the
discretion of FFP's general partner. restrictions on transfer of the REIT
shares.
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
FFP Units REIT Shares Marketing Company Shares
--------- ----------- ------------------------
Appraisal Rights
<S> <C> <C>
The Delaware RULPA provides that a Under the TRA, a holder of REIT Under the TBCA, a holder of Marketing
partnership agreement may provide shares who does not vote in favor of Company shares who does not vote in
contractual appraisal rights with a merger or consolidation of the REIT favor of a merger or consolidation
respect to a partnership interest, may, upon compliance with certain of the Marketing Company may, upon
however, the FFP Partnership procedures, be entitled to receive compliance with certain procedures,
Agreement does not provide any such the fair value of the REIT shares in be entitled to receive the fair
contractual appraisal rights to FFP lieu of the consideration that would value of the Marketing Company
unitholders. otherwise be received in the merger shares in lieu of the consideration
or consolidation. Appraisal rights that would otherwise be received in
are not available in certain mergers, the merger or consolidation.
including (a) mergers in which the Appraisal rights are not available
REIT is the surviving corporation and in certain mergers, including (a)
in which no vote of its shareholders mergers in which the Marketing
was required and (b) mergers when the Company is the surviving corporation
shares were then listed on a national and in which no vote of its
securities exchange or held of record shareholders was required and (b)
by more than 2,000 holders and the mergers when the shares were then
holders of shares are not required to listed on a national securities
accept in exchange for their shares exchange or held of record by more
anything other than shares of stock than 2,000 holders and the holders
of the surviving corporation that, on of shares are not required to accept
the effective date of the merger, in exchange for their shares
would be listed on a national anything other than shares of stock
securities exchange or held of record of the surviving corporation that,
by more than 2,000 holders, cash in on the effective date of the
lieu of fractional shares, or any merger, would be listed on a
combination thereof. national securities exchange or held
of record by more than 2,000
holders, cash in lieu of fractional
shares, or any combination thereof.
<CAPTION>
Fiduciary Duties
<S> <C> <C>
Under Delaware law, FFP's general partner Under Texas law, the trust managers Under Texas law, the directors of the
has fiduciary duties of good faith, loyalty of the REIT will have fiduciary duties Marketing Company will have fiduciary
and fair dealing to the limited partners of good faith, loyalty and fair duties of good faith, loyalty and fair
in the management of FFP Partners' affairs. dealing to the shareholders of the dealing to the shareholders of the
The duty of good faith requires FFP's general REIT in the management of the REIT's Marketing Company in the management
partner to deal fairly and with candor with affairs. These duties are generally of the Marketing Company's affairs.
the limited partners. The duty of loyalty the same as the duties owed by Texas courts have generally described
requires that, without the limited partners' directors of a Texas corporation to these duties in the same way as the
consent, FFP's general partner may not have the corporation's shareholders. duties of a general partner are
any improper business or other interests that described under Delaware law.
are adverse to the interests of FFP
Partners. The duty of fair dealing
requires that all transactions between
FFP's general partner and FFP Partners be
fair both in the manner by which they are
effected and in amount of the consideration
received by FFP Partners.
<CAPTION>
Right to Acquire Units or Shares
<S> <C> <C>
Section 17.1 of the FFP Partnership Neither Texas law nor the REIT's Neither Texas law nor the Marketing
Agreement provides that in the event Declaration of Trust or Bylaws has any Company's Articles of Incorporation
less than 10% of the total number of provision similar to Section 17.1 of or Bylaws has any provision similar to
units then outstanding is held by the FFP Partnership Agreement. Section 17.1 of the FFP Partnership
persons other than the general Agreement.
partner and its affiliates, the
general partner will have the right,
which it may assign and transfer to
any of its
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FFP Units REIT Shares Marketing Company Shares
--------- ----------- ------------------------
<S> <C> <C>
affiliates (other than FFP Partners),
on a date to be selected by the general
partner on at least 10 but not more than
60 days' notice, to purchase all, but
not less than all, of the
outstanding units held by such
non-affiliated persons. The
purchase price per unit in the event
of such purchase shall be the
greater of (a) the highest price
paid by the general partner or its
affiliates for any units of that
class purchased within 90 days
preceding the date on which the
general partner first mails to
unitholders written notice of its
election to call outstanding units
of that class or (b)(i) the average
of the market prices of the units of
that class for the 30 trading days
preceding the date on which such
notice is first mailed or (ii) if
the units of that class are not
listed for trading on an exchange or
quoted by NASDAQ, an amount equal to
the fair market value of such units
on the date such notice is first
mailed, as determined by the general
partner using any reasonable method
of evaluation.
</TABLE>
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
considerations affecting the FFP unitholders as a result of the restructuring.
Jenkens & Gilchrist, a Professional Corporation, tax counsel to FFP Partners
("Tax Counsel"), is of the opinion that under existing law, based upon factual
representations made by FFP Partners and FFP's general partner and assuming the
facts described below are correct, the following summary of federal income tax
law is correct. This summary does not give a detailed discussion of state, local
or foreign tax considerations. This discussion is directed principally at FFP
unitholders who are United States citizens or residents or domestic
corporations, and does not address in all material respects considerations that
might adversely affect the treatment of FFP Unitholders who are subject to
special treatment under the tax laws (such as insurance companies, cooperatives,
financial institutions, broker-dealers, tax exempt organizations or foreign
investors). The discussion in this section is based on existing provisions of
the Code, existing and proposed Treasury Regulations, existing court decisions
and existing rulings and other administrative interpretations. There can be no
assurance that future Code provisions or other legal authorities will not alter
significantly the tax consequences described below. Except for the tax ruling
requested in connection with the merger alternative as described herein, no
rulings have been, or will be, obtained from the IRS concerning any of the
matters discussed in this section. Because the following represents only a
summary, it is qualified in its entirety by the applicable provisions of the
Code and Treasury Regulations, court decisions and IRS rulings and other IRS
pronouncements. Unlike a tax ruling (which will not be sought, except as
otherwise described herein), an opinion of counsel, which is based on counsel's
review and analysis of existing law, is not binding on the IRS. Accordingly, no
assurance can be given that the IRS would not successfully challenge the
opinions set forth herein.
You are strongly urged to consult your own tax advisor regarding the
specific tax consequences to you of the ownership of FFP units, Marketing
Company Shares, the acquisition, ownership and sale of REIT shares and the
election of the REIT to be taxed as a real estate investment trust, and of
potential changes in applicable tax laws.
A. The Restructuring
1. Distribution of Real Estate Assets to FFP Partners
All of the real estate assets of the Operating Partnership will be
distributed pro rata to FFP Partners and FFP's general partner (in its capacity
as the general partner of the Operating Partnership). In connection with the
distribution, FFP Partners will assume certain liabilities of the Operating
Partnership. These transactions should be nontaxable to the Operating
Partnership, FFP Partners and the FFP unitholders. FFP Partners' basis in the
real estate assets will equal the lesser of the Operating Partnership's basis in
such assets or FFP Partners' basis in its interest in the Operating Partnership.
2. Contribution of Operating Partnership Interests to the Marketing
Company and Distribution of Marketing Company Shares
Immediately following the foregoing transactions, FFP Partners and FFP's
general partner (in its capacity as the general partner of the Operating
Partnership) will contribute their interests in the Operating Partnership to the
Marketing Company in exchange for all of the outstanding stock of the Marketing
Company (the "Contribution"). As a result of the Contribution, the Operating
Partnership will terminate for federal income tax purposes. Accordingly,
following the Contribution, all of the assets and liabilities formerly owned by
the Operating Partnership (excluding the real estate assets and liabilities
described above) will be owned by the Marketing Company. Following the
Contribution, FFP Partners will distribute its Marketing Company stock to the
FFP unitholders (the "Distribution"). Pursuant to the Distribution, each FFP
unitholder will receive one Marketing Company share for each FFP unit held.
The Contribution and the Distribution should be nontaxable to the
Marketing Company, the Operating Partnership, FFP Partners and the FFP
unitholders. If the Contribution failed to qualify as a non-taxable transaction,
FFP Partners would recognize taxable gain or loss. Any such gain or loss
recognized would be allocated among the FFP Unitholders and FFP's General
Partner. The remaining discussion assumes that the Contribution and the
Distribution will be non-taxable transactions.
Tax Basis and Holding Period of FFP Unitholders. The FFP Unitholders'
basis in the Marketing Company shares will equal the lesser of FFP Partners'
basis in such Marketing Company shares or the basis in their FFP units. The FFP
unitholders' basis in their FFP units following the Distribution will be their
pre-Distribution basis in their FFP units reduced by the basis allocable to
their Marketing Company shares. The FFP unitholders' holding period for the
Marketing Company shares will include FFP Partners' holding period for such
shares for purposes of determining the character of gain from the
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<PAGE>
sale of such stock. FFP Partners' holding period in each of its Marketing
Company shares will be divided into two parts. Generally, one part will be the
portion of the value of the stock that is attributable to any ordinary income
assets of the Operating Partnership transferred by FFP Partners to the Marketing
Company pursuant to the Contribution; the holding period for this portion of the
stock will begin on the day following the Contribution. The remaining part will
be the portion of the value of the stock that is attributable to capital assets
or Section 1231 property (generally property used in a trade or business which
has been held for more than one year and is subject to an allowance for
depreciation or is real property, other than inventory or property held
primarily for sale to customers in the ordinary course of the taxpayer's trade
or business) transferred by FFP Partners to the Marketing Company pursuant to
the Contribution; such part will have a holding period which will include the
holding period of FFP Partners in its Operating Partnership interests. As a
result, a sale or disposition of any such stock by an FFP unitholder within one
year of the date of the Contribution generally will generate both long-term and
short-term capital gain or loss, as the case may be, to the FFP unitholder.
Tax Basis and Holding Period of Marketing Company in Operating Partnership
Assets. The Marketing Company's aggregate tax basis in its assets following the
Contribution generally should equal FFP Partners' and FFP's general partner's
aggregate tax bases in their partnership interests in the Operating Partnership
on the date of the Contribution. The Marketing Company's holding period in the
assets will include the Operating Partnership's holding period in such assets.
3. Contribution of Real Estate Assets to FFP Properties
FFP Partners and FFP's general partner will contribute all of the real
estate assets (that were received by FFP Partners and FFP's general partner from
the Operating Partnership pursuant to the distribution discussed in (1) above)
to FFP Properties, a newly formed partnership in exchange for units of FFP
Properties. Pursuant to this exchange, FFP Partners will receive both a general
partnership interest and a limited partnership interest in FFP Properties. In
connection with the contribution of assets, FFP Properties will assume
approximately $16,000,000 of FFP Partners' indebtedness. The contribution of the
real estate assets by FFP Partners and FFP's general partner to FFP Properties
and the assumption of FFP Partners' indebtedness by FFP Properties should be
nontaxable to FFP Partners and the FFP unitholders. At the time of the formation
of FFP Properties, FFP Partners will distribute units of FFP Properties to the
Harvison Family in complete redemption of its FFP Units. In addition, the
Harvison Family will also receive units of FFP Properties in exchange for the
contribution of certain properties to FFP Properties. Following this step of the
restructuring, FFP Partners will be the general partner of FFP Properties and
the Harvison Family and the REIT will be the limited partners of FFP Properties.
4. REIT Acquires General Partner Interest in FFP Partners
The REIT will acquire the general partner interest in FFP Partners from
FFP's general partner and will be admitted as the new general partner of FFP
Partners. No gain or loss should be recognized by FFP Partners or the FFP
unitholders as a result of the REIT's acquisition of a general partner interest
in FFP Partners or the admission of the REIT as the general partner of FFP
Partners.
B. Conversion to Real Estate Investment Trust Form: The Merger Alternative or
the Exchange Alternative
Following the restructuring, the REIT will be FFP's general partner. While
the REIT will be a real estate investment trust under state law, it will not be
treated as a real estate investment trust for federal income tax purposes until
it qualifies as a real estate investment trust for federal income tax purposes
and it makes an affirmative election with the IRS to that effect. If the
conversion of FFP Partners' to a real estate investment trust form occurs, it
will take place pursuant to either the merger alternative or the exchange
alternative and only at such time as the REIT is able to satisfy the applicable
federal income tax requirements of a real estate investment trust.
1. The Merger Alternative
Under the merger alternative, FFP Partners will be converted into a
real estate investment trust form for federal income tax purposes through the
merger of FFP Partners with the REIT, with the REIT being the surviving entity.
Pursuant to the merger, an FFP unitholder will receive one REIT share for each
FFP unit owned.
(a) Qualification as Nonrecognition Transaction
It is a condition precedent to the consummation of the merger that FFP's
general partner shall have received a favorable ruling from the IRS to the
effect that the merger will be treated as part of a "tax-free" transaction
described in Section 351 of the Code (the "Ruling"). Section 351 (a) of the Code
sets forth the general rule that no gain or loss will be
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<PAGE>
recognized by one or more persons transferring assets to a corporation solely in
exchange for the corporation's stock if, immediately after the exchange, the
transferors are "in control" of the transferee corporation. "Control" is defined
as the ownership of stock possessing at least 80% of the total combined voting
power of all classes of stock entitled to vote and at least 80% of the total
number of shares of all other classes of stock of the corporation. For purposes
of the Ruling request, FFP Partners generally will be required to make
representations to the IRS that not more than 20% of the REIT shares transferred
to the FFP unitholders and FFP's general partner pursuant to the merger will
subsequently be sold pursuant to plans or arrangements entered into prior to the
merger. Neither FFP Partners nor FFP's general partner is aware of any plans or
arrangements that have been or will be entered into prior to the merger which
would make this assumption incorrect.
There are two alternative approaches by which the IRS may rule that the
merger qualifies as a transaction described in Section 351 of the Code. Tax
Counsel cannot opine as to which alternative approach the IRS might select.
Nevertheless, the tax consequences of the two alternatives, while similar, are
not exactly the same. Under one alternative construction (the "Transfer of
Partnership Interests Approach"), the IRS would treat the merger as if each of
the FFP unitholders had transferred FFP units to the REIT in exchange for REIT
shares. Under the second alternative (the "Transfer of Assets Approach"), the
merger will be treated as if FFP Partners transferred its assets and liabilities
to the REIT in exchange for REIT shares followed by a distribution of the REIT
shares by FFP Partners to the FFP unitholders and FFP's general partner in
liquidation of FFP Partners. The IRS has taken the position in a revenue ruling
that the distribution by a partnership of the stock received in a Section 351
exchange to its partners in liquidation of the partnership will not violate the
control requirement.
Even in the case of a transaction described in Section 351 of the Code,
gain will be recognized by the transferor if and to the extent that the amount
of the liabilities assumed and taken subject to by the transferee exceeds the
aggregate adjusted basis of the property transferred in the exchange. Gain
recognized, if any, must be reported as ordinary income, long-term capital gain,
or short-term capital gain according to the nature and the holding period of the
transferred property.
Section 351(a) does not apply to transfers of property to an investment
company. A real estate investment trust is an investment company if the transfer
results, directly or indirectly, in "diversification" of the transferors'
interests. The purpose of this restriction is to prevent the tax-free pooling of
investment assets by more than one transferor. Accordingly, as part of the
Ruling request, it may be necessary to establish that at the time of the merger
there will not be an existing plan or arrangement (i) to achieve diversification
of FFP Partners' (or the FFP unitholders') interests in one or more additional
nonrecognition transactions, (ii) to issue additional REIT shares except
pursuant to the REIT's dividend reinvestment plan, if any, and pursuant to
compensatory stock options that may be granted by the REIT to key service
providers, or (iii) to acquire any additional specific property.
If Section 351 of the Code did not apply to the merger, FFP Partners would
recognize taxable gain or loss in an amount equal to the difference between the
total value of the consideration received (the amount of liabilities assumed and
taken subject to by the REIT in the merger plus the fair market value of the
REIT shares received in the exchange) and the adjusted basis in the assets
transferred to the REIT. See "--The Merger Alternative--Tax Consequences to
Unitholders--Potential Gain Recognition." Neither FFP Partners nor the FFP
Unitholders should recognize gain or loss upon the distribution of the REIT
shares under the Transfer of Assets Approach.
(b) Tax Consequences to FFP Partners
Nonrecognition and Termination. If the merger is treated as a
nonrecognition transaction under Section 351 of the Code, (a) FFP Partners will
not recognize gain under the Transfer of Partnership Interests Approach and
(b) FFP Partners will not recognize gain under the Transfer of Assets Approach
except to the extent (if any) that the liabilities to which the transferred
property is subject plus the liabilities assumed by the REIT in connection with
the Merger exceed the total adjusted basis of the property transferred. FFP's
general partner believes that FFP Partners' aggregate adjusted basis in its
assets will exceed the sum of such liabilities at the time of the merger.
For federal income tax purposes, under the Transfer of Assets Approach,
FFP Partners will be deemed to have received the REIT shares and distributed
them to the FFP unitholders pursuant to a liquidation of FFP Partners. FFP
Partners should not recognize gain or loss pursuant to such liquidation and will
terminate upon the distribution of the REIT shares.
Tax Termination of FFP Partners. As a result of the merger, FFP Partners
will terminate for tax purposes under Section 708(b)(1)(A) of the Code. FFP
Partners' taxable year will end on the date of the termination. As a result of
the closing of FFP Partners' taxable year, an FFP unitholder who has a taxable
year other than a calendar year may be required to report more than 12 months of
FFP Partners' income or loss in the taxable year in which the termination
occurs.
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(c) Tax Consequences to the FFP Unitholders
General Rule - Nonrecognition. It is a condition precedent to consummation
of the merger that the IRS issue a favorable ruling as to treatment of the
merger as part of a transaction described in Section 351 of the Code. As a
result of the treatment of the merger as a nonrecognition transaction under
Section 351, the merger generally will be tax-free to the FFP unitholders except
as described below. See "--Tax Consequences to the FFP Unitholders--Potential
Gain Recognition." The FFP unitholders will not recognize gain or loss upon the
receipt of REIT shares in the merger.
Potential Gain Recognition. Notwithstanding the fact that the merger
qualifies under Section 351 of the Code, certain FFP unitholders may recognize
gain on the Merger as follows:
(a) Under the Transfer of Partnership Interests Approach, if an FFP
unitholder's allocable share of FFP Partners' liabilities exceeds
the adjusted basis of his interest in FFP Partners, such FFP
unitholder will recognize gain to the extent of the excess. FFP's
general partner believes that this result is unlikely for most FFP
unitholders.
(b) Under the Transfer of Assets Approach, if the sum of the amount of
liabilities assumed by the REIT and the amount of liabilities to
which the assets transferred to the REIT are subject exceeds FFP's
adjusted basis in the transferred assets, FFP will recognize gain
to the extent of the excess. Such gain recognized would be
allocated among the FFP unitholders and FFP's General Partner.
FFP's general partner believes that this result is unlikely.
If for any reason the merger did not qualify for nonrecognition treatment
under Section 351, (a) under the Transfer of Partnership Interests Approach, the
FFP unitholders and FFP's general partner would recognize gain or loss as if
they had sold their FFP units to the REIT for an amount equal to the value of
the REIT shares received by the FFP unitholders and FFP's general partner in the
merger plus their share of FFP Partners' liabilities; and (b) under the Transfer
of Assets Approach, FFP Partners would recognize gain or loss on the transfer of
its assets to the REIT as if FFP Partners had sold the assets for an amount
equal to the value of the REIT shares received by the FFP unitholders and FFP's
general partner in the merger plus the amount of liabilities assumed or taken
subject to by the REIT in the merger. Such gain recognized under the Transfer of
Assets Approach would be allocated among the FFP unitholders and FFP's general
partner. In such a case, each FFP unitholder's basis in the REIT shares received
would be increased (or decreased) by the gain (or loss) recognized and each FFP
unitholder's holding period in the REIT shares received would begin on the day
after the merger.
Suspended Deductions. Any loss previously allocated to an FFP unitholder
in prior years or during the tax year of the merger that has not been used
because of the at-risk or basis limitations can be used only to the extent of
any income or gain recognized on the merger. Generally, FFP unitholders subject
to the passive activity loss limitations would be able to utilize suspended
passive losses from FFP Partners to offset gain that they might be required to
recognize on the merger. Any passive losses not so used may not be available
until the FFP unitholder disposes of his entire interest in the REIT.
Tax Basis in REIT Shares. An FFP unitholder's aggregate tax basis in the
REIT shares received in the merger will equal his aggregate basis in his FFP
units and any gain or loss recognized on the merger, but in any case not less
than zero. This basis will be allocated pro rata among all of the REIT shares
received by the FFP unitholder pursuant to the merger.
Holding Period in REIT Shares. For holding period purposes, each REIT
share will be divided into two parts. Generally, one part will be the portion of
the value of the REIT share that is attributable to any ordinary income assets
transferred by FFP Partners pursuant to the merger; its holding period will
begin on the day following the merger. The remaining part will be the portion of
the value of the REIT share that is attributable to capital assets or
Section 1231 property (generally property used in a trade or business which has
been held for more than one year and is subject to an allowance for depreciation
or is real property, other than inventory or property held primarily for sale to
customers in the ordinary course of the taxpayer's trade or business)
transferred by FFP Partners pursuant to the merger; such part will have a
holding period which will include (a) under the Transfer of Partnership
Interests Approach, the holding period of the FFP unitholder in his FFP units
and (b) under the Transfer of Assets Approach, the holding period of FFP
Partners in the REIT shares distributed. FFP Partners's holding period in the
REIT shares will include the period the assets transferred were held by FFP
Partners, provided the assets were capital assets or Section 1231 property on
the date of the exchange. Thus, a portion of each REIT Share distributed to an
FFP Unitholder will have a holding period in the hands of the FFP Unitholder
which will include the holding period of FFP Partners in certain assets
transferred to the REIT, while another portion of each such REIT Share in the
hands of the FFP Unitholder will have a holding period which will commence with
the date following the Merger. As a result, a sale or disposition of any such
REIT Share by an FFP Unitholder within one year of the date of Merger will
generate both long-term and short-term capital gain or loss, as the case may be,
to the FFP Unitholder.
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(d) Tax Consequences to the REIT
Nonrecognition. The REIT will not recognize gain or loss on its exchange
of REIT shares for either FFP Partner's assets (as transferred to the REIT by
FFP Partners under the Transfer of Assets Approach) or interests in FFP Partners
(as transferred by the FFP Unitholders and FFP's General Partner under the
Transfer of Partnership Interests Approach). Following the Merger, substantially
all the assets and liabilities formerly owned by FFP Partners will be owned by
the REIT.
Tax Basis and Holding Period in Assets. The aggregate tax basis of the
REIT in its assets following the merger should equal (a) under the Transfer of
Partnership Interests Approach, the FFP unitholders' and FFP's general partner's
aggregate tax bases in their interests in FFP Partners on the date of the merger
(increased by any gain recognized by them pursuant to the merger); or (b) under
the Transfer of Assets Approach, FFP Partners' aggregate tax basis in its assets
on the date of the merger (increased by any gain recognized by FFP Partners
pursuant to the merger). The REIT's holding period in the assets will include
FFP Partners' holding period.
Tax Termination of FFP Properties. Section 708(b)(1)(B) of the Code
provides that if 50% or more of the capital and profits interests in a
partnership are sold or exchanged within a single twelve-month period, the
partnership will be deemed to terminate for tax purposes. Such a termination is
referred to as a "constructive termination." As a result of the merger, there
will be a constructive termination of FFP Properties. When the constructive
termination occurs, FFP Properties will be treated as transferring all of its
assets and liabilities to a new partnership ("New Partnership") in exchange for
an interest in New Partnership and, immediately thereafter, FFP Properties will
be treated as distributing its interest in New Partnership to its partners in
liquidation of FFP Properties. As a result of the constructive termination,
(a) there will be a closing of FFP Properties' taxable year for all its
partners, (b) the New Partnership will be treated as newly acquiring the
depreciable assets of FFP Properties and will be required to restart the
depreciable lives of such assets, and (c) the New Partnership will be required
to make new elections for federal income tax purposes (including the Section 754
election) in order to enjoy the benefit of such elections.
Reporting Requirements. Pursuant to Section 1.351-3(a) of the Regulations,
either (a) each FFP unitholder under the Transfer of Partnership Interests
Approach or (b) FFP Partners under the Transfer of Assets Approach will be
required to file with its income tax return for the tax year of the merger, a
statement which includes a description of (i) the assets transferred, (ii) the
REIT shares received in the exchange, and (iii) any liabilities (or share of
liabilities) of FFP Partners assumed by the REIT pursuant to the merger. To the
extent that the FFP unitholders are required to file such a statement, FFP
Partners will provide the FFP unitholders with the information necessary to
complete such statement.
2. The Exchange Alternative
Under the exchange alternative, FFP Partners will be converted into a real
estate investment trust form for federal income tax purposes by implementing
amendments to the Partnership Agreement of FFP Partners. Pursuant to such
amendments, FFP units generally would not be transferable. Instead, an FFP
unitholder who wished to sell his FFP units would be required to tender his FFP
units for redemption to FFP Partners. In exchange for his FFP units, such FFP
unitholder would receive either REIT shares or cash, at the discretion of the
REIT (in its capacity as the general partner of FFP Partners). See "--Tax
Consequences of the Operations of FFP Partners."
C. Tax Consequences of the REIT's Qualification and Operation as a Real
Estate Investment Trust
The REIT will make an election to be taxed as a real estate investment
trust under Sections 856 through 860 of the Code (the "Election") at such time
as the Board of Trust Managers determines that such election is appropriate.
However, it is unlikely that the Board of Trust Managers would elect real estate
investment trust status for the REIT at any time prior to the conversion. The
REIT believes that, commencing with the taxable year of the Election, it will be
organized and will operate in such a manner as to qualify for taxation as a real
estate investment trust under the Code, and the REIT intends to continue to
operate in such a manner, but no assurance can be given that the REIT will
operate in a manner so as to qualify or remain qualified as a real estate
investment trust. Following the Election, the REIT's qualification and taxation
as a real estate investment trust will depend upon the REIT's ability to meet on
a continuing basis, through actual annual operating results, distribution
levels, and share ownership, the various qualification tests imposed under the
Code and discussed below. No assurance can be given that the actual results of
the REIT's operations, actual distribution levels and actual share ownership for
any particular taxable year will satisfy such requirements. For a discussion of
tax consequences of failure to qualify as a real estate investment trust, see
"--Failure to Qualify as a Real Estate Investment Trust."
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The following is a summary of the material federal income tax
considerations that, following the Election, will affect the REIT as a real
estate investment trust and the shareholders of the REIT, including FFP
unitholders who convert their FFP units into REIT shares:
Real Estate Investment Trust Taxation and Qualification. If the REIT makes
the Election and qualifies for taxation as a real estate investment trust, it
generally will not be subject to corporate income tax to the extent the REIT
currently distributes its taxable income to its shareholders. This treatment
effectively eliminates the "double taxation" (i.e., taxation at both the
corporate and shareholder levels) that generally results from an investment in a
corporation. The REIT will be subject to federal income tax in the following
circumstances: (i) the REIT will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains;
(ii) under certain circumstances, the REIT may be subject to the alternative
minimum tax on its items of tax preference; (iii) if the REIT has net taxable
income from the sale or other disposition of foreclosure property that is held
primarily for sale to customers in the ordinary course of business or other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income; (iv) if the REIT has net income from
prohibited transactions, such income will be subject to a 100% tax; (v) if the
REIT should fail to satisfy the 75% gross income test or the 95% gross income
test (as discussed below), and nonetheless has maintained its qualification as a
real estate investment trust because certain other requirements have been met,
it will be subject to a 100% tax on the net income attributable to the greater
of the amount by which the REIT fails the 75% or 95% gross income test; (vi) if
the REIT should fail to distribute during each calendar year at least the sum of
(a) 85% of its REIT ordinary income for such year, (b) 95% of its REIT capital
gain net income for such year, and (c) any undistributed taxable income from
prior periods, the REIT would be subject to a 4% excise tax on the excess of
such required distribution over the amounts actually distributed; and (vii) if
the REIT acquires any asset from a C corporation in a transaction in which the
basis of the asset in the REIT's hands is determined by reference to the basis
of the asset in the hands of the C corporation and the REIT recognizes gain on
the disposition of such asset during the 10 year period beginning on the date on
which such asset was acquired by the REIT, then to the extent of such asset's
"built-in gain" (the excess of the fair market value of such property at the
time of acquisition by the REIT over the adjusted basis of such property at such
time), such gain will be subject to tax at the highest corporate rate applicable
(as provided in Treasury Regulations that have not yet been promulgated).
General Qualification Requirements. The Code defines a real estate
investment trust as a corporation, trust or association (i) that is managed by
one or more trustees or directors; (ii) the beneficial ownership of which is
evidenced by transferable shares or by transferable certificates of beneficial
interest; (iii) that would be taxable as a domestic corporation, but for
Sections 856 through 859 of the Code; (iv) that is neither a financial
institution nor an insurance company; (v) the beneficial ownership of which is
held by 100 or more persons; (vi) not more than 50% in value of the outstanding
shares of which is owned, directly or indirectly (applying certain constructive
ownership rules), by five or fewer shareholders during the last half of each
taxable year (the "5/50 Rule"); (vii) that makes an election to be taxed as a
real estate investment trust and satisfies all relevant filing and other
administrative requirements established by the IRS that must be met in order to
elect and maintain real estate investment trust status; and (viii) that meets
certain other tests, described below, regarding the nature of its income and
assets. The Code provides that conditions (i) through (iv), inclusive, must be
met during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months. Conditions (v) and (vi) will not
apply during the first taxable year for which an election is made by the REIT to
be taxed as a real estate investment trust. The REIT anticipates issuing
sufficient REIT stock with sufficient diversity of ownership to allow it to
satisfy conditions (v) and (vi) at all times necessary for it to qualify as a
real estate investment trust for the taxable year of the Election and all
subsequent taxable years.
In addition, an entity may not elect to be taxed as a real estate
investment trust unless its taxable year is a calendar year. The REIT's taxable
year will be the calendar year.
Share Ownership; Recordkeeping. The REIT believes that, at all times
necessary for it to qualify as a real estate investment trust for the taxable
year of the Election and all subsequent taxable years, the REIT shares will be
owned by a sufficient number of investors and in appropriate proportions to
permit the REIT to satisfy conditions (v) and (vi) discussed above under
"--General Qualification Requirements." To protect against violations of these
requirements, the Declaration of Trust will provide that no person is permitted
to own (applying certain constructive ownership tests) more than 4.9% of the
outstanding REIT common shares (except for the Harvison Family, which can
initially own up to 30% of the outstanding REIT common shares, subject to
reduction under certain circumstances) 4.9% of the outstanding REIT preferred
shares. In addition, the Declaration of Trust will contain restrictions on
transfers of capital stock, as well as provisions that automatically convert
shares of stock into nonvoting, non-dividend paying Excess Shares to the extent
that the ownership otherwise might jeopardize the REIT's tax status. Special
rules for determining share ownership apply to certain qualified pension and
profit sharing trusts. The Revenue Reconciliation Act of 1993 modified the rules
for tax exempt employees' pension and profit sharing trusts which qualify under
Section 401(a) of the Code and are exempt from tax under Section
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501(a) of the Code ("qualified trusts") for tax years beginning after
December 31, 1993. Under the new rules, in determining the number of
shareholders a real estate investment trust has for purposes of the "5/50 Rule,"
any stock held by a qualified trust generally will be treated as held directly
by its beneficiaries in proportion to their actuarial interests in such trust
and will not be treated as held by such trust. (This general rule will not apply
if certain persons related to the qualified trust ("disqualified persons") hold
in the aggregate more than 5% of the value of the REIT and the REIT has
accumulated earnings and profits attributable to any period for which it did not
qualify as a real estate investment trust; this exception is not expected to
apply to the REIT).
Pursuant to Treasury Regulations (the "Recordkeeping Regulations"), the
REIT will maintain records disclosing the actual ownership of the REIT's stock
following the Election. For taxable years prior to the effective date of the
Taxpayer Relief Act of 1997, a failure to comply with the Recordkeeping
Regulations would result in the disqualification of a real estate investment
trust. The Taxpayer Relief Act of 1997, however, eliminates the rule that a
failure to comply with the Recordkeeping Regulations will result in a loss of
real estate investment trust status. Instead, a failure to comply with the
Recordkeeping Regulations will result in a penalty. In order to maintain its
records, the REIT must demand written statements each year from the record
holders of certain percentages of shares in which the record holders are to
disclose the actual owners of the shares (i.e., the persons required to include
in gross income the REIT dividends). A list of those persons failing or refusing
to comply with this demand must be maintained as part of the REIT's records.
Shareholders who fail or refuse to comply with the demand must submit a
statement with their tax returns disclosing the actual ownership of the shares
and certain other information.
Sources of Gross Income. In order to qualify and to maintain its
qualification as a real estate investment trust, the REIT generally must satisfy
three requirements relating to the REIT's gross income on an annual basis for
the taxable year of the Election and all subsequent taxable years. These tests
are designed to ensure that a real estate investment trust derives its income
principally from passive real estate investments. In the case of a real estate
investment trust that is a partner in a partnership, the Treasury Regulations
provide that the REIT will be deemed to own its proportionate share of the
assets of the partnership and will be deemed to receive its proportionate share
of the gross income of the partnership. In addition, the assets and gross income
of the partnership will retain the same character in the hands of the REIT that
it had in the hands of the partnership. Furthermore, the Code allows the REIT to
own and operate a number of its properties through wholly-owned subsidiaries
which are "qualified REIT subsidiaries." The Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, and all of its assets,
liabilities and items of income, deduction and credit are treated as assets,
liabilities and such items of the REIT.
75% Gross Income Test. At least 75% of a real estate investment trust's
gross income (excluding gross income from prohibited transactions) generally
must consist of (i) rents from real property; (ii) interest on loans secured by
mortgages or real property; (iii) gain from the sale of real property or loans
secured by real property (excluding gain from the sale of property held
primarily for sale to customers in the ordinary course of the real estate
investment trust's trade or business, referred to below as "dealer property");
(iv) income from the operation and gain from the sale of certain property
acquired in connection with the foreclosure of a mortgage securing that property
("foreclosure property"); (v) distributions on, or gain from the sale of, shares
of other real estate investment trusts; (vi) abatements and refunds of real
property taxes; (vii) certain fees; (viii) gain from the sale of certain other
real property; and (ix) "qualified temporary investment income" (described
below).
For the taxable year of the Election and all subsequent taxable years, the
REIT expects that substantially all of its operating gross income will be
considered rent from real property. Rent from real property generally includes:
(i) rent from interests in real property; (ii) charges for services customarily
furnished or rendered to tenants in connection with the rental of real property;
and (iii) rent attributable to personal property which is leased together with
the real property, but only if such personal property rent does not exceed 15%
of the total rent. Rents received by a real estate investment trust will qualify
as "rents from real property" only if several conditions are met. First, rent
from real property does not include rent based, in whole or in part, on the net
income or profits of any person. The REIT does not intend to lease property and
receive rentals, directly or indirectly, based on any person's net income or
profit. However, rent based on a percentage of sales or receipts is permitted as
rent from real property and the REIT may have leases where rent is based on a
percentage of sales or receipts. Second, rent received from a tenant will not
qualify as "rents from real property" if the REIT (or any direct or indirect
owner of 10% or more of the REIT) directly or indirectly (through the
application of certain constructive ownership rules) owns a 10% or greater
interest in such tenant (a "Related Party Tenant"). At
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this time, the REIT does not anticipate receiving any rent from a Related Party
Tenant. If any portion of rent received under a lease does not qualify as "rents
from real property" because (i) the rent is based on the income or profits of
any person; or (ii) the tenant is a Related Party Tenant, none of the rent
received by the REIT under such lease would qualify as "rents from real
property." Third, if rent attributable to personal property leased in connection
with a lease of real property is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." At this time, the REIT does not
anticipate deriving rent attributable to personal property leased in connection
with real property that exceeds 15% of the total rent under such lease. Finally,
the REIT generally may provide services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are not
considered rendered primarily for the convenience of the tenant. The REIT
generally must not furnish noncustomary services to the tenants or manage or
operate the property, other than through an "independent contractor" who is
adequately compensated and from whom the REIT does not derive any income. If any
portion of rent does not qualify as "rents from real property" because the REIT
furnishes or renders noncustomary services with respect to the property (other
than through a qualified independent contractor), none of the rent received by
the REIT with respect to such property generally would qualify as "rents from
real property." However, the Taxpayer Relief Act of 1997 provides a de minimis
rule for noncustomary services which is effective for taxable years beginning
after August 5, 1997. If the value of the non-customary services income with
respect to a property (valued at no less than 150% of the REIT's direct costs of
performing such services) is 1% or less of the total income derived from the
property, then all rental income except the noncustomary service income will
qualify as "rents from real property."
The REIT will, in most instances, directly operate and manage its assets
without using an "independent contractor." The REIT believes that, for the
taxable year of the Election and all subsequent taxable years, all services (if
any) to be provided by the REIT to tenants will be those usually or customarily
rendered in connection with the rental of space for occupancy only. In the case
of any services that are not "usual or customary" under the foregoing rules, the
REIT intends to employ qualifying independent contractors to provide such
services. Consequently, for the taxable year of the Election and all subsequent
taxable years, the REIT believes that substantially all of its rental income
will be qualifying income under the 75% income test, and that the REIT's
provision of services will not cause the rental income to fail to be included
under that test.
95% Gross Income Test. At least 95% of the REIT's gross income (excluding
income from prohibited transactions) must be derived from the following sources:
(i) sources that satisfy the 75% gross income test; (ii) dividends;
(iii) interest; and (iv) gains from the sale or other disposition of stock or
other securities. This test permits a real estate investment trust to earn a
significant portion of its income from traditional "passive" investment sources
that are not necessarily real estate related. The term "interest" (under both
the 75% and 95% tests) does not include amounts that are based on the income or
profits of any person, unless the computation is based only on a fixed
percentage of receipts or sales.
Failing the 75% or 95% Tests; Reasonable Cause. As a result of the 95%
test, real estate investment trusts generally are not permitted to earn more
than 5% of their gross income from active sources. For the taxable year of the
Election and all subsequent taxable years, nonqualifying income is expected to
be at all times less than 5% of the REIT's annual gross income. However, if
nonqualifying income exceeds 5% of the REIT's gross income, the REIT could lose
its status as a real estate investment trust.
For the taxable year of the Election and all subsequent taxable years, if
the REIT fails to meet either the 75% or 95% income tests during a taxable year,
it may still qualify as a real estate investment trust for that year if (i) it
reports the source and nature of each item of its gross income in its federal
income tax return for that year; (ii) the inclusion of any incorrect information
in its return is not due to fraud with intent to evade tax; and (iii) the
failure to meet the tests is due to reasonable cause and not to willful neglect.
However, in that case the REIT would be subject to a 100% tax based on the
greater of the amount by which it fails either the 75% or 95% income tests for
such year. See "--Taxation of the REIT as a Real Estate Investment Trust."
Character of Assets Owned. For the taxable year of the Election and all
subsequent taxable years, on the last day of each calendar quarter, the REIT
must meet two tests concerning the nature of its assets. First, at least 75% of
the value of the total assets of the REIT generally must consist of real estate
assets, cash, cash items (including receivables) and government securities. For
this purpose, "real estate assets" include interests in real property, interests
in loans secured by mortgages on real property or by certain interests in real
property, shares in other real estate investment trusts and any property
attributable to the temporary investment of new capital (but only if such
property is stock or a debt instrument and only for the one year period
beginning on the date that the REIT receives such capital). Second, while the
balance of the REIT's assets generally may be invested without restriction, the
REIT will not be permitted to own (i) securities of any one issuer that
represent more than 5% of the value of the REIT's total assets or (ii) more than
10% of the outstanding voting securities of any single issuer. A real estate
investment trust, however, may own 100% of the stock of a qualified real estate
investment trust subsidiary, in which case the assets, liabilities and items of
income, deduction and credit of the subsidiary are treated as those of the real
estate investment trust. In evaluating a real estate investment trust's assets,
if the real estate investment trust invests in a partnership, it is deemed to
own its proportionate share of the assets of the partnership.
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For the taxable year of the Election and all subsequent taxable years, the
REIT anticipates that it will comply with these asset tests.
Annual Distributions to Shareholders. In order to maintain real estate
investment trust status for the taxable year of the Election and all subsequent
taxable years, the REIT generally must distribute with respect to each taxable
year dividends (other than capital gain dividends) to its shareholders in an
aggregate amount at least equal to (i) the sum of (a) 95% of its "REIT Taxable
Income" (computed without regard to the dividends paid deduction and any net
capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) any excess noncash income (as defined in
Section 857(e) of the Code). REIT Taxable Income generally is defined as the
taxable income of the REIT, computed as if it were an ordinary corporation, with
certain modifications.
A real estate investment trust may satisfy the 95% distribution test with
dividends paid during the taxable year and with certain dividends paid after the
end of the taxable year. Dividends paid in January that are declared during the
last calendar quarter of the prior year and are payable to shareholders of
record on a date during the last calendar quarter of that prior year are treated
as paid on December 31 of the prior year (for both the real estate investment
trust and its shareholders). Other dividends declared before the due date of the
real estate investment trust tax return for the taxable year (including
extensions) also will be treated as paid in the prior year for the real estate
investment trust if they are paid (i) within 12 months of the end of such
taxable year and (ii) no later than the real estate investment trust next
regular distribution payment. Dividends that are paid after the close of a
taxable year and that do not qualify under the rule governing payments made in
January (described above) will be taxable to the shareholders in the year paid,
even though they may be taken into account by the REIT for a prior year.
To the extent that the REIT does not distribute all of its net capital
gain or distributes at least 95%, but less than 100% of its REIT Taxable Income,
it will be subject to tax thereon at regular ordinary and capital gain corporate
rates. Furthermore, a nondeductible excise tax equal to 4% will be imposed on
the excess (if any) of the "required distribution" for the calendar year over
the amount actually distributed during such year. For purposes of this rule, the
"required distribution" equals the sum of (a) 85% of the REIT's "ordinary
income" for such year, (b) 95% of the REIT's capital gain net income for such
year, and (c) any undistributed taxable income from prior years. The REIT
intends to make timely distributions sufficient to satisfy the annual
distribution requirements. However, under certain circumstances, the REIT may
not have sufficient cash or other liquid assets to meet the distribution
requirements. This could arise because of competing demands for the REIT's
funds, or due to timing differences between tax reporting and cash receipts and
disbursements (i.e., income may have to be reported before cash is received, or
expenses may have to be paid before a deduction is allowed). Although the REIT
does not anticipate any difficulty in meeting these requirements, no assurance
can be given that the necessary funds will be available.
If the REIT fails to meet this distribution requirement because of an
adjustment to the REIT's taxable income by the IRS or a court of competent
jurisdiction, the REIT may be able to cure the failure retroactively by paying a
"deficiency dividend" (as well as applicable interest) within a specified
period.
Failure to Qualify as a Real Estate Investment Trust. If the REIT fails to
qualify for taxation as a real estate investment trust in any taxable year, the
REIT will be subject to tax (including any applicable alternative minimum tax)
on its taxable income at regular corporate rates. Distributions to shareholders
in any year in which the REIT fails to qualify as a real estate investment trust
would not be deductible by the REIT and distributions would no longer be
required to be made. In such a case, all distributions to shareholders would be
taxable as ordinary income to the extent of current and accumulated earnings and
profits and, subject to certain limitations of the Code, corporate distributees
may be eligible for the dividends received deduction. Any corporate level taxes
generally would reduce the amount of cash available to the REIT for distribution
to its shareholders and, because the shareholders would continue to be taxed on
the distributions they receive, the net after tax yield to the shareholders from
their investment in the REIT likely would be reduced substantially. As a result,
the REIT's failure to qualify as a real estate investment trust during any
taxable year could have a material adverse effect upon the REIT and its
shareholders. If the REIT loses its real estate investment trust status, unless
certain relief provisions apply, the REIT will be disqualified from taxation as
a real estate investment trust for the four taxable years following the year
during which qualification was lost.
Taxation of U.S. Shareholders. For the taxable year of the Election and
all subsequent taxable years, distributions made to the U.S. Shareholders (and
not designated as a capital gain dividend) generally will be taxable to the
Shareholders as ordinary income to the extent of the REIT's earnings and profits
and will not be eligible for the dividends received deduction generally
available to corporations. As used herein, the term "U.S. Shareholder" means a
holder of REIT common shares that for U.S. federal income tax purposes is (i) a
citizen or resident of U.S.; (ii) a corporation, partnership or other entity
created or organized in or under the laws of the U.S., or (iii) an estate or
trust the income of which is subject to U.S.
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federal income taxation regardless of its source. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that they do not exceed the adjusted basis of such
shareholder's REIT shares, but rather, will reduce the adjusted basis of such
shares. To the extent distributions exceed current and accumulated earnings and
profits and the shareholder's adjusted basis in his REIT shares, such excess
distributions will be treated as gain from the sale or exchange of the REIT
shares, assuming the REIT shares are capital assets in the hands of such
shareholder. Any dividends declared by the REIT during the last quarter of a
calendar year and payable to a shareholder of record on a specified date in such
quarter shall be treated as both paid by the REIT and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by the REIT during January of the immediately following calendar year.
Distributions paid to shareholders will not constitute passive activity income,
and as a result generally cannot be offset by losses from passive activities of
a shareholder who is subject to the passive activity rules. Distributions
designated by the REIT as capital gains dividends generally will be taxed as
long term capital gains to shareholders to the extent that the distributions do
not exceed the REIT's actual net capital gain for the taxable year, without
regard to the period for which the shareholder has held its stock. However,
corporate shareholders may be required to treat up to 20% of any such capital
gains dividends as ordinary income. The Taxpayer Relief Act of 1997 provides
that, for taxable years of a real estate investment trust beginning after
August 5, 1997, a real estate investment trust may elect to retain and pay
income tax on any net long term capital gain. In such a case, shareholders of
the REIT would include in their income as long term capital gain their
proportionate share of such net long term capital gain and each shareholder
would also receive a refundable tax credit for such shareholder's proportionate
share of the tax paid by the REIT on such retained capital gains as well as an
increase in its basis in the stock of the REIT in an amount equal to the
difference between such shareholder's share of the undistributed long term
capital gains and the amount of tax paid by the REIT. Shareholders are not
permitted to deduct net operating losses or capital losses of the REIT on their
individual tax returns.
Generally, gain or loss realized by a shareholder upon the sale of REIT
common shares will be reportable as capital gain or loss. If a shareholder
receives a long-term capital gain dividend from the REIT and has held the shares
of stock for six months or less, any loss incurred on the sale or exchange of
the shares is treated as a long-term capital loss, to the extent of the
corresponding long-term capital gain dividend received. Capital losses not
offset by capital gains may be deducted against an individual's ordinary income
only up to a maximum annual amount of $3,000. Unused capital losses may be
carried forward.
Backup Withholding. For the taxable year of the Election and all
subsequent taxable years, the REIT will report to its U.S. Shareholders and the
IRS the amount of dividends paid during each calendar year and the amount of tax
withheld, if any. If a shareholder is subject to backup withholding, the REIT
will be required to deduct and withhold from any dividends payable to that
shareholder a tax of 31%. These rules may apply (i) when a shareholder fails to
supply a correct taxpayer identification number, (ii) when the IRS notifies the
REIT that the shareholder is subject to the backup withholding rules or has
furnished an incorrect taxpayer identification number, or (iii) in the case of a
shareholder that is a corporation or comes within certain other exempt
categories, when such shareholder fails to demonstrate that fact when required.
A shareholder that does not provide a correct taxpayer identification number may
also be subject to penalties imposed by the IRS. Any amount withheld as backup
withholding may be credited against the shareholder's federal income tax
liability. The REIT also may be required to withhold a portion of capital gain
distributions made to shareholders who fail to certify their non-foreign status
to the REIT.
Taxation of Tax Exempt Entities. Tax exempt entities, including qualified
employee pension and profit sharing plans, generally are exempt from federal
income taxation. However, tax exempt entities are subject to tax on their
unrelated business taxable income ("UBTI"). The IRS has ruled that amounts
distributed as dividends by a real estate investment trust to a tax exempt
entity generally do not constitute UBTI. Based on such ruling, amounts
distributed by a real estate investment trust to a tax exempt entity should not
constitute UBTI (subject to certain exceptions described below) provided that
such tax exempt entity has not held its shares as "debt financed property"
within the meaning of the Code and the shares are not otherwise used in an
unrelated trade or business of the tax exempt entity. Similarly, gain from the
sale of shares should not constitute UBTI (subject to certain exceptions
described below) unless the tax exempt entity has held such shares as a dealer
or as "debt financed property" within the meaning of the Code.
Notwithstanding the above, a qualified trust owning more than 10% of a
real estate investment trust generally must treat a percentage of dividends from
the real estate investment trust as UBTI (the "UBTI Percentage"). The UBTI
Percentage is the gross income derived by the real estate investment trust from
an unrelated trade or business divided by all gross income for the year in which
the dividends are paid. The UBTI rule applies to a qualified trusts holding more
than 10% of a real estate investment trust's stock only if (i) the UBTI
Percentage is at least 5%; (ii) the real estate investment trust qualifies by
reason of the modification of the 5/50 Rule discussed above; and (iii) the real
estate investment trust is "predominantly held" by qualified trusts. A real
estate investment trust is predominantly held by qualified trusts if at least
one pension trust owns more than 25% of the value of the real estate investment
trust or a group of pension trusts individually
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holding more than 10% of the value of the real estate investment trust
collectively owns more than 50% of the value of the real estate investment
trust.
Social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Code, respectively, are subject to different UBTI rules, which generally
will require them to characterize distributions from the REIT as UBTI. These
prospective investors in the REIT should consult their own tax advisors
concerning the "set aside" and reserve requirements.
Taxation of Foreign Investors. The rules governing federal income taxation
of nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign shareholders (collectively, "Non-U.S. Shareholders") are complex
and no attempt will be made herein to provide more than a summary of such rules.
Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of federal, state and local income tax laws
with regard to an investment in the REIT shares, including any reporting
requirements.
For the taxable year of the Election and all subsequent taxable years,
dividends that are not attributable to gain from sales or exchanges by the REIT
of United States real property interests and not designated by the REIT as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the REIT. Such dividends ordinarily will be subject to a withholding tax equal
to 30% of the gross amount of the dividend unless an applicable tax treaty
reduces or eliminates that tax. However, if income from the investment in the
REIT common shares is treated as effectively connected with the Non-U.S.
Shareholder's conduct of a United States trade or business, the Non-U.S.
Shareholder generally will be subject to a tax at graduated rates, in the same
manner as U.S. Shareholders are taxed with respect to such dividends (and may
also be subject to the 30% branch profits tax in the case of a shareholder that
is a foreign corporation). The REIT expects to withhold U.S. income tax at the
rate of 30% on the gross amount of any such dividends paid to a Non-U.S.
Shareholder unless (i) the Non-U.S. Shareholder files an IRS Form 1001 claiming
that a lower treaty rate applies or (ii) the Non-U.S. Shareholder files an IRS
Form 4224 with the REIT claiming that the dividend is effectively connected
income. Dividends in excess of current and accumulated earnings and profits of
the REIT will not be taxable to a shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's shares, but rather will reduce
the adjusted basis of such shares. To the extent that such dividends exceed the
adjusted basis of a Non-U.S. Shareholder's shares of stock, they will give rise
to tax liability if the Non-U.S. Shareholder would otherwise be subject to tax
on any gain from the sale or disposition of his shares, as described below. If
it cannot be determined at the time a distribution is paid whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding as a dividend. After the
Election, the REIT does not presently intend to make quarterly estimates of that
portion of the dividends that are in excess of earnings and profits and, as a
result, all dividends will be subject to withholding.
For any year in which the REIT qualifies as a real estate investment
trust, distributions that are attributable to gain from sales or exchanges by
the REIT of United States real property interests will be taxed to a Non-U.S.
Shareholder under the provisions of the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"). Under FIRPTA, those distributions are taxed to a Non-
U.S. Shareholder as if such gain were effectively connected with a United States
business. Non-U.S. Shareholders would thus be taxed at the normal capital gain
rates applicable to U.S. Shareholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). Distributions subject to FIRPTA also may be subject to a 30%
branch profits tax in the hands of a foreign corporate shareholder. The REIT is
required by the Code and applicable Treasury Regulations to withhold 35% of any
distribution that is designated by the REIT as a capital gain dividend. This
amount is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of REIT shares
generally will not be taxed under FIRPTA if the REIT is a "domestically
controlled real estate investment trust," defined generally as a real estate
investment trust in which at all times during a specified testing period less
than 50% in value of the stock was held directly or indirectly by foreign
persons. It is currently anticipated that the REIT will be a "domestically
controlled real estate investment trust" and, therefore, the sale of shares will
not be subject to taxation under FIRPTA. Because the REIT shares will be
publicly traded, however, no assurance can be given that the REIT will remain a
"domestically controlled real estate investment trust." Furthermore, gain not
subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i) investment in
the REIT common shares is effectively connected with the Non-U.S. Shareholder's
U.S. trade or business, in which case the Non-U.S. Shareholder will be subject
to the same treatment as U.S. Shareholders with respect to such gain, or
(ii) the Non-U.S. Shareholder is a nonresident alien individual who was present
in the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, in which case the nonresident alien individual will
be subject to a 30% tax
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on the individual's capital gains. If the gain on the sale of shares were to be
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
the same treatment as U.S. Shareholders with respect to such gain (subject to
applicable alternative minimum tax, a special alternative minimum tax in the
case of nonresident alien individuals and the possible application of the 30%
branch profits tax in the case of a shareholder that is a foreign corporation).
Upon the death of a foreign individual shareholder, the investor's shares will
be treated as part of the investor's U.S. estate for purposes of the U.S. estate
tax, except as may be otherwise provided in an applicable tax treaty.
State and Local Taxes. The REIT and its shareholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they own property, transact business or reside.
The State of Texas imposes a franchise tax upon corporations and limited
liability companies that do business in Texas, including real estate investment
trusts that are organized as corporations. Because the REIT will be organized as
a Texas real estate investment trust, and not as a corporation or a limited
liability company, the REIT should not be subject to Texas franchise tax.
Similarly, neither FFP Partners nor FFP Properties should be subject to the
Texas franchise tax. However, there is no assurance that the Texas legislature
will not expand the scope of the Texas franchise tax in the future to apply to
trusts such as the REIT or partnerships such as FFP Partners and FFP Properties.
The Marketing Company will be organized as a corporation and will conduct
business in Texas. Accordingly, the Marketing Company will be subject to the
Texas franchise tax. The Texas franchise tax imposed on a corporation doing
business in Texas generally is equal to the greater of (i) 0.25% of its "taxable
capital" (generally, its financial accounting net worth with certain
adjustments) apportioned to Texas; or (ii) 4.5% of its "taxable earned surplus"
(generally, its federal taxable income with certain adjustments) apportioned to
Texas. A corporation's taxable capital and taxable earned surplus are
apportioned to Texas based upon a fraction, the numerator of which is the
corporation's gross receipts from business transacted in Texas and the
denominator of which is the corporation's gross receipts from all sources.
D. Tax Consequences of the Operations of FFP Partners
Pursuant to the restructuring, (i) the FFP unitholders will retain their
units in FFP Partners; (ii) the FFP Partnership Agreement will be amended; and
(iii) the REIT will acquire the general partner interest in FFP Partners from
FFP's general partner and will be admitted as the new general partner of FFP
Partners. No gain or loss should be recognized by FFP Partners or the FFP
unitholders as a result of the amendments to FFP's Partnership Agreement and the
admission of the REIT as a general partner in FFP Partners. Under the exchange
alternative, and following the conversion, if an FFP unitholder exchanges his
FFP units for REIT shares pursuant to the redemption right, the exchange will be
a taxable event. See "--Tax Consequences of the Operations of FFP Partners--
Disposition of FFP Units: Exchange for Shares in the REIT." Prior to such
exchange, FFP unitholders generally will continue to be taxed in the same manner
as they were taxed preceding the admission of the REIT as a general partner of
FFP Partners and the amendment of FFP's Partnership Agreement, summarized as
follows:
1. Partnership Status
The applicability of the federal income tax consequences described herein
depends on the treatment of FFP Partners as a partnership for federal income tax
purposes and not as an association taxable as a corporation. For federal income
tax purposes, a partnership is not a taxable entity but rather a conduit through
which all items of partnership income, gain, loss, deduction and credit are
passed to its partners. Thus, income and deductions resulting from partnership
operations are allocated to the partners and are taken into account by the
partners on their individual federal income tax returns. In addition, a
distribution of money (or marketable securities) from a partnership to a partner
generally is not taxable to the partner unless the amount of the distribution
exceeds the partner's tax basis in his interest in the partnership. If an
organization formed as a partnership were classified for federal income tax
purposes as an association taxable as a corporation, the organization would be a
separate taxable entity. In such a case, the organization, rather than its
members, would be taxed on the income and gains and would be entitled to claim
the losses and deductions resulting from its operations. A distribution from the
organization to a member would be taxable to the member in the same manner as a
distribution from a corporation to a shareholder (i.e., as ordinary income to
the extent of the current and accumulated earnings and profits of the
organization, then as a nontaxable reduction of basis to the extent of the
member's tax basis in his interest in the organization and finally as gain from
the sale or exchange of the member's interest in the organization).
An entity generally will be classified as a partnership rather than as a
corporation for federal income tax purposes if the entity (i) is treated as a
partnership under Treasury Regulations, effective for periods after December 31,
1996, relating to entity classification (the "Check-the-Box Regulations") and
(ii) is not a "publicly traded partnership" under Section 7704 of the Code. In
general, under the Check-the-Box Regulations, an unincorporated entity with at
least two members may elect
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to be classified either as an association taxable as a corporation or as a
partnership. If such an entity fails to make an election, it generally will be
treated as a partnership for federal income tax purposes. The federal income tax
classification of an entity that was in existence prior to January 1, 1997, such
as FFP Partners, will be respected for all periods prior to January 1, 1997 if
(i) the entity had a reasonable basis for its claimed classification; (ii) the
entity and all members of the entity recognized the federal tax consequences of
any changes in the entity's classification within the 60 months prior to January
1, 1997; and (iii) neither the entity nor any of its members were notified in
writing on or before May 8, 1996 that the classification of the entity was under
examination (the "Pre-1997 Classification Requirements"). For periods after
January 1, 1997, an entity that was in existence prior to January 1, 1997
generally will have the same classification (e.g., partnership or corporation)
that the entity claimed for such prior period unless it elects otherwise.
To be taxed as a partnership for federal income tax purposes, a
partnership, in addition to qualifying as a partnership under the Check-the-Box
Regulations, must not be taxed as a corporation under Section 7704 of the Code
dealing with publicly traded partnerships. A publicly traded partnership is
taxed as a corporation unless it either has the requisite amount of passive
income or is subject to special transition rules applicable to partnerships that
existed on December 31, 1987. The special transition rule for existing
partnerships will expire on December 31, 1997. However, the Taxpayer Relief Act
of 1997 provides that an existing partnership may elect to pay a tax equal to
3.5% of its gross income from the active conduct of trades and businesses by the
partnership. If a gross income tax election is made, the electing partnership
generally will not be taxed as a corporation under the publicly traded
partnership rules.
Under the passive income requirement, a publicly traded partnership will
not be taxed as a corporation after December 31, 1997 only if 90% or more of its
gross income for every taxable year consists of "qualifying income" (the "Gross
Income Test"). Qualifying income includes real property rental income and gain
from the sale or other disposition of real property and gains from the sale or
other disposition of capital assets held for the production of income that
otherwise constitutes qualifying income.
Prior to the restructuring, FFP Partners engages in activities that give
rise to substantial amounts of non-qualifying income. After the restructuring,
however, based upon representations of the General Partner, substantially all of
FFP Partners' income should consist of qualifying income.
FFP's general partner has represented that FFP Partners is an existing
partnership subject to the special transition rules referenced above. However,
as noted, the transition rule applicable to "existing partnerships" expires on
December 31, 1997. To maintain its status as a partnership for federal income
tax purposes after its 1997 taxable year end, FFP Partners must either
(i) complete the restructuring (allowing it to satisfy the passive income
requirements referenced above and more completely discussed below) or (ii) make
the election provided under the Taxpayer Relief Act of 1997 and pay the 3.5%
gross income tax.
If (a) a publicly traded partnership fails to meet the Gross Income Test
for any taxable year, (b) such failure is inadvertent, as determined by the IRS
and (c) the partnership takes steps within a reasonable time to once again meet
the Gross Income Test and agrees to make such adjustments and pay such amounts
(including the amount of tax liability that would be imposed on the partnership
if it were treated as a corporation during the period of inadvertent failure) as
are required by the IRS, such failure will not cause the partnership to be taxed
as a corporation. The REIT, as the general partner of FFP Partners, will use its
best efforts to assure that FFP Partners will meet the Gross Income Test for
each taxable year and has represented that FFP Partners will satisfy the test.
If FFP Partners fails to satisfy the Gross Income Test with respect to any
taxable year, the REIT, as the general partner of FFP Partners, will use its
best efforts to assure that FFP Partners will qualify under the inadvertent
failure exception discussed above.
Tax Counsel is of the opinion that under existing law, based upon certain
factual representations made by FFP Partners and FFP's general partner as well
as certain factual assumptions, FFP Partners will be treated as a partnership
for federal income tax purposes and not as a corporation or an association
taxable as a corporation.
If FFP Partners fails to meet the Gross Income Test (and fails to qualify
for the inadvertent failure exception described above), FFP Partners will be
treated as if it had transferred all of its assets (subject to liabilities) to a
newly-formed corporation (on the first day of the year in which it fails to meet
the Gross Income Test) in return for stock in such corporation, and then
distributed such stock to the FFP unitholders in liquidation of their interest
in FFP Partners.
If FFP Partners were taxable as a corporation or treated as an association
taxable as a corporation in any taxable year, its income, gains, losses,
deductions and credits would be reflected only on its tax return rather than
being passed through to its partners and its taxable income would be taxed at
corporate rates. In addition, its distributions to each of its partners would be
treated as either dividend income (to the extent of its current or accumulated
earnings and profits), and,
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in the absence of earnings and profits, as a nontaxable return of capital (to
the extent of such partner's tax basis in his interest therein) or taxable
capital gain (after such partner's tax basis in his interest therein is reduced
to zero). Furthermore, losses realized by FFP Partners would not flow through to
the FFP unitholders. Accordingly, the treatment of FFP Partners as a corporation
for federal income tax purposes would probably result in a material reduction in
an FFP unitholder's cash flow and after-tax return.
2. Tax Consequences of Unit Ownership
The discussion below is based on the assumption that FFP Partners will be
classified as a partnership for federal income tax purposes. If that assumption
proves to be erroneous, most, if not all, of the tax consequences described
below would not be applicable to the FFP unitholders.
Flow-Through of Taxable Income. For each taxable year, each FFP unitholder
is required to take into account on his individual federal income tax return his
distributive share of FFP Partners' income, gains, losses and deductions for
such taxable year. Each FFP unitholder is required to take such distributive
share into account in computing his federal income tax liability regardless of
whether he has received or will receive any cash distributions from FFP
Partners. Therefore, he may be required to report and pay tax on income that FFP
Partners recognizes during the taxable year without receiving any cash
distribution from FFP Partners.
Treatment of Partnership Distributions. A distribution of cash (and, in
certain circumstances, distributions of marketable securities) to an FFP
unitholder generally is not taxable to such FFP unitholder unless the amount of
such distribution exceeds the FFP unitholder's basis in his FFP Units. Any such
excess should be taxable as capital gain, assuming such FFP units are held as a
capital asset. If, however, any portion of such distribution is considered to be
in exchange for the FFP unitholder's interest in ordinary income items (as
defined in Section 751 of the Code), such portion will be taxed as ordinary
income even if the amount of the distribution did not exceed the FFP
unitholder's tax basis in his FFP units. In addition, an FFP unitholder could
recognize income if cash distributions made to him cause his at-risk amount to
be reduced below zero.
If FFP Partners has any nonrecourse liabilities (i.e., liabilities for
which no partner, including FFP's general partner, is personally liable)
outstanding at any time, each FFP unitholder, for purposes of computing his tax
basis in his FFP units, will be allocated a share of such nonrecourse
liabilities (generally based on his proportionate interest in FFP Partners'
profits). See "--Tax Consequences of the Operations of FFP Partners" and "--Tax
Consequences of Unit Ownership." Any subsequent decrease in an FFP unitholder's
share of such nonrecourse liabilities will be treated as a distribution of cash
to the FFP unitholder. A decrease in an FFP unitholder's proportionate share of
FFP Partners' profits resulting from an issuance of additional FFP units by FFP
Partners will result in such a decrease in such FFP unitholder's share of
nonrecourse liabilities and, thus, a deemed distribution to such FFP unitholder.
Such deemed distribution may result in ordinary income to the FFP unitholder to
the extent that he is considered to have exchanged for the deemed distribution a
portion of his interest in FFP Partners' ordinary income items (as described
above).
Tax Basis of Units. In general, an FFP Unitholder's tax basis for his FFP
units initially will be equal to the price of such FFP units to him. An FFP
unitholder's tax basis will generally be increased by his share of nonrecourse
liabilities, if any. Generally, an FFP unitholder's tax basis in his interest
will be decreased (but not below zero) by (a) his share of partnership
distributions, (b) his share of decreases in nonrecourse liabilities of the
partnership, and (c) his share of losses of the partnership. An FFP unitholder's
share of nonrecourse liabilities will generally be based on his share of the
partnership's profits. It should be noted that an FFP unitholder's tax basis in
his FFP units will be decreased by his share of FFP Partners' losses even though
those losses may not be currently deductible by him because of the at-risk or
passive loss limitation.
Limitations on Deduction of Losses. The ability of an FFP unitholder to
deduct his share of FFP Partners' losses or deductions during any particular
year is subject to the basis limitation, the at-risk limitation, the passive
loss limitation and the limitation on the deduction of investment interest.
(a) Basis Limitation. An FFP Unitholder may not deduct from his taxable
income any amount attributable to his share of FFP Partners' losses or
deductions that is in excess of the tax basis of his FFP Units at the end of FFP
Partners' taxable year in which the losses or deductions occur. For a discussion
of the computation of an FFP Unitholder's tax basis in his FFP Units, see "--Tax
Consequences of the Operations of FFP," "--Tax Consequences of Unit Ownership,"
and "--Tax Basis of Units." Any losses or deductions that are disallowed by
reason of the basis limitation may be carried forward and deducted in later
taxable years to the extent that the FFP Unitholder's tax basis in his FFP Units
is increased in such later years (subject to application of the other
limitations discussed below).
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(b) At-Risk Limitation. An FFP Unitholder (other than corporations that
are neither S corporations nor certain closely-held corporations) may not deduct
from their taxable income any amount attributable to their share of FFP
Partners' losses or deductions that is in excess of the amount for which he is
considered to be at-risk with respect to FFP Partners' activities at the end of
FFP Partners' taxable year in which the losses or deductions occur. An FFP
Unitholder generally will have an initial at-risk amount with respect to FFP
Partners' activities equal to the purchase price of his FFP Units. This initial
at-risk amount will be increased by the FFP Unitholder's share of FFP Partners'
income and gains and decreased by the FFP Unitholder's share of FFP Partners'
losses and deductions and the amount of cash distributions made to the FFP
Unitholder. Liabilities of FFP Partners, whether recourse or nonrecourse,
generally will not increase an FFP Unitholder's amount at-risk with respect to
FFP Partners.
Any losses or deductions that may not be deducted by reason of the at-risk
limitation may be carried forward and deducted in later taxable years to the
extent that the FFP Unitholder's at-risk amount is increased in such later years
(subject to application of the other limitations). Upon the taxable disposition
of an FFP Unit, any gain recognized by an FFP Unitholder generally can be offset
by losses that have been suspended by the at-risk limitation. Any excess loss
(above such gain) previously suspended by the at-risk limitation is no longer
utilizable.
If the amount for which an FFP Unitholder is considered to be at risk with
respect to the activities of FFP Partners is reduced below zero (e.g., by
distributions), the FFP Unitholder will be required to recognize ordinary income
to the extent that his at-risk amount is reduced below zero. The amount of
ordinary income so recognized, however, cannot exceed the excess of the amount
of FFP Partners' losses and deductions previously claimed by the FFP Unitholder
over any amounts of ordinary income previously recognized pursuant to this rule.
(c) Passive Loss Limitation. Even if the deductibility of an FFP
Unitholder's share of FFP Partners' losses is not limited by such FFP
Unitholder's adjusted basis or at-risk amount, such losses will be subject to
the passive loss rules if the FFP Unitholder is an individual, estate, trust,
closely held corporation or personal service corporation. Generally, a
taxpayer's passive losses are deductible only to the extent of the taxpayer's
passive income; such losses cannot be deducted against the taxpayer's salary,
portfolio income, or active business income. An FFP Unitholder's investment in
FFP Units is considered to be a passive investment, and therefore, the losses
and income attributable to such FFP Units are considered to be passive losses
and passive income.
Generally, passive losses arising from an investment may be used to offset
passive income arising from any passive investment. Similarly, passive income
arising from an investment generally may be offset by passive losses from any
passive investment. However, the passive loss limitations are applied separately
with respect to each publicly traded partnership. Accordingly, assuming that FFP
Partners is classified as a publicly traded partnership, (i) passive losses
arising from an investment in FFP Units must be suspended, carried forward and
used to offset the passive income, if any, that arises from such investment in
FFP Units in subsequent taxable years; such losses may not be used to offset the
income arising from any other passive investment, and (ii) passive income
arising from an investment in FFP Units may be offset by passive losses only if
such losses arise from an investment in FFP Units; to the extent that the
passive income arising from an investment in FFP Units exceeds the losses
arising therefrom, such income may not be offset with passive losses from other
passive investments.
When an FFP Unitholder sells all his FFP Units in a fully taxable
transaction to someone other than a related party, any losses arising from FFP
Partners that have been suspended by reason of the passive loss limitation
become fully deductible. If the FFP Unitholder sells only part of his FFP Units,
such suspended passive losses do not become fully deductible at that time and
any gain recognized on such partial sale is treated as passive income.
FFP Partners' income that may be offset by FFP Partners' losses does not
include FFP Partners' portfolio income. Portfolio income includes interest,
dividends, royalties and gains from the sale of assets that generate portfolio
income. Portfolio income is not treated as passive income, but instead must be
accounted for separately. Consequently, FFP Partners' portfolio income will
retain its character as portfolio income in the hands of the FFP Unitholders and
will not be available to offset passive losses.
(d) Nonbusiness Interest Limitation. Generally, a non-corporate
taxpayer's "investment interest" may be deducted only to the extent of the
taxpayer's "net investment income." Any investment interest that is not
deductible solely by reason of this limitation may be carried forward to later
taxable years and treated as investment interest in such later years. In
general, investment interest is any interest paid or accrued on debt incurred or
continued to purchase or carry property held for investment, and net investment
income includes gross income and certain net gain from property held for
investment, reduced by expenses that are directly connected with the production
of such income and gains. Under Treasury Regulations
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which the IRS has announced that it will issue, a partner's net passive income
from a publicly traded partnership (such as FFP Partners) will be treated as
investment income.
The effect of the investment interest limitation on you will depend on
your personal tax situation. Accordingly, you should consult with your tax
advisor.
Allocation of Partnership Income, Gain, Loss and Deduction. The FFP
Partnership Agreement requires that a capital account be maintained for each
partner in accordance with the tax accounting principles set forth in applicable
Treasury Regulations under Section 704 of the Code. Distributions upon
liquidation of FFP Partners are to be made in accordance with positive capital
account balances.
(a) General. As noted above, each FFP Unitholder will be required to
take into account in determining his federal income tax liability his
distributive share of each item of FFP Partners income, gain, loss, deduction or
credit for the taxable year of FFP Partners ending with or within his taxable
year, regardless of whether such FFP Unitholder has received or will receive any
distributions of cash or other property from FFP Partners. Under Section 704(b)
of the Code, the allocations in a partnership agreement control the tax
allocation of partnership income, gains, losses, deductions and credits, unless
such allocations do not have "substantial economic effect" independent of tax
consequences. If the allocations provided in a partnership agreement do not have
"substantial economic effect," a partner's distributive share will be determined
in accordance with his interest in the partnership, determined by taking into
account all facts and circumstances.
An allocation to a partner will be considered to have "economic effect"
only if the partner to whom the allocation is made will receive the economic
benefit or bear the economic burden corresponding to such allocation. Generally,
an allocation will have economic effect if under the partnership agreement
(i) the partners' capital accounts are determined and maintained throughout the
full term of the partnership in accordance with specific accounting rules;
(ii) liquidation proceeds are required to be distributed in accordance with the
partners' capital account balances; and (iii) the partners are liable to the
partnership to restore any deficit in their capital accounts upon liquidation of
the partnership. If the first two of these requirements are met but the partner
to whom an allocation is made is not obligated to restore the full amount of any
deficit balance in his capital account, the allocation still will be considered
to have "economic effect" to the extent the allocation does not cause or
increase a deficit balance in the partner's capital account (determined after
reducing that account for certain "expected" adjustments, allocations and
distributions specified by the Treasury Regulations), but only if the
partnership agreement contains a "qualified income offset" provision. A
qualified income offset provision requires that in the event of any unexpected
distribution or specified adjustments or allocations to a partner that causes or
increases a deficit balance in such partner's capital account, there must be an
allocation of income or gain to that partner that eliminates the resulting
capital account deficit as quickly as possible.
The economic effect of an allocation will be deemed "substantial" if there
is a reasonable possibility that the allocation will affect substantially the
dollar amounts to be received by the partners from the partnership, independent
of tax consequences. The economic effect of an allocation, however, is not
substantial if it appears at the time the allocation is included in the
partnership agreement that the inclusion of that particular allocation may cause
the after-tax economic consequences of at least one partner to be enhanced, in
present value terms, and there is a strong likelihood that the inclusion of such
allocation will not diminish substantially the after-tax consequences of any
partner, in present value terms.
If a partnership allocation fails to meet the substantial economic effect
test, the allocation nevertheless will be valid if, taking into account all the
facts and circumstances, the allocation is in accordance with the partners'
interests in the partnership. The partners' interests in the partnership are to
be determined based on the manner in which the partners have agreed to share the
economic benefit or burden with respect to the income, gain, loss, deduction or
credit that is allocated. In making such determination, relevant factors include
the partners' relative contributions to the partnership, their interests in
economic profits and losses, cash flow and other nonliquidating distributions
and the rights to distributions of capital and other property upon liquidation.
(b) Section 704(c) Allocations. Section 704(c) of the Code requires, in
general, that items of income, gain, loss and deduction attributable to property
that is contributed to a partnership must be allocated in such a way as to take
into account the variation between a partnership's adjusted tax basis in such
property and the fair market value of such property at the time of contribution.
These same concepts apply generally in the case of any revaluations of the
assets of a partnership, including revaluations upon the admission of a new
partner.
The Treasury Regulations under Section 704(c) of the Code provide that any
allocation intended to take into account the variation between the fair market
value of contributed property and its adjusted tax basis must be made using a
reasonable method that is consistent with the purpose of Section 704(c) of the
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Code. The purpose of Section 704(c) of the Code is to ensure that when a partner
contributes property to a partnership, with such property having a variation
between its adjusted basis and fair market value at the time of contribution,
such partner receives the tax burdens and benefits of any such built-in gain or
loss. The Treasury Regulations under Section 704(c) describe three allocation
methods: the "traditional method," the "traditional method with curative
allocations," and the "remedial allocation method." Other methods are
permissible; however, any method, including one of the three specifically
enunciated methods, must be a reasonable method under the circumstances. The
Treasury Regulations under Section 704(c) address certain instances (generally
referred to as the "ceiling limitations") attributable to contributed property
that permit reasonable curative or remedial allocations to eliminate disparities
between book and tax items. The Treasury Regulations under Section 704(c)
provide in general that Section 704(c) of the Code applies on a property-by-
property basis and that aggregation of built-in gains and built-in losses on
items of contributed property is not permitted. A number of operating rules are
set forth in the Treasury Regulations under Section 704(c) as prerequisites for
the use of either curative or remedial allocations. The FFP Partnership
Agreement provides that, for federal income tax purposes, items with respect to
properties contributed to FFP Partners will be allocated among the FFP
Unitholders in a manner consistent with Section 704(c) of the Code so as to take
into account the differences between FFP Partners' adjusted tax basis in each
contributed property and the fair market value of such property at the time of
its contribution.
Upon a revaluation of partnership property under Treasury Regulation
Section 1.704-1(b)(2)(iv)(f), including a revaluation upon the admission of a
new partner, FFP Partners may increase or decrease partners' capital accounts by
their allocable share of the difference between the book value and fair market
value ("Pre-Revaluation Appreciation or Depreciation") of the pre-revaluation
assets of FFP Partners on the date of the revaluation. Upon the admission of new
partners to FFP Partners, FFP's General Partner intends to administer the FFP
Partnership Agreement so that Pre-Revaluation Appreciation or Depreciation (the
functional equivalent, respectively, of built-in gain or loss) attributable to
properties acquired by FFP Partners prior to the revaluation event will be
allocated among the FFP Unitholders in accordance with the principles of
Section 704(c) of the Code and the regulations thereunder.
3. Tax Treatment of Operations
Income and Deductions in General. No federal income tax will be paid by
FFP Partners. Instead, each FFP Unitholder will be required to report on his
income tax return his allocable share of income, gains, losses and deductions of
FFP Partners. Such items must be included on the FFP Unitholder's federal income
tax return without regard to whether FFP Partners makes a distribution of cash
to the FFP Unitholder.
Depreciation Method. FFP Partners elected to use the straight-line
depreciation method with respect to its real property assets. Property
subsequently acquired or constructed by FFP Partners may be depreciated using
accelerated depreciation methods permitted by Section 168 of the Code. Upon the
disposition of an asset, all amounts previously claimed as depreciation
deductions must be recaptured by treating the gain, if any, recognized on such
disposition as ordinary income to the extent of such amounts.
4. Sale of Partnership Property
If FFP Partners sells any of its property, gain will be recognized to the
extent that the amount realized on such sale exceeds the tax basis of such
property or loss will be recognized to the extent that the tax basis exceeds the
amount realized. The amount realized will include any money plus the fair market
value of any other property received. If the purchaser assumes a liability in
connection with such purchase or takes the property subject to a liability, the
amount realized also will include the amount of such liability.
If gain is recognized on such sale, the portion of the gain that is
treated as recapture of depreciation deductions will be treated as ordinary
income. The remainder of such gain generally will constitute "Section 1231
gain." If loss is recognized on such sale, such loss generally will constitute
"Section 1231 loss."
Each FFP Unitholder must take into account his share of the portion of the
gain that constitutes recapture income as ordinary income and must also take
into account his share of the Section 1231 gains and losses along with his
Section 1231 gains and losses from other sources, subject to the passive loss
limitations. The characterization of the FFP Unitholder's share of the Section
1231 gains and Section 1231 losses attributable to FFP Partners' properties as
either ordinary or capital will depend upon the total amount of the FFP
Unitholder's Section 1231 gains and Section 1231 losses from all sources for the
taxable year. Generally, if the total amount of the gains exceeds the total
amount of the losses, all such gains and losses will be treated as capital gains
and losses and if the total amount of the losses exceeds the total amount of the
gains, all such gains and losses will be treated as ordinary income and losses.
Notwithstanding the above, however, an FFP Unitholder's net Section 1231 gains
will be treated as ordinary income to the extent of such FFP Unitholder's
80
<PAGE>
net Section 1231 losses during the immediately preceding five years reduced by
any amount of net Section 1231 losses that have previously been "recaptured"
pursuant to this rule.
5. Disposition of FFP Units
Gain or Loss in General. Upon the sale, exchange or other disposition of
an FFP Unit (including a redemption of the FFP Units by FFP Partners for either
cash or REIT shares), an FFP Unitholder will recognize gain or loss in an amount
equal to the difference between the amount realized on the sale and his tax
basis in such FFP Unit. Upon the disposition of FFP Units, an FFP Unitholder's
"amount realized" will be measured by the sum of the cash and fair market value
of other property received (e.g., REIT shares) plus the portion of FFP Partners'
nonrecourse liabilities allocated to the FFP Units sold. To the extent that the
amount of cash or property received plus the allocable share of FFP Partners'
nonrecourse liabilities exceeds the FFP Unitholder's tax basis for the FFP Units
disposed of, the FFP Unitholder will recognize gain. The tax liability resulting
from such gain could exceed the amount of cash received upon the disposition of
such FFP Units. For example, if an FFP Unitholder exchanges his FFP Units for
REIT shares, such FFP Unitholder may have taxable gain and no cash with which to
satisfy the resulting tax liability.
To the extent that the portion of the amount realized that is attributable
to FFP Partners' ordinary income items exceeds the portion of the tax basis
allocable to such items (which will generally be zero), the gain will be treated
as ordinary income. So long as the FFP Unitholder holds the FFP Unit as a
capital asset (generally, an asset held as an investment), the remainder of the
gain will be treated as capital gain and any loss recognized on the sale will be
treated as capital loss, subject to the passive loss rules.
Net capital gains of individual taxpayers currently are taxed at a maximum
statutory rate which is less than the maximum statutory rate applicable to other
income (39.6%). Net capital gain means the excess of net long-term capital gain
over net short-term capital loss.
It should be noted that certain limitations are applicable to the
deductibility of capital losses. Therefore, capital gains that result from the
sale of FFP Units can be offset by capital losses from other sources, but
capital losses that result from the sale of FFP Units can be deducted only to
the extent of the FFP Unitholder's capital gains from other sources plus, in the
case of an individual, up to $3,000 of taxable income. Any capital losses that
cannot be deducted in a particular year because of the $3,000 limitation can be
carried forward and deducted as capital losses in subsequent years (subject to
the same limitations and any other limitations on the deductibility of losses).
Allocation of Basis in FFP Units. The IRS has ruled that a partner must
maintain an aggregate tax basis in a single partnership interest (consisting of
all interests acquired in separate transactions) and, upon a sale of a portion
of such aggregate interest, must allocate his aggregate tax basis between the
interest sold and the interest retained using some equitable apportionment
method (e.g., on the basis of relative fair market values). If this ruling was
applied to FFP Unitholders with respect to their FFP Units, an FFP Unitholder
would effectively be prohibited from controlling the timing of a recognition of
the inherent gain or loss in his FFP Units by choosing which FFP Units to sell.
It is not clear whether such ruling applies to publicly traded partnerships,
such as FFP Partners, the interests in which are evidenced by separate
registered certificates, providing a verifiable means of identifying each
separate interest and tracing the purchase price of such interest. The ruling
does not address whether the aggregation concept, if applicable, results in the
tacking of the holding period of FFP Units onto the holding period of more
recently acquired FFP Units. You should consult your own tax advisor as to the
possible consequences of the ruling.
6. State And Other Taxes
FFP Partners may conduct business or own properties (or acquire future
properties) in states that have state income taxes applicable to individuals. As
a result, you may be required to file state income tax returns and to pay state
income taxes in some or all of these states and may be subject to penalties for
failure to comply with such requirements.
D. Tax Consequences of the Operations of the Marketing Company
The Marketing Company will be taxable as a corporation for federal income
tax purposes. As a result, the Marketing Company's income, gains, losses,
deductions and credits will be reflected only on its own tax return rather than
being passed through to its shareholders and its taxable income will be taxed at
corporate rates. In addition, the Marketing Company's distributions to its
shareholders will be treated as ordinary dividend income to the extent of its
current or accumulated earnings and profits. To the extent such distributions
exceed the corporation's earnings and profits, such excess will be treated as a
nontaxable return of capital to the extent of a shareholder's tax basis in his
stock. Finally, to the extent
81
<PAGE>
a distribution exceeds both the corporation's earnings and profits and the
shareholder's tax basis in his stock, such excess distribution will be treated
as gain from the sale or exchange of the shareholder's stock. Furthermore,
losses realized by the Marketing Company would not flow through to its
shareholders.
ERISA Considerations
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act ("ERISA") and the prohibited transaction
provisions of Section 4975 of the Code that may be relevant to an FFP unitholder
(including, with respect to the discussion contained in "--Status of the Company
under ERISA," to an FFP unitholder that is not an employee benefit plan, another
tax-qualified retirement plan, or an individual retirement account ("IRA")).
This discussion does not purport to deal with all aspects of ERISA or Section
4975 of the Code or, to the extent not preempted, state law that may be relevant
to particular employee benefit plan shareholders (including plans subject to
Title I of ERISA, other retirement plans and IRAs subject to the prohibited
transaction provisions of Section 4975 of the Code and governmental plans or
church plans that are exempt from ERISA and Section 4975 of the Code but that
may be subject to state law requirements) in light of their particular
circumstances.
A fiduciary making the decision to invest in the REIT shares on behalf of
an FFP unitholder which is an ERISA plan, a tax-qualified retirement plan or an
IRA or other employee benefit plan is advised to consult its own legal advisor
regarding the specific considerations arising under ERISA, Section 4975 of the
Code and (to the extent not preempted) state law with respect to the purchase,
ownership or sale of the common stock by such plan or IRA.
Employee Benefit Plans, Tax-Qualified Retirement Plans and IRAs. Each
fiduciary of a pension, profit-sharing or other employee benefit plan subject to
Title I of ERISA (an "ERISA Plan") should carefully consider whether an
investment in the REIT shares is consistent with his fiduciary responsibilities
under ERISA. In particular, the fiduciary requirements of Part 4 of Title I of
ERISA require that an ERISA Plan's investments be (i) prudent and in the best
interests of the ERISA Plan, its participants and beneficiaries,
(ii) diversified in order to reduce the risk of large losses, unless it is
clearly prudent not to do so, and (iii) authorized under the terms of the
governing documents of the ERISA Plan. In determining whether any investment in
the REIT shares is prudent for purposes of ERISA, the appropriate fiduciary of
an ERISA Plan should consider all of the facts and circumstances, including
whether the investment is reasonably designed, as a part of the ERISA Plan's
portfolio for which the fiduciary has investment responsibility, to meet the
objectives of the ERISA Plan, taking into consideration the risk of loss and
opportunity for gain (or other return) from the investment, the diversification,
cash flow and funding requirements of the ERISA Plan, and the liquidity and
current return of the ERISA Plan's portfolio. A fiduciary should also take into
account the nature of the business of the REIT and other matters described under
"Risk Factors."
Fiduciaries of ERISA Plans, as well as fiduciaries of IRAs, retirement
plans for self-employed individuals ("Keogh Plans") and other plans subject to
Section 4975 of the Code (IRAs, Keogh Plans and such other plans are referred to
herein as "IC Plans") should also consider the application of the prohibited
transaction provisions of Section 406 of ERISA and Section 4975 of the Code in
making their investment decision. A "party in interest" or "disqualified person"
with respect to an ERISA Plan or IC Plan is subject to (i) an initial 10% excise
tax on the amount involved in any prohibited transaction involving the assets of
the plan and (ii) an excise tax equal to 100% of the amount involved if any
prohibited transaction is not corrected. If the disqualified person who engages
in the transaction is the individual on behalf of whom an IRA is maintained (or
his beneficiary), the IRA may lose its tax-exempt status and its assets may be
deemed to have been distributed to such individual in a taxable distribution on
account of the prohibited transaction. In addition, a fiduciary who permits an
ERISA Plan to engage in a transaction that the fiduciary knows or should know is
a prohibited transaction may be liable to the ERISA Plan for any loss the ERISA
Plan incurs as a result of the transaction and for any profits earned by the
fiduciary in the transactions.
In addition to liability for ERISA Plan losses, ERISA imposes a civil
penalty against fiduciaries of ERISA Plans who breach the prudence and other
fiduciary standards of ERISA, and against non-fiduciaries who knowingly
participate in the transaction giving rise to the breach. A prohibited
transaction by an ERISA Plan fiduciary generally would constitute a breach of
the ERISA fiduciary standards. The civil penalty is equal to 20% of the amount
recovered from a fiduciary or non-fiduciary with respect to such breach or
knowing participation pursuant to a settlement agreement with the United States
Secretary of Labor or a court order resulting from a proceeding instituted by
the Secretary. The penalty may be waived and, in any event, would be offset to
the extent of the responsible party's liability for excise tax under the Code.
Status of the REIT under ERISA. In determining whether the fiduciary
requirements of ERISA and the prohibited transaction provisions of ERISA and the
Code apply to an entity's operations because one or more investors in the
entity's equity interest is an ERISA Plan or an IC Plan, it is necessary to
determine whether the underlying assets of such entity are
82
<PAGE>
considered "plan assets" for purposes of ERISA and the Code. The U.S. Department
of Labor has issued regulations defining "plan assets" for this purpose (the
"DOL Regulation"). An ERISA Plan fiduciary should also consider the relevance of
these principles to ERISA's prohibition on improper delegation of responsibility
for the management of plan assets, and ERISA's imposition of co-fiduciary
liability on a fiduciary who participates in, permits (by action or inaction)
the occurrence of, or fails to remedy, a known breach by another fiduciary. In
general, the DOL Regulation provides that if an ERISA Plan or IC Plan acquires
"publicly offered securities" of an entity, which are sold pursuant to an
effective registration statement under the Securities Act and subsequently
registered under Section 12(b) or 12(g) of the Exchange Act, which are "widely
held" (i.e., held by at least 100 holders independent of the issuer and each
other), and freely transferable, the assets of such entity will not be
considered "plan assets" solely by reason of such plan's investment in the
entity.
LEGAL MATTERS
The validity of the issuance of the REIT shares and the Marketing Company
shares being offered hereby will be passed upon for the REIT and the Marketing
Company, respectively, by Jenkens & Gilchrist, a Professional Corporation,
Dallas, Texas.
EXPERTS
The consolidated balance sheets of FFP Partners, L.P. as of December 29,
1996 and December 31, 1995, the related consolidated statements of operations,
partners' capital, cash flows and the financial statement schedule for each of
the years in the three-year period ended December 29, 1996, included in this
Proxy Statement, have been audited by KPMG Peat Marwick LLP independent
auditors, as stated in their report which is included herein, and has been so
included in reliance upon the report of such firm given upon its authority as an
expert in accounting and auditing.
83
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
Number
-----------
<S> <C>
FFP Partners, L.P.
Independent Auditors Report for FFP Partners, L.P.................................. F-2
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995.......... F-3
Consolidated Statements of Operations for the Years Ended December 29, 1996,
December 31, 1995 and December 25, 1994......................................... F-4
Consolidated Statements of Partners' Capital for the Years Ended December 29, 1996,
December 31, 1995 and December 25, 1994.......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 29, 1996,
December 31, 1995 and December 25, 1994.......................................... F-6
Notes to Consolidated Financial Statements......................................... F-8
Schedule II - Valuation and Qualifying Accounts.................................... F-22
Consolidated Balance Sheets as of September 28, 1997 and
December 29, 1996 (unaudited).................................................... F-23
Consolidated Statements of Operations for the Nine Months Ended September 28, 1997
and September 29, 1996 (unaudited)............................................... F-24
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 28, 1997 and September 29, 1996 (unaudited)............................ F-25
Notes to Condensed Consolidated Financial Statements (unaudited)................... F-26
FFP Marketing Company, Inc.
Audited financial statements for FFP Marketing Company, Inc. are not provided
because this entity has no assets or liabilities at the date of this Proxy
Statement and will be initially capitalized in connection with the restructuring
described in this Proxy Statement.
FFP Real Estate Trust
Audited financial statements for FFP Real Estate Trust are not provided because
this entity has no assets or liabilities at the date of this Proxy Statement and
will be initially capitalized in connection with the restructuring described in
this Proxy Statement.
FFP Marketing Company, Inc. and FFP Partners, L.P.
Unaudited Pro Forma Consolidated Balance Sheets as of September 28, 1997........... see page 23
Unaudited Pro Forma Consolidated Statements of Operations for the Year Ended
December 29, 1996................................................................ see page 24
Unaudited Pro Forma Consolidated Statements of Operations for the Nine Months
Ended September 28, 1997......................................................... see page 25
Explanation of Pro Forma Adjustments to Unaudited Pro Forma Consolidated
Financial Statements............................................................. see page 26
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners of
FFP Partners, L.P.:
We have audited the accompanying consolidated balance sheets of FFP Partners,
L.P. (a Delaware Limited Partnership) and subsidiaries as of December 29, 1996,
and December 31, 1995 and the related consolidated statements of operations,
partners' capital, cash flows, and financial statement schedule for each of the
years in the three-year period ended December 29, 1996. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FFP Partners, L.P.
and subsidiaries as of December 29, 1996 and December 31, 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 29, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related 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.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 14, 1997
F-2
<PAGE>
FFP PARTNERS, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
December 29, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS (in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................................... $ 8,244 $ 8,106
Trade receivables, less allowance for doubtful
accounts of $883 and $1,045 in 1996 and 1995, respectively.. 10,303 9,440
Notes receivable.............................................. 778 453
Receivables from affiliated company........................... 420 436
Inventories................................................... 12,489 11,260
Prepaid expenses and other current assets..................... 625 615
----------- -----------
Total current assets........................................ 32,859 30,310
Property and equipment, net..................................... 38,024 31,872
Noncurrent notes receivable, excluding current portion.......... 2,069 1,156
Claims for reimbursement of environmental remediation costs..... 1,038 1,255
Other assets, net............................................... 4,609 4,739
----------- -----------
Total Assets $ 78,599 $ 69,332
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Amount due under revolving credit line........................ $ 6,823 $ 4,003
Current installments of long-term debt........................ 1,587 1,028
Current installments of obligations under capital leases...... 1,122 884
Accounts payable.............................................. 14,150 13,030
Money orders payable.......................................... 7,809 5,918
Accrued expenses.............................................. 8,778 9,894
----------- -----------
Total current liabilities................................... 40,269 34,757
Long-term debt, excluding current installments.................. 7,765 6,157
Obligations under capital leases, excluding current
installments.................................................. 1,653 943
Deferred income taxes........................................... 3,781 1,135
Other liabilities............................................... 993 639
----------- -----------
Total Liabilities........................................... 54,461 43,631
----------- -----------
Commitments and contingencies
Partners' Capital:
Limited partners' equity.................................... 24,165 25,713
General partner's equity.................................... 242 257
Treasury units.............................................. (269) (269)
----------- -----------
Total Partners' Capital................................... 24,138 25,701
----------- -----------
Total Liabilities and Partners' Capital................... $ 78,599 $ 69,332
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FFP PARTNERS, L.P. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 29, 1996, December 31, 1995 and December 25, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues: (in thousands, except unit information)
Motor fuel............................. $ 321,814 $ 296,88 $ 275,278
Merchandise............................ 60,579 65,512 72,827
Miscellaneous.......................... 7,759 7,646 7,408
------------ ------------ ------------
Total revenues....................... 390,152 370,045 355,513
------------ ------------ ------------
Costs and expenses:
Cost of motor fuel..................... 301,142 274,074 252,946
Cost of merchandise.................... 42,758 46,325 52,658
Direct store expenses.................. 27,062 28,496 29,553
General and administrative expenses.... 11,506 11,795 11,056
Depreciation and amortization.......... 3,951 3,769 4,352
------------ ------------ ------------
Total costs and expenses............. 386,419 364,459 350,565
------------ ------------ ------------
Operating income......................... 3,733 5,586 4,948
Interest Expense....................... 1,246 1,176 1,173
------------ ------------ ------------
Income before income taxes and
extraordinary item..................... 2,487 4,410 3,775
Deferred income tax expense arising from
Change in tax lives of certain
buildings............................ 2,089 0 0
Other items............................ 557 500 244
------------ ------------ ------------
Income/(loss) before extraordinary item.. (159) 3,910 3,531
Extraordinary item - gain on
extinguishment of debt................. 0 0 200
------------ ------------ ------------
Net Income/(loss)........................ $ (159) $ 3,910 $ 3,731
============ ============ ============
Net income/(loss) allocated to
Limited partners....................... $ (157) $ 3,871 $ 3,694
General partner........................ (2) 39 37
Income/(loss) per limited partner unit...
Before extraordinary item.............. $ (0.04) $ 1.07 $ 0.97
Gain on extinguishment of debt......... 0.00 0.00 0.06
------------ ------------ ------------
Net income/(loss)...................... $ (0.04) $ 1.07 $ 1.03
============ ============ ============
Distributions declared per unit.......... $ 0.415 $ 0.870 $ 0.370
Weighted average number of Class A
and Class B Units outstanding.......... 3,684,525 3,632,221 3,589,337
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FFP PARTNERS, L.P. AND SUBSIDIARIES
Consolidated Statements of Partners' Capital
Years Ended December 29, 1996, December 31, 1995 and December 25, 1994
<TABLE>
<CAPTION>
Limited Partners
---------------- General Treasury
Class A Class B Partner Units Total
------- ------- ------- -------- -----
(in thousands, except unit formation)
<S> <C> <C> <C> <C> <C>
Balance, December 26, 1993............. $ 15,813 $ 6,634 $225 $(269) $22,403
Exercise of Class A Unit
options by employees................. 53 0 0 0 53
Distributions to partners
($0.37 per Class A and
Class B Unit)........................ (761) (563) (13) 0 (1,337)
Net income 2,124 1,570 37 0 3,731
--------- --------- ------ -------- ----------
Balance, December 25, 1994............. 17,229 7,641 249 (269) 24,850
Exercise of Class A Unit
options by employees
and directors........................ 238 0 1 0 239
Retirement of Class A Units............ (94) 0 0 0 (94)
Distributions to partners
($0.87 per Class A and
Class B Unit)........................ (1,838) (1,334) (32) 0 (3,204)
Net income............................. 2,254 1,617 39 0 3,910
--------- --------- ------ -------- ----------
Balance, December 31, 1995............. 17,789 7,924 257 (269) 25,701
Exercise of Class A Unit
options by employees
and directors........................ 139 0 2 0 141
Conversion of Class B Units............ 6,691 (6,691) 0 0 0
Distributions to partners
($0.415 per Class A and
Class B Unit)...................... (1,445) (85) (15) 0 (1,545)
Net (loss)............................. (150) (7) (2) 0 (159)
--------- --------- ------ -------- ----------
Balance, December 29, 1996............. $ 23,024 $ 1,141 $242 $(269) $24,138
========= ========= ====== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FFP PARTNERS, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 29, 1996, December 31, 1995 and December 25, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(in thousands, except supplemental information)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss)......................... $ (159) $ 3,910 $ 3,731
Adjustments to reconcile net income/
(loss) to net cash provided by
operating activities
Depreciation and amortization........... 3,950 3,769 4,352
Provision for doubtful accounts......... 327 459 804
Provision for deferred income taxes..... 2,646 500 244
(Gain) on sales of property and
equipment............................ (21) (256) (16)
(Gain) on extinguishment of debt........ 0 0 (200)
(Gain) on sales of convenience store
operations........................... (1,778) (791) (829)
Minority interest in net income of
subsidiaries......................... 32 42 41
Changes in operating assets and
liabilities (Increase) in trade
receivables............................ (1,190) (1,807) (2,018)
Decrease in receivables from
affiliated company..................... 16 15 24
(Increase)/decrease in inventories...... (1,229) 86 2,211
(Increase)/decrease in prepaid expenses
and other current assets............... (10) (8) 156
Decrease in claims for reimbursement
of environmental remediation costs..... 217 314 192
Increase/(decrease) in accounts payable. 1,120 (150) 1,137
Increase in money orders payable........ 1,891 1,656 832
Increase/(decrease) in accrued expenses
and other liabilities.................. (794) (2,429) 353
----------- ---------- -----------
Net cash provided by operating
activities.......................... 5,018 5,310 11,014
----------- ---------- -----------
Cash flows from investing activities:
Purchases of property and equipment....... (9,517) (4,762) (3,772)
Proceeds from sales of property and
equipment................................ 98 314 44
Investments in joint ventures and other
entities................................. 0 (1,350) 0
Decrease in notes receivable.............. 540 733 80
(Increase) in other assets................ (332) (687) (787)
----------- ---------- -----------
Net cash (used in) investing
activities........................... (9,211) (5,752) (4,435)
----------- ---------- -----------
Cash flows from financing activities:
Borrowings/(payments) on revolving credit
line, net................................ 2,820 4,003 (7,116)
Proceeds from long-term debt.............. 4,000 0 12,161
Payments on long-term debt................ (2,033) (4,178) (13,576)
Borrowings under capital lease
obligations.............................. 1,923 1,076 1,560
Payments on capital lease obligations..... (975) (694) (115)
Proceeds from exercise of unit options.... 141 145 53
Distributions to unitholders.............. (1,545) (3,204) (1,337)
----------- ---------- -----------
Net cash provided by/(used in)
financing activities................. 4,331 (2,852) (8,370)
----------- ---------- -----------
Net increase/(decrease) in cash and
cash equivalents..................... 138 (3,294) (1,791)
Cash and cash equivalents at beginning of
year....................................... 8,106 11,400 13,191
----------- ---------- -----------
Cash and cash equivalents at end of year.... $ 8,244 $ 8,106 $ 11,400
=========== ========== ===========
</TABLE>
Supplemental disclosure of cash flow information:
Cash paid for interest during 1996, 1995, and 1994 was $1,097,000,
$1,394,000, and $1,283,000, respectively. Purchases of property and equipment in
1996 include $80,000 of capitalized interest.
F-6
<PAGE>
Supplemental schedule of noncash investing and financing activities:
During 1996, the Company acquired fixed assets of $200,000 in exchange for
notes payable.
During 1995, the Company (i) acquired fixed assets of $598,000 in exchange
for notes payable and (ii) retired $94,000 in Class A Units in connection with
the surrender of 12,295 Class A Units in payment for the exercise of options to
acquire 25,000 Class A Units by a director of the General Partner.
During 1994, the Company acquired property valued at $215,000 and a note
receivable of $120,000 through settlement of a lawsuit.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FFP PARTNERS, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 1996, December 31, 1995 and December 25, 1994
1. Basis of Presentation
(a) Organization of Company
FFP Partners, L.P. ("FFPLP"), through its subsidiaries, owns and
operates retail convenience stores, truck stops, and self-service motor fuel
outlets over an eleven state area. It also operates check cashing booths
and conducts a wholesale motor fuel business, both primarily in Texas.
FFPLP, a Delaware limited partnership, was formed in December 1986 and
commenced operations in May 1987. FFP Partners Management Company, Inc.
("FFPMC" or the "General Partner"), serves as the general partner of FFPLP.
FFPMC, or a subsidiary, also serves as the general partner of FFPLP's
subsidiary partnerships. References in these notes to the "Company" include
FFPLP and its subsidiaries.
The Company owns and conducts its operations through the following
subsidiaries:
<TABLE>
<CAPTION>
Principal Percent
Entity Date Formed Activity Owned
------ ----------- --------- --------
<S> <C> <C> <C>
FFP Operating Partners, L.P., a December 1986 Operation of convenience stores and 99%
Delaware limited partnership other retail outlets
Direct Fuels, L.P., a Texas December 1988 Operation of fuel terminal and 99%
limited partnership wholesale fuel sales
FFP Financial Services, L.P., a September 1990 Operation of check cashing booths 99%
Delaware limited partnership
Practical Tank Management, September 1993 Underground storage tank monitoring 100%
Inc., a Texas corporation
FFP Transportation, L.L.C., a September 1994 Ownership of tank trailers leased to 100%
Texas limited liability independent trucking company
company
FFP Money Order Company, December 1996 Sale of money orders through agents 100%
Inc., a Nevada corporation
</TABLE>
(b) Consolidation
All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements. The minority interest
in the net income or loss of subsidiaries which are not wholly-owned by
FFPLP is included in general and administrative expenses.
2. Significant Accounting Policies
(a) Fiscal Years
The Company prepares its financial statements and reports its results
of operations on the basis of a fiscal year which ends on the last Sunday of
December. Accordingly, the fiscal years ended December 29, 1996, and
December 25, 1994, consisted of 52 weeks, while the year ended December 31,
1995, consisted of 53 weeks. Year end data in these notes is as of the
respective dates above.
F-8
<PAGE>
(b) Cash Equivalents
The Company considers all highly liquid investments with maturities at
date of purchase of three months or less to be cash equivalents.
(c) Notes Receivable
The Company evaluates the collectibility of notes receivable in
accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of
Loans," as amended by SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan--Income Recognition and Disclosures." At year end 1996 and 1995,
no notes receivable were determined to be impaired.
(d) Inventories
Inventories consist of retail convenience store merchandise and motor
fuel products. Merchandise inventories are stated at the lower of cost or
market as determined by the retail method. Motor fuel inventories are
stated at the lower of cost or market using the first-in, first-out ("FIFO")
inventory method.
The Company has selected a single company as the primary grocery and
merchandise supplier to its convenience stores and truck stops although
certain items, such as bakery goods, dairy products, soft drinks, beer, and
other perishable products, are generally purchased from local vendors and/or
wholesale route salespeople. The Company believes it could replace any of
its merchandise suppliers, including its primary grocery and merchandise
supplier, with no significant adverse effect on its operations.
The Company does not have long-term contracts with any suppliers of
petroleum products covering more than 10% of its motor fuel supply.
Unanticipated national or international events could result in a curtailment
of motor fuel supplies to the Company, thereby adversely affecting motor
fuel sales. In addition, management believes a significant portion of its
merchandise sales are to customers who also purchase motor fuel.
Accordingly, reduced availability of motor fuel could negatively impact
other facets of the Company's operations.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment acquired under
capital leases is stated at the present value of the initial minimum lease
payments, which is not in excess of the fair value of the equipment.
Depreciation and amortization of property and equipment are provided on the
straight-line method over the estimated useful lives of the respective
assets. Leasehold improvements are amortized on the straight-line method
over the shorter of the lease term or the estimated useful lives of the
respective assets.
(f) Investments
Investments in joint ventures and other entities that are 50% or less
owned are accounted for by the equity method and are included in other
assets, net, in the accompanying consolidated balance sheets.
(g) Intangible Assets
In connection with the allocation of the purchase price of the assets
acquired in 1987 upon the commencement of the Company's operations,
$6,192,000 was allocated to contracts under which the Company supplies motor
fuel to various retail outlets and $1,093,000 was allocated as the future
benefit of real estate leased from affiliates of the General Partner. The
fuel contracts were amortized using the straight-line method over 6.3 years,
the average life of such contracts at the time they were acquired. The
value assigned to these contracts became fully amortized during 1993. The
future benefit of the leases is being amortized using the straight-line
method over 20 years, the initial term and option periods, of such leases.
Goodwill of $2,020,000 is being amortized using the straight-line
method over 20 years. The Company assesses the recoverability of goodwill
by determining whether the amortization of the balance over the remaining
amortization period can be recovered through undiscounted future operating
cash flows of the acquired operations. The amount of goodwill impairment, if
any, is measured based on projected discounted future operating cash flows
F-9
<PAGE>
using a discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of goodwill would be impacted if
anticipated future operating cash flows are not achieved.
(h) Sales of Convenience Store Operations
The Company sold the merchandise operations and related inventories of
certain convenience store locations to various third parties in exchange for
cash and notes receivable. The notes receivable generally are for terms of
five years, require monthly payments of principal and interest, and bear
interest at rates ranging from 8% to 10%. Summary information about these
sales is as follows:
<TABLE>
<CAPTION>
Gains
--------------------------
Number Notes Total Deferred
Sold Cash Receivable Proceeds Recognized (at year-end)
------ ---- ---------- -------- ---------- -------------
(in thousands, except number sold)
<S> <C> <C> <C> <C> <C> <C>
1996 18 $816 $1,561 $2,377 $1,778 $250
1995 10 357 543 900 791 200
1994 15 778 1,056 1,834 829 400
</TABLE>
Gains on sales which meet specified criteria, including receipt of a
significant cash down payment and projected cash flow from store operations
sufficient to adequately service the debt, are recognized upon closing of
the sale. Gains on sales which do not meet the specified criteria are
recognized under the installment method as cash payments are received.
Gains being recognized under the installment method are evaluated
periodically to determine if full recognition of the gain is appropriate.
Under these sales, the Company retains the real estate or leasehold
interests, and leases or subleases the store facilities (including the store
equipment) to the purchaser under five-year renewable operating lease
agreements. The Company retains ownership of the motor fuel operations and
pays the purchaser of the store commissions based on motor fuel sales. In
addition, the new store operators may purchase merchandise under the
Company's established buying arrangements.
(i) Environmental Costs
Environmental remediation costs are expensed; related environmental
expenditures that extend the life, increase the capacity, or improve the
safety or efficiency of existing assets are capitalized. Liabilities for
environmental remediation costs are recorded when environmental assessment
and/or remediation is probable and the amounts can be reasonably estimated.
Environmental liabilities are evaluated independently from potential claims
for recovery. Accordingly, the gross estimated liabilities and estimated
claims for reimbursement have been presented separately in the accompanying
consolidated balance sheets (see Note 13(b)).
In October 1996, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 96-1, Environmental
Remediation Liabilities. SOP 96-1, which will be adopted by the Company at
the beginning of its 1997 fiscal year, requires, among other things,
environmental remediation liabilities to be accrued when the criteria of
SFAS No. 5, "Accounting for Contingencies," have been met. The SOP also
provides guidance with respect to the measurement of remediation
liabilities. Such accounting is consistent with the Company's current
method of accounting for environmental remediation costs, and therefore,
adoption of SOP 96-1 in 1997 is not expected to have a material impact on
the Company's consolidated financial position, results of operations, or
liquidity.
(j) Motor Fuel Taxes
Motor fuel revenues and related cost of motor fuel include federal and
state excise taxes of $105,718,000, $103,478,000, and $103,117,000, for
1996, 1995, and 1994, respectively.
(k) Exchanges
The exchange method of accounting is utilized for motor fuel exchange
transactions. Under this method, such transactions are considered as
exchanges of assets with deliveries being offset against receipts, or vice
versa. Exchange balances due from others are valued at current replacement
costs. Exchange balances due to others are
F-10
<PAGE>
valued at the cost of forward contracts (Note 11) to the extent they have
been entered into, with any remaining balance valued at current replacement
cost. Exchange balances due to others at year end 1996 and 1995 were $4,000
and $-0-, respectively.
(l) Income Taxes
Taxable income or loss of the Company is includable in the income tax
returns of the individual partners; therefore, no provision for income taxes
has been made in the accompanying consolidated financial statements, except
for applying the provisions of SFAS No. 109 "Accounting for Income Taxes,"
which was adopted in fiscal 1993.
Under the Revenue Act of 1987 ("Revenue Act"), certain publicly traded
partnerships are to be treated as corporations for tax purposes. Due to a
transitional rule, this provision of the Revenue Act will not be applied to
the Company until the earlier of (i) its tax years beginning after 1997 or
(ii) its addition of a "substantial new line of business" as defined by the
Revenue Act. Legislation has been introduced into Congress which would
extend for a two year period the Company's partnership tax status. However,
no action has yet been taken on this legislation. The General Partner
continues to evaluate the Company's alternatives with respect to its tax
status.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to existing differences between financial
statement carrying amounts of assets and liabilities and their respective
tax bases that are expected to reverse after 1997. Deferred tax liabilities
and assets are measured using enacted tax rates expected to be in effect
when such amounts are realized or settled. The effect of a change in tax
rates is recognized in income in the period that includes the enactment
date.
(m) Fair Value of Financial Instruments
The carrying amounts of cash, receivables, amounts due under revolving
credit line, and money orders payable approximate fair value because of the
short maturity of those instruments. The carrying amount of notes
receivable approximates fair value which is determined by discounting
expected future cash flows at current rates.
The carrying amount of long-term debt approximates fair value due to
the variable interest rate on substantially all such obligations.
(n) Units Issued and Outstanding
Units outstanding at year end 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Class A Units 3,529,205 2,137,076
Class B Units 175,000 1,533,522
</TABLE>
The Company's Class A Units are traded on the American Stock Exchange.
The Class B Units, which are not registered and are not traded on the
American Stock Exchange, are held by an entity affiliated with the General
Partner.
During 1996, 1,358,522 Class B Units primarily held by affiliates of
the General Partner were converted to Class A Units, in accordance with the
Partnership Agreement. The remaining Class B Units may be converted into
Class A Units on a one-for-one basis at the option of the unitholder. The
Class A Units and Class B Units have identical rights with respect to cash
distributions and to voting on matters brought before the partners.
During 1990, the Company acquired 13,300 Class A Units and 51,478
Class B Units which are being held in the treasury at cost.
(o) Income/(Loss) per Unit
The Partnership Agreement provides that net income or loss is to be
allocated (i) 99% to the limited partners and 1% to the General Partner and
(ii) among the limited partners based on the number of units held.
F-11
<PAGE>
Accordingly, income/(loss) per unit is calculated by dividing 99% of the
appropriate income statement caption by the weighted average number of Class
A and Class B Units outstanding for the year. No effect has been given to
the unit purchase rights and options outstanding under the unit option plans
(Note 9) since the effect would be immaterial or anti-dilutive.
(p) Cash Distributions to Partners
Distributions to partners represent a return of capital and are
allocated pro rata to the General Partner and holders of both the Class A
and Class B Units.
(q) Employee Benefit Plan
The Company has a 401(k) profit sharing plan covering all employees
who meet age and tenure requirements. Participants may contribute to the
plan a portion, within specified limits, of their compensation under a
salary reduction arrangement. The Company may make discretionary matching
or additional contributions to the plan. The Company did not make any
contributions to the plan in 1996, 1995, or 1994.
(r) Use of Estimates
The use of estimates is required to prepare the Company's consolidated
financial statements in conformity with generally accepted accounting
principles. Although management believes that such estimates are reasonable,
actual results could differ from the estimates.
(s) Unit Option Plan
The Company accounts for its unit option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation expense would be recorded only if the current market
price of the underlying unit on the date of grant of the option exceeded the
exercise price of the option. On January 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation," which permits entities
to (i) recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant or (ii) continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and
earnings per share disclosures for employee option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected the second alternative (see Note 9).
(t) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of," on January 1, 1996. This statement requires that long-lived assets and
certain identifiable intangibles to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of such assets to future
net cash flows expected to be generated by the assets. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. The initial adoption of
this statement did not have a material impact on the Company's consolidated
financial position, results of operations, or liquidity.
(u) Revenue Recognition
The Company recognizes revenue related to motor fuel and merchandise
sales at the point of sale.
F-12
<PAGE>
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(in thousands)
<S> <C> <C>
Land $ 4,703 $ 4,319
Land improvements 2,698 2,627
Buildings and improvements 26,509 24,515
Machinery and equipment 35,450 31,302
Construction in progress 2,821 0
---------- ----------
72,181 62,763
Accumulated depreciation and amortization (34,157) (30,891)
---------- ----------
$ 38,024 $ 31,872
========== ==========
</TABLE>
4. Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Intangible Assets (Note 2(g))
Ground leases $ 1,093 $ 1,093
Goodwill 2,040 2,020
Other 2,295 1,984
--------- --------
5,428 5,097
Accumulated amortization (2,375) (2,056)
--------- --------
3,053 3,041
Investments in joint ventures and
other entities 1,293 1,350
Other 263 348
--------- --------
$ 4,609 $ 4,739
========= ========
</TABLE>
In December 1995, the Company advanced $1,200,000 to a company which granted
the Company a security interest in certain loans that are secured by convenience
stores located in areas where the Company currently has operations. These loans
will be liquidated through collection or through the acquisition of the stores
by the Company through foreclosure proceedings.
5. Notes Payable and Long-Term Debt
The Company has a Credit Agreement with a bank that provides a $10,000,000
revolving credit line for working capital purposes. The revolving credit line
bears interest at the bank's prime rate (8.25% at year end 1996) and matures on
April 30, 1998. The Credit Agreement requires that the balance outstanding
(excluding letters of credit) under the revolving credit line not exceed
$1,500,000 for three consecutive calendar days in each quarter. At year end
1996 and 1995, there was $6,823,000 and $4,003,000, respectively, due on the
revolving credit line and there were outstanding letters of credit totaling
$625,000 at each year end.
The Credit Agreement also provides two term loans. One such loan had a
balance at year end 1996 of $5,625,000, bears interest at the London Interbank
Offered Rate ("LIBOR") plus 1.75 percent, requires quarterly payments of
interest plus principal of $312,500, and matures on March 31, 2001. The other
term loan had a balance of $3,000,000 at year end 1996, bears interest at LIBOR
plus 1.75 percent, requires quarterly payments of interest plus principal of
$75,000 in June, September, and December 1997, and March 1998, principal of
$125,000 in each of the next 16 quarters, and principal of $175,000 in the
subsequent four quarters, and matures on March 31, 2003. (Through December 31,
1996, both of these loans bore interest at the bank's prime rate.)
F-13
<PAGE>
All loans are secured by the Company's accounts receivable and inventory.
In addition the Company has provided a negative pledge of all its fixed assets
and real property and the bank has the right to require a positive pledge of
such assets at any time. The loans are guaranteed by the General Partner and
its subsidiary. The Credit Agreement also contains various restrictive
covenants including restrictions on borrowing from persons other than the bank,
making investments in, advances to, or guaranteeing the obligations of other
persons, maintaining specified levels of equity, restrictions on distributions
to unitholders and on the amount of capital expenditures, and the maintenance of
certain financial ratios. At year end 1996, the Company was not in compliance
with certain financial ratios and covenants in the Credit Agreement. The bank
has waived compliance with these ratios or amended the Credit Agreement with
respect to these items.
The Company has other notes payable which bear interest at 6% to 10% and are
due in monthly or annual installments through 2012. Such notes are unsecured or
secured by receivables or land and had aggregate balances of $603,000 and
$622,000 at year end 1996 and 1995, respectively.
The aggregate fixed maturities of long-term debt for each of the five years
subsequent to 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1997 $1,587
1998 1,764
1999 1,929
2000 1,810
2001 1,180
Thereafter 1,082
---------------
$9,352
===============
</TABLE>
In February 1994, the Company refinanced its then existing bank debt. In
connection with this refinancing, the Company received a discount of $200,000
for the early retirement of the existing debt. This discount is reflected as an
extraordinary item in the accompanying 1994 consolidated statement of
operations.
6. Capital Leases
The Company is obligated under noncancelable capital leases beginning to
expire in 1997. The gross amount of the assets covered by these capital leases
that are included in property and equipment in the accompanying consolidated
balance sheets is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Machinery and equipment $2,412 $2,636
Accumulated amortization (798) (425)
--------- --------
$1,614 $2,211
========= ========
</TABLE>
F-14
<PAGE>
The amortization of assets held under capital leases is included in
depreciation and amortization expense in the accompanying consolidated
statements of operations. Future minimum lease payments under the noncancelable
capital leases for years subsequent to 1996 are:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1997 $ 1,332
1998 561
1999 440
2000 395
2001 527
Thereafter 80
------------
Total minimum lease payments 3,335
Amount representing interest (560)
------------
Present value of future minimum lease payments 2,775
Current installments (1,122)
------------
Obligations under capital leases, excluding current $ 1,653
installments
============
</TABLE>
7. Operating Leases
The Company has noncancelable, long-term operating leases on certain
locations, a significant portion of which are with related parties. Certain of
the leases have contingent rentals based on sales levels of the locations and/or
have escalation clauses tied to the consumer price index. Minimum future rental
payments (including bargain renewal periods) and sublease receipts for years
after 1996 are as follows:
<TABLE>
<CAPTION>
Future Rental Payments
---------------------------------------- Future
Related Sublease
Parties Others Total Receipts
------- ------ ----- --------
(in thousand s)
<S> <C> <C> <C> <C>
1997 $ 712 $ 597 $1,309 $1,031
1998 657 541 1,198 952
1999 657 499 1,156 841
2000 657 453 1,110 549
2001 657 369 1,026 200
Thereafter 1,977 1,116 3,093 41
---------- -------- -------- ---------
$5,317 $3,575 $8,892 $3,614
========== ======== ======== =========
</TABLE>
Total rental expense and sublease income were as follows:
<TABLE>
<CAPTION>
Rent Expense
----------------------------------
Related Sublease
Parties Others Total Income
------- ------ ------ --------
(in thousands)
<S> <C> <C> <C> <C>
1996 $ 727 $ 742 $ 1,469 $ 1,154
1995 849 735 1,584 843
1994 842 912 1,754 592
</TABLE>
F-15
<PAGE>
8. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Motor fuel taxes payable $5,726 $6,599
Accrued payroll and related expenses 818 1,349
Accrued environmental remediation costs (Note 13(b)) 0 322
Other 2,234 1,624
------------------
$8,778 $9,894
==================
</TABLE>
9. Nonqualifying Unit Option Plan and Unit Purchase Rights
The Company has a Nonqualifying Unit Option Plan and a Nonqualifying Unit
Option Plan for Nonexecutive Employees that authorize the grant of options to
purchase up to 450,000 and 100,000 Class A Units of the Company, respectively.
Following is a summary of activity under the stock option plans:
<TABLE>
<CAPTION>
Class A Price Weighted
Units Range Average
------- ----- --------
<S> <C> <C> <C>
Options outstanding, December 26, 1993 309,932 $2.00 - $3.75 $3.55
Options granted during year 10,000 3.88 3.88
Options expired or terminated during year (8,666) 3.75 3.75
Options exercised during year (17,336) 2.00 - 3.75 3.04
------- ------------- -----
Options outstanding, December 25, 1994 293,930 2.00 - 3.88 3.59
Options granted during year 50,000 6.00 - 7.00 6.50
Options expired or terminated during year (6,999) 3.75 3.75
Options exercised during year (76,267) 2.00 - 3.88 3.11
------- ------------- -----
Options outstanding, December 31, 1995 260,664 3.75 - 7.00 4.28
Options granted during year 0
Options expired or terminated during year (1,333) 3.75 3.75
Options exercised during year (37,332) 3.75 3.75
------- ------------- -----
Options outstanding, December 29, 1996 221,999 3.75 - 7.00 3.70
======= ============= =====
Options exercisable, December 29, 1996 185,333 3.75 - 3.88 4.00
======= ============= =====
</TABLE>
The exercise price of each option granted under the plans is determined by
the Board of Directors, but may not be less than the fair market value of the
underlying units on the date of grant. The exercise prices of the options
outstanding at year end 1996 are:
<TABLE>
<CAPTION>
Exercise Options
Price Outstanding
------- -----------
<S> <C>
$3.750 165,333
$3.875 6,666
$6.000 25,000
$7.000 25,000
----------
221,999
==========
</TABLE>
At year end 1996, the weighted-average remaining contractual life of
outstanding options was 6.31 years.
F-16
<PAGE>
All options outstanding at year end 1996 are exercisable with respect to
one-third of the units covered thereby on each of the anniversary dates of their
grants and expire ten years from the date of grant. In the event of a change in
control of the Company, any unexercisable portion of the options will become
immediately exercisable.
At December 29, 1996, there were 172,998 additional shares available for
grant under the plans. The per share weighted-average fair value of stock
options granted during 1995 was $3.00 on the date of grant using the Black
Scholes option-pricing model with the following assumptions: an expected
dividend yield of 0.0%, a risk-free interest rate of 6.0%, expected volatility
of 62%, and an expected option life of 3 years.
The Company applies APB Opinion No. 25 in accounting for its unit option
plans; accordingly no compensation cost related to the plans has been recognized
in the financial statements. Had the company determined compensation under SFAS
No. 123, the Company's net income (loss) would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
(in thousands, except per unit information)
<S> <C> <C>
Net income/(loss)
As reported $(159) 3,910
Pro forma (203) 3.866
Income/(loss) per limited partner unit
As reported $(.04) 1.07
Pro forma (.06) 1.06
</TABLE>
Pro forma net income reflects only options granted in 1995; no options were
granted in 1996. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net
income/(loss) amounts presented above because compensation cost for options
granted in 1994 is not considered.
In August 1989, the Company entered into a Rights Agreement and distributed
to its unitholders rights to purchase Rights Units (substantially equivalent to
a Class A Unit) under certain circumstances. Initially the Rights were attached
to all unit certificates representing units then outstanding and no separate
Rights Certificates were distributed. Under the Rights Agreement, the Rights
were to separate from the Units and be distributed to Unitholders following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") had acquired, or obtained a right to acquire, beneficial
ownership of 20% or more of the Partnership's Class A Units or all classes of
outstanding Units. On August 8, 1994, a group of Unitholders announced that they
had an informal understanding that they would vote their Units together as a
block. The agreement related to units constituting approximately 25% of the
Class A Units then outstanding. Therefore, the Rights became exercisable on
October 7, 1994, the record date for the issuance of the Rights Certificates
(the "Distribution Date").
The Rights currently represent the right to purchase a Rights Unit (which is
substantially equivalent to a Class A Unit) of the Company at a price of $20.00
per Unit. However, the Rights Agreement provides, among other things, that if
any person acquires 30% or more of the Class A Units or of all classes of
outstanding Units then each holder of a Right, other than an Acquiring Person,
will have the right to receive, upon exercise, Rights Units (or in certain
circumstances, other property) having a value of $40.00 per Unit. The Rights
will expire on August 13, 1999, and do not have any voting rights or rights to
cash distributions.
10. Income Taxes
As discussed in Note 2(l), the Company adopted the provisions of SFAS No.
109 as of the beginning of its 1993 fiscal year. Noncash charges of $2,646,000,
$500,000, and $244,000 were recorded in 1996, 1995, and 1994, respectively, to
record deferred income tax expense.
In August 1996, Congress passed legislation clarifying that certain
buildings used in connection with the retail sale of motor fuel qualified for a
substantially shorter depreciable life for tax purposes than was being utilized
by the Company. In January 1997, the Internal Revenue Service issued a notice
explaining how the tax deduction related to the change in the depreciable lives
on these assets should be determined. As a result, the Company will take a 1996
tax deduction for the difference between the tax depreciation previously
recorded and the depreciation available using the shorter life and has
F-17
<PAGE>
recognized an additional deferred income tax provision of $2,089,000 in the
fourth quarter 1996 related to this timing difference. The current tax benefit
of this deduction will be allocated to the Company's unitholders but the
deferred tax expense associated with the acceleration of this depreciation
deduction for tax purposes was reflected on the FFP Partners income statement
since it was contemplated that, in the absence of the restructuring, FFP
Partners would have to pay these taxes because it would become taxable as a
corporation after 1997.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at year end 1996 and 1995, are
presented below. Those temporary differences which are expected to reverse prior
to the Company's being treated as a corporation for tax purposes (fiscal year
1998) have been excluded.
<TABLE>
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Property and equipment, principally due to basis
differences and differences in depreciation $ (2,950) $ (845)
Other (831) (290)
---------- ---------
$ (3,781) $ (1,135)
========== =========
</TABLE>
11. Futures and Forward Contracts
The Company is party to commodity futures contracts with off-balance sheet
risk. Changes in the market value of open futures contracts are recognized as
gains or losses in the period of change. These investments involve the risk of
dealing with others and their ability to meet the terms of the contracts and the
risk associated with unmatched positions and market fluctuations. Contract
amounts are often used to express the volume of these transactions, but the
amounts potentially subject to risk are much smaller.
From time-to-time the Company enters into forward contracts to buy and sell
fuel, principally to satisfy balances owed on exchange agreements (Note 2(k)).
These transactions, which together with futures contracts are classified as
operating activities for purposes of the consolidated statements of cash flows,
are included in motor fuel sales and related cost of sales and resulted in net
gains as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1996 $ 243
1995 87
1994 1,069
</TABLE>
Open positions under futures and forward contracts were not significant at
year end 1996 and 1995.
12. Related Party Transactions
The Company reimburses the General Partner and its affiliates for salaries
and related costs of executive officers and others and for expenses incurred by
them in connection with the management of the Company. These expenses were
$745,000, $727,000, and $733,000 for 1996, 1995, and 1994, respectively.
In July 1991, the Company entered into an agreement with an affiliated
company whereby the affiliated company sells alcoholic beverages at the
Company's stores in Texas. Under Texas law, the Company is not permitted to hold
licenses to sell alcoholic beverages in Texas. The agreement provides that the
Company will receive rent and a management fee based on the gross receipts from
sales of alcoholic beverages at its stores. In July 1992, the agreement was
amended to be for a term of five years commencing on the date of amendment. The
sales recorded by the affiliated company under this agreement were $8,240,000,
$9,116,000, and $9,180,000 in 1996, 1995, and 1994, respectively. The Company
received $1,265,000, $1,217,000, and $1,226,000 in 1996, 1995, and 1994,
respectively, in rent, management fees, and interest, which are included in
miscellaneous revenues in the consolidated statements of operations. After
deducting cost of sales and other expenses related to these sales, including the
amounts paid to the Company, the affiliated company had earnings of $82,000,
$91,000, and $119,000 in 1996, 1995, and 1994, respectively, as a result of
holding these alcoholic beverage permits. Under a revolving note executed in
connection with this agreement, the Company advances funds to the affiliated
company to pay for the purchases of alcoholic beverages. Receipts from the sales
of such beverages are credited against the note balance. The revolving note
provides for interest at 1/2% above the prime rate charged by a major financial
institution.
F-18
<PAGE>
From time to time, the General Partner may advance funds to the Company.
Under the Partnership Agreement, the General Partner is permitted to charge
interest on such advances provided the interest rate does not exceed rates which
would be charged by unrelated third parties. There were no advances owing to the
General Partner during or at the year ends of 1996, 1995, and 1994.
The General Partner is entitled to noncumulative, incentive compensation
each year in an amount equal to 10% of the net income of the Company for such
year (prior to the calculation of the incentive compensation), but only if net
income (prior to the calculation of the incentive compensation) equals or
exceeds $1.08 per unit and only if the total of the quarterly cash distributions
for such year are at least $1.50 per unit. The incentive compensation
requirements were not met in 1996, 1995, or 1994.
The Company purchases certain goods and services (including office
supplies, computer software and consulting services, and fuel supply consulting
and procurement services) from related entities. Amounts incurred for these
products and services were $359,000, $421,000, and $147,000, for 1996, 1995, and
1994, respectively.
As a part of its merchandise sales activities, the Company supplies its
private label cigarettes on a wholesale basis to other retailers who do not
operate outlets in its trade areas and pays them rebates based on the volume of
cigarettes purchased. In 1996 and 1995, the Company paid $14,000 and $51,000 of
such rebates to a company on whose Board one of the Company's executive officers
serves. The amount of rebates paid to this company was calculated in the same
manner as the rebates paid to non-related companies.
In 1980 and 1982, certain companies from which the Company acquired its
initial base of retail outlets granted to a third party the right to sell motor
fuel at retail for a period of 10 years at self-serve gasoline stations owned or
leased by the affiliated companies or their affiliates. All rights to
commissions under these agreements and the right to sell motor fuel at wholesale
to the third party at such locations were assigned to the Company in May 1987 in
connection with the acquisition of its initial base of retail operations. In
December 1990, in connection with the expiration or termination of the
agreements with the third party, the Company entered into agreements with a
company owned and controlled by the Chairman of the General Partner and members
of his immediate family, which grant to the Company the exclusive right to sell
motor fuel at retail at these locations. The terms of these agreements are
comparable to agreements that the Company has with other unrelated parties. The
Company paid this affiliated company commissions related to the sale of motor
fuel at these locations of $277,000, $261,000, and $222,000 in 1996, 1995, and
1994, respectively.
During 1995, the Company purchased four parcels of land, including building
and petroleum storage tanks and related dispensing equipment, from a company
controlled by the Chairman of the General Partner and members of his immediate
family. The Company paid a total of $116,000 for the real estate and related
improvements. The Company is operating one of these locations as a convenience
store and one as a self-service motor fuel outlet and intends to operate the
other two as either convenience stores or self-service motor fuel outlets. The
purchase price was determined by reference to similar properties acquired by the
Company from unrelated parties.
During 1996, the Company charged to expense $611,000 to reimburse various
related companies for legal fees that benefited the Company. Of this amount, the
Company paid $225,000 during 1996; the remaining $386,000 owed at year end is
included in accrued liabilities in the accompanying consolidated balance sheets.
13. Commitments and Contingencies
(a) Uninsured Liabilities
The Company maintains general liability insurance with limits and
deductibles management believes prudent in light of the exposure of the
Company to loss and the cost of the insurance.
The Company self-insures claims up to $45,000 per year for each
individual covered by its employee medical benefit plan for supervisory and
administrative employees; claims above $45,000 are covered by a stop-loss
insurance policy. The Company also self-insures medical claims for its
eligible store employees. However, claims under the plan for store employees
are subject to a $1,000,000 lifetime limit per employee and the Company does
not maintain stop-loss coverage for these claims. The Company and its
covered employees contribute to pay the self-insured claims and stop-loss
insurance premiums. Accrued liabilities include amounts management believes
adequate to cover the estimated claims arising prior to a year-end,
including claims incurred
F-19
<PAGE>
but not yet reported. The Company recorded expense related to these plans of
$271,000, $353,000, and $288,000 in 1996, 1995, and 1994, respectively.
The Company is covered for worker's compensation in all states through
incurred loss retrospective policies. Accruals for estimated claims (including
claims incurred but not reported) have been recorded at year end 1996 and 1995,
including the effects of any retroactive premium adjustments.
(b) Environmental Matters
The operations of the Company are subject to a number of federal,
state, and local environmental laws and regulations, which govern the storage
and sale of motor fuels, including those regulating underground storage tanks.
In September 1988, the Environmental Protection Agency ("EPA") issued
regulations that require all newly installed underground storage tanks be
protected from corrosion, be equipped with devices to prevent spills and
overfills, and have a leak detection method that meets certain minimum
requirements. The effective commencement date for newly installed tanks was
December 22, 1988. Underground storage tanks in place prior to December 22,
1988, must conform to the new standards by December 1998. The Company has
implemented a plan to bring all of its existing underground storage tanks and
related equipment into compliance with these laws and regulations and currently
estimates the costs to do so will range from $1,837,000 to $2,245,000 over the
next two years. The Company anticipates that substantially all these
expenditures will be capitalized as additions to property and equipment. Such
estimates are based upon current regulations, prior experience, assumptions as
to the number of underground storage tanks to be upgraded, and certain other
matters. At year end 1996 and 1995, the Company recorded liabilities for future
estimated environmental remediation costs related to known leaking underground
storage tanks of $643,000. Of such amounts, $-0- and $322,000, respectively,
were recorded in accrued expenses and the remainder was recorded in other
liabilities. Corresponding claims for reimbursement of environmental remediation
costs of $643,000 were recorded in 1996 and 1995, as the Company expects that
such costs will be reimbursed by various environmental agencies. In 1995, the
Company contracted with a third party to perform site assessments and
remediation activities on 35 sites located in Texas that are known or thought to
have leaking underground storage tanks. Under the contract, the third party will
coordinate with the state regulatory authority the work to be performed and bill
the state directly for such work. The Company is liable for the $10,000 per
occurrence deductible and for any costs in excess of the $1,000,000 limit
provided for by the state environmental trust fund. The Company does not expect
that the costs of remediation of any of these 35 sites will exceed the
$1,000,000 limit. The assumptions on which the foregoing estimates are based may
change and unanticipated events and circumstances may occur which may cause the
actual cost of complying with the above requirements to vary significantly from
these estimates.
During 1996, 1995, and 1994, environmental expenditures were
$2,019,000, $1,003,000, and $934,000, respectively (including capital
expenditures of $1,456,000, $644,000, and $820,000), in complying with
environmental laws and regulations.
The Company does not maintain insurance covering losses associated
with environmental contamination. However, all the states in which the Company
owns or operates underground storage tanks have state operated funds which
reimburse the Company for certain cleanup costs and liabilities incurred as a
result of leaks in underground storage tanks. These funds, which essentially
provide insurance coverage for certain environmental liabilities, are funded by
taxes on underground storage tanks or on motor fuels purchased within each
respective state. The coverages afforded by each state vary but generally
provide up to $1,000,000 for the cleanup of environmental contamination and most
provide coverage for third-party liability as well. The funds require the
Company to pay deductibles ranging from $5,000 to $25,000 per occurrence. The
majority of the Company's environmental contamination cleanup activities relate
to underground storage tanks located in Texas. Due to an increase in claims
throughout the state, the Texas state environmental trust fund has significantly
delayed reimbursement payments for certain cleanup costs after September 30,
1992. In 1993, the Texas state fund issued guidelines that, among other things,
prioritize the timing of future reimbursements based upon the total number of
tanks operated by and the financial net worth of each applicant. The Company has
been classified in the category with the lowest priority. Because the state and
federal governments have the right, by law, to levy additional fees on fuel
purchases, the Company believes these clean up costs will ultimately be
reimbursed. However, due to the uncertainty of the timing of the receipt of the
reimbursements, the claims for reimbursement of environmental remediation costs,
totaling $1,038,000 and $1,255,000 at year end 1996 and 1995, respectively, have
been classified as long-term receivables in the accompanying consolidated
balance sheets.
F-20
<PAGE>
(c) Other
The Company is subject to various claims and litigation arising in the
ordinary course of business, particularly personal injury and employment
related claims. In the opinion of management, the outcome of such matters
will not have a material effect on the consolidated financial position or
results of operations of the Company.
14. Quarterly Operating Results (Unaudited)
Quarterly results of operations for 1996, 1995, and 1994, were as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
(in thousands, except per unit data)
<S> <C> <C> <C> <C> <C>
1996:
Total revenues $94,391 $105,092 $94,298 $96,371 $390,152
Total margin 10,989 13,473 11,407 10,383 46,252
Net income/(loss) (169) 2,030 564 (2,584) (159)
Net income/(loss) per unit $ (0.05) $ 0.55 $ 0.15 $ (0.69) $ (0.04)
1995:
Total revenues $84,413 $ 97,623 $93,716 $94,293 $370,045
Total margin 10,970 12,521 13,963 12,192 49,646
Net income 154 1,172 2,071 513 3,910
Net income per unit $ 0.04 $ 0.32 $ 0.56 $ 0.15 $ 1.07
1994:
Total revenues $83,825 $ 87,760 $96,771 $87,157 $355,513
Total margin 10,998 11,987 13,899 13,025 49,909
Income/(loss) -
Before extraordinary item (486) 517 2,473 1,027 3,531
Gain on extinguishment of debt 200 0 0 0 200
Net income/(loss) (286) 517 2,473 1,027 3,731
Income/(loss) per unit -
Before extraordinary item $ (0.13) $ 0.14 $ 0.68 $ 0.28 $ 0.97
Net income/(loss) per unit (0.08) 0.14 0.68 0.28 1.03
</TABLE>
15. Events Subsequent to Independent Auditors' Report (unaudited)
On November 3, 1997, the Company restructured its bank debt. The Company
replaced its existing term loans and revolving credit line with a $23,000,000
credit facility. The new credit facility provides for a term loan of $8,000,000,
amortizing over seven years, and up to $15,000,000 (the amount available is
related to a borrowing base comprised of the Company's trade receivables and
inventory) in availability under a revolving credit facility. Both notes are due
in November 2000, and bear interest, payable monthly, at the lending
institution's prime rate. The new loans are secured by the Company's accounts
receivable, inventory, equipment, and a negative pledge of other fixed assets,
and are also guaranteed by the Company's general partner and its subsidiary.
On November 12, 1997, FFP Partners signed an agreement to purchase 104
convenience stores from E-Z Serve Convenience Stores, Inc. FFP Partners expects
to complete the closing of the acquisition on a store-by-store basis by year
end. The purchase price for the stores acquired is determined in part by the
wholesale value of the merchandise and fuel at the location sat the time the
operations of each of the locations is actually taken over by FFP Partners and
is payable in cash at that time. We estimate that the total purchase price will
be approximately $12 million.
F-21
<PAGE>
FFP PARTNERS, L.P. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 29, 1996
-----------------------------------------------------
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End
Description of Period Expenses (describe) of Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowances for doubtful accounts
Trade receivables $ 1,045 $ 327 $ 489 (a) $ 883
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-----------------------------------------------------
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End
Description of Period Expenses (describe) of Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowances for doubtful accounts
Trade receivables $ 917 $ 459 $ 331 (a) $ 1,045
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 25, 1994
-----------------------------------------------------
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End
Description of Period Expenses (describe) of Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowances for doubtful accounts
Trade receivables $ 531 $ 804 $ 418 (a) $ 917
Noncurrent receivable from
affiliated companies 447 0 447 (a) 0
</TABLE>
(a) Accounts charged-off, net of recoveries.
F-22
<PAGE>
FFP PARTNERS, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 28, December 29,
1997 1996
----------------- ----------------
(in thousands)
ASSETS
<S> <C> <C>
Current Assets:
Cash........................................................ $ 7,254 $ 8,244
Trade receivables........................................... 14,127 10,303
Notes receivable............................................ 821 778
Receivable from affiliated company.......................... 408 420
Inventories................................................. 12,818 12,489
Prepaid expenses and other.................................. 799 625
----------------- ----------------
Total Current Assets.................................... 36,227 32,859
Property and equipment, net of
accumulated depreciation....................................... 41,544 38,024
Noncurrent notes receivable, excluding
current portion................................................ 1,544 2,069
Claims for reimbursement of
environmental remediation costs................................ 1,040 1,038
Other assets, net............................................... 3,944 4,609
----------------- -----------------
Total Assets............................................ $84,299 $78,599
================= =================
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Amount due under revolving credit line...................... $ 0 $ 6,823
Current installments of long-term debt...................... 1,157 1,587
Current installments of obligation under capital lease...... 747 1,122
Accounts payable............................................ 13,566 14,150
Money orders payable........................................ 10,584 7,809
Accrued expenses............................................ 11,300 8,778
----------------- ----------------
Total Current Liabilities............................... 37,354 40,269
Long-term debt, excluding current installments.................. 14,870 7,765
Obligation under capital lease, excluding current installments.. 2,379 1,653
Deferred income taxes........................................... 4,185 3,781
Other liabilities............................................... 2,670 993
----------------- ----------------
Total Liabilities....................................... 61,458 54,461
Partners' Equity, net of treasury units of $269................. 22,841 24,138
----------------- ----------------
Total Liabilities and Partners' Equity.................. $84,299 $78,599
================= ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-23
<PAGE>
FFP PARTNERS, L.P. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 28, September 29,
1997 1996
------------------ ----------------
(in thousands, except per unit information)
<S> <C> <C>
Revenues:
Motor fuel....................................... $ 238,257 $ 241,685
Merchandise...................................... 45,114 46,207
Miscellaneous.................................... 4,702 6,101
------------------ ----------------
Total Revenues............................... 288,073 293,993
------------------ ----------------
Costs and Expenses:
Cost of motor fuel............................... 222,686 225,399
Cost of merchandise.............................. 31,719 32,714
Direct store expenses............................ 20,567 20,343
General and administrative expenses.............. 8,901 8,987
Depreciation and amortization.................... 3,986 2,755
------------------ ----------------
Total costs and expenses..................... 287,859 290,198
------------------ ----------------
Operating Income..................................... 214 3,795
Interest expense................................. 1,108 968
------------------ ----------------
Income/(loss) before income taxes.................... (894) 2,827
Deferred income tax expense...................... 403 402
------------------ ----------------
Net income/(loss).................................... $ (1,297) $ 2,425
================== ================
Income/(loss) allocated to
Limited partners................................. $ (1,284) $ 2,401
General partner.................................. (13) 24
Net income/(loss) per Class A and
Class B Unit.................................... $ (0.35) $ 0.65
Distributions declared per Class A and
Class B Unit..................................... $ 0.000 $ 0.415
Weighted average number of Class A and
Class B Units outstanding........................ 3,704,205 3,678,280
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-24
<PAGE>
FFP PARTNERS, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
September 28, September 29,
1997 1996
----------------- -----------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss)................................. $ (1,297) $ 2,425
Adjustments to reconcile net income to cash
provided/(used) by operating activities
Depreciation and amortization............. 3,986 2,755
Deferred income tax expense............... 403 402
Net change in operating assets and
liabilities.............................. 2,842 (2,507)
---------------- -----------------
Net cash provided by operating
activities............................... 5,934 3,075
---------------- -----------------
Cash flows from investing activities:
Additions of property and equipment, net.......... (7,127) (5,397)
---------------- -----------------
Net cash (used) by investing activities........... (7,127) (5,397)
---------------- -----------------
Cash flows from financing activities:
Net borrowings/(repayments) under
credit facilities............................. 203 3,772
Proceeds from exercise of unit options............ 0 135
Distributions to unitholders...................... 0 (1,542)
---------------- -----------------
Net cash provided by financing
activities................................ 203 2,365
---------------- -----------------
Net Increase/(Decrease) in Cash............ (990) 43
Cash at beginning of period........................... 8,244 8,106
---------------- -----------------
Cash at end of period................................. $ 7,254 $ 8,149
================ =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-25
<PAGE>
FFP PARTNERS, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 28, 1997
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements include the assets,
liabilities, and results of operations of FFP Partners, L.P., and its 99%-owned
subsidiaries, FFP Operating Partners, L.P., Direct Fuels, L.P., and FFP
Financial Services, L.P., and its 100%-owned subsidiaries, Practical Tank
Management, Inc., FFP Transportation, L.L.C., and FFP Money Order Company, Inc.,
collectively referred to as the "Company."
The consolidated balance sheet as of September 28, 1997, and the
consolidated statements of operations and condensed consolidated statements of
cash flows for the nine month periods ended September 28, 1997, and September
29, 1996, have been prepared by the Company and have not been audited. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the Company's financial position as of
September 28, 1997, and the results of operations and cash flows for the periods
presented have been made. Interim operating results are not necessarily
indicative of results for the entire year.
The notes to the consolidated financial statements which are included in
the Company's Annual Report on Form 10-K for the year ended December 29, 1996,
include accounting policies and additional information pertinent to an
understanding of these interim financial statements. That information has not
changed other than as a result of normal transactions in the nine months ended
September 28, 1997, and as discussed in Note 4.
2. Income/(Loss) per Unit and Distributions
The Class A and Class B Units represent a 99% interest in the Company.
Accordingly, income/(loss) per unit is calculated by dividing 99% of the income
amount by the weighted average number of units outstanding.
3. Reclassifications
Certain amounts previously reported in the 1996 financial statements have
been reclassified to conform to the 1997 presentation.
4. Refinancing of Bank Debt
On November 3, 1997, the Company completed a refinancing of its bank debt
with another lender. The new Loan Agreement provides the Company with a
revolving credit line of up to $15,000,000 (the amount available is related to a
borrowing base comprised of the Company's trade receivables and inventories) and
a term loan of $8,000,000. Both of the loans bear interest, payable monthly, at
the lending institution's prime rate. The Company has the option of fixing the
interest rate on all or a portion of both loans at rates of LIBOR plus 2.25% for
periods of three or six months and in the case of the term loan at a rate tied
to United State Treasury securities plus 2.50%. The term loan requires monthly
principal payments of $95,000 and both loans mature on November 1, 2000. The
loans are secured by the Company's accounts receivable and inventory, equipment,
and a negative pledge of other fixed assets. The loans are also guaranteed by
the Company's general partner and it's subsidiary which is the general partner
of one of the Company's subsidiaries.
The accompanying balance sheet reflects this refinancing as though it had
occurred at September 28, 1997.
F-26
<PAGE>
APPENDIX A
Glossary
The terms defined in this Appendix are used throughout this Proxy
Statement.
Articles of Incorporation. The Articles of Incorporation of the Marketing
Company.
Code. The Internal Revenue Code of 1986, as amended, or any successor
statute.
Declaration of Trust. The Declaration of Trust of the REIT.
Delaware RULPA. The Delaware Revised Uniform Limited Partnership Act, as
amended, or any successor statute.
ERISA. The Employee Retirement Income Security Act of 1974, as amended, or
any successor statute.
Election. The REIT's election to be taxed as a real estate investment
trust under Sections 856 through 860 of the Code.
Excess Shares. Fifty-five million (55,000,000) shares of stock, par value
$0.01 per share, authorized by the Declaration of Trust in excess of the REIT
common shares and REIT preferred shares.
Exchange Act. The Securities Exchange Act of 1934, as amended, or any
successor statute.
Existing Holder. John H. Harvison and any sibling (whether by whole or
half blood), spouse, ancestor or lineal descendant thereof.
Existing Holder Limitation. Provision of the Declaration of Trust that any
Existing Holder shall not initially own directly or indirectly more than 30% of
the outstanding REIT common shares, or such lesser percentage of the outstanding
REIT common shares as the REIT Board may establish from time to time pursuant to
the authority expressly vested in the REIT Board by the Declaration of Trust.
FFP Amended Partnership Agreement. The FFP Partnership Agreement, as
amended in the restructuring.
FFP Partners. FFP Partners, L.P., a Delaware limited partnership.
FFP Partnership Agreement. The Amended and Restated Agreement of Limited
Partnership of FFP Partners.
FFP Properties. FFP Properties, L.P., a Texas limited partnership.
Harvison Family. John H. Harvison, Chairman of the Board and Chief
Executive Officer of FFP Partners Management Company, Inc., of the REIT and of
the Marketing Company, members of Mr. Harvison's family, and corporations,
partnerships, trusts and other business entities affiliated with Mr. Harvison or
his family members.
IRS. The Internal Revenue Service.
Marketing Company. FFP Marketing Company, Inc., a Texas corporation
organized to succeed to the assets and operations of FFP Partners, other than
the real estate used in its retail operations, pursuant to the restructuring.
New REIT Securities. Additional shares of capital stock, or rights,
options, warrants or convertible or exchangeable securities of the REIT granted,
awarded or issued by the REIT after the conversion containing the right to
subscribe for or purchase such shares of capital stock.
Operating Partnership. FFP Operating Partners, L.P., a Delaware limited
partnership, 99% owned by FFP Partners.
A-1
<PAGE>
Ownership Limitation. The REIT Common Stock Limitation and the REIT
Preferred Stock Limitation.
Percentage Interest. The percentage interest in FFP Partners represented
by an FFP unit is equal to the ratio that it bears at the time of such
determination of the total number of FFP units outstanding, multiplied by 99%,
which is the aggregate percentage interest represented by all of the FFP units.
Proxy Statement. This Proxy Statement/Prospectus.
Record Date. The close of business on December 5, 1997, fixed by FFP's
general partner as the date for the determination of FFP unitholders entitled to
notice of, and to vote at, the special meeting of FFP unitholders and any
adjournment thereof.
REIT. FFP Real Estate Trust, a Texas real estate investment trust
organized to succeed to the real estate holdings of FFP Partners pursuant to the
restructuring.
REIT Common Stock Limitation. Provision in the Declaration of Trust that
no person (other than the Existing Holder) may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 4.9% of the number
of outstanding REIT common shares.
REIT Preferred Stock Limitation. Provision in the Declaration of Trust
that no person (other than the Existing Holder) may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 4.9% of the number
of outstanding shares of any series of REIT preferred shares.
Registration Statements. The Registration Statements on Form S-4, together
with all amendments, supplements and exhibits thereto, filed with the SEC in
accordance with the Securities Act by both the REIT and the Marketing Company.
SEC. The Securities and Exchange Commission.
SFAS 109. Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes."
Securities Act. The Securities Act of 1933, as amended, or any successor
statute.
Tax Counsel. Jenkens & Gilchrist, a Professional Corporation, which is tax
counsel to FFP Partners.
TBCA. The Texas Business Corporation Act, as amended, or any successor
statute.
TRA. The Texas Real Estate Investment Trust Act, as amended, or any
successor statute.
A-2
<PAGE>
APPENDIX B
THIRD AMENDMENT TO THE
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
FFP PARTNERS, L.P.
This Third Amendment (this "Amendment") to the Amended and Restated
Agreement of Limited Partnership of FFP Partners, L.P. (the "Partnership") is
effective as of the 28th day of December, 1997, by and among FFP Partners
Management Company, Inc. a Delaware corporation, as the outgoing General Partner
of the Partnership ("FFPMC"), FFP Real Estate Trust, a Texas real estate
investment trust, as the incoming General Partner (the "REIT") and the Limited
Partners of the Partnership as reflected on the records of the Partnership.
The Partnership was formed by the filing of a certificate of limited
partnership with the Secretary of State of Delaware on December 31, 1986. The
agreement of limited partnership was amended and restated on May 21, 1987, and
further amended by the First Amendment to the Amended and Restated Agreement of
Limited Partnership dated August 14, 1989, and the Second Amendment to the
Amended and Restated Agreement of Limited Partnership dated July 12, 1991, and
as it currently exists is referred to as the "Partnership Agreement." Terms
used in this Amendment and not otherwise defined herein shall have the meanings
given them in the Partnership Agreement.
FFPMC is now the General Partner of the Partnership.
The Board of Directors of FFPMC has approved a restructuring of the
Partnership, as a result of which, upon the occurrence of certain later events,
the REIT will become the General Partner of the Partnership and Limited Partners
will be able to have their Units redeemed for cash or Units of the REIT, in the
discretion of the REIT.
To facilitate the operation and trading of the REIT, to the benefit of the
Limited Partners, the Board of Directors of FFPMC has approved these amendments
to the Agreement.
Limited Partners whose Percentage Interests constitute at least the minimum
amount of Percentage Interests necessary to approve the amendments have approved
the amendments.
FFPMC, acting on behalf of itself and on behalf of the Limited Partners
pursuant to the power of attorney contained in Section 1.4 of the Partnership
Agreement, and the REIT, as the incoming General Partner, therefore desire to
amend the Amended and Restated Agreement of Limited Partnership pursuant to
Article XV thereof.
NOW THEREFORE, the Agreement is amended as follows:
1. Article II, "Definitions," is hereby amended by the inclusion of or changes
to the following terms:
B-1
<PAGE>
"Adoption Date" means the effective date of the REIT's election to be
taxed as a real estate investment trust for purposes of the Code, as
determined by the Trust Managers of the REIT by duly adopted resolution.
"Associated Persons" means (i) a Trust Manager, director, officer or
employee of the REIT, the General Partner or the Partnership; (ii) any
entity in which such Person directly or indirectly owns more than a 10%
interest; (iii) any trust or estate in which such Person has a substantial
beneficial interest or a to which such Person serves as trustee; or (iv)
any member of the immediate family of such Person.
"Cash Amount" means an amount of cash equal to the REIT Share Price on
the Valuation Date of the REIT Shares Amount.
"Conversion Factor" means 1.0; provided, however, that if the REIT (i)
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declares or pays a dividend on its outstanding REIT Shares in REIT Shares
or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares, (ii) subdivides its outstanding REIT Shares or (iii) combines
its outstanding REIT Shares into a smaller number of REIT Shares, the
Conversion Factor shall be adjusted by multiplying the Conversion Factor
then in effect by a fraction, the numerator of which shall be the number of
REIT Shares issued and outstanding on the record date for such dividend or
distribution or the effective date for such subdivision or combination
(assuming for such purposes that such dividend or distribution or such
subdivision or combination occurred as of such time), and the denominator
of which shall be the actual number of REIT Shares (determined without the
above assumption) issued and outstanding on the record date for such
dividend or distribution or the effective date for such subdivision or
combination. Any adjustment to the Conversion Factor shall become
effective immediately after the record date for such dividend or
distribution or the effective date of such subdivision or combination.
"Declaration of Trust" means the Declaration of Trust of the REIT, as
amended from time to time in accordance with its terms.
"Effective Date" means the date of this Amendment.
"General Partner" means the REIT, or its successor in its capacity as
general partner of the Partnership.
"Independent Trust Manager" means a Trust Manager who is not an
employee of the REIT or of any Affiliate of the REIT.
"New Securities" means (i) for the Partnership, any additional
Partnership Interests or rights, options, warrants or convertible or
exchangeable securities having the right to subscribe for or purchase
Partnership Interests issued after the
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Effective Date and (ii) for the REIT, any additional REIT Shares (other
than REIT Shares issued pursuant to Section 7.6) or rights, options,
warrants or convertible or exchangeable securities having the right to
subscribe for or purchase REIT Shares issued after the Effective Date.
"Operating Partnership" means FFP Properties, L.P. and any other
partnerships, corporations, limited liability companies or other entities
through which the Partnership does business.
"Properties" means interests in the Operating Partnership and other
interests in real property acquired by the Partnership from time to time.
"QRS" means any "qualified REIT subsidiary" as defined in Section
856(i)(2) of the Code.
"Redeeming Partner" has the meaning set forth in Section 7.6(a).
"Redemption Amount" means the Cash Amount or REIT Shares Amount, as
determined by the General Partner in its sole and absolute discretion. A
Redeeming Partner shall have no right, without the REIT's consent, to
receive the Redemption Amount in the form of the REIT Shares Amount.
"Redemption Notice" means the Redemption Notice substantially in the
form of Exhibit A to this Agreement.
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"Redemption Right" shall have the meaning set forth in Section 7.6(a).
"Real Estate Investment Trust" means a real estate investment trust
under section 856 of the Code.
"REIT" means FFP Real Estate Trust, a Texas real estate investment
trust.
"REIT Common Share" means common shares, par value $0.01 of the REIT.
"REIT Preferred Share" means preferred shares, par value $0.01 of the
REIT
"REIT Share" means either a REIT Common Share or a REIT Preferred
Share, as the context requires.
"REIT Share Price" means, as of any date of determination (a) if the
REIT Shares are listed or admitted to trading on one or more National
Securities Exchanges, the average of the last reported sale price per REIT
Share regular way, or, in case no such reported sale has taken place on any
such day, the average of
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the last reported bid and asked prices per REIT Share regular way, in
either case on the principal National Securities Exchange on which the REIT
Shares are listed or admitted to trading, for the four trading days
immediately preceding the date of determination, (b) if the REIT Shares are
not listed or admitted to trading on a National Securities Exchange but are
quoted on NASDAQ, the average of the closing bid price per REIT Share for
the four trading days immediately preceding such date of determination, as
furnished by the National Quotation Bureau Incorporated, or other such
nationally recognized quotation service as may be selected by the General
Partner for such purpose if said Bureau is not at the time furnishing
quotations, or (c) if the REIT Shares are not listed for trading on a
National Securities Exchange or quoted by NASDAQ, an amount equal to the
fair market value of a REIT Share as of such date of determination, as
determined by the General Partner using any reasonable method of valuation.
"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Shares offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor; provided, however, that if
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the REIT issues to all holders of REIT Shares rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to
subscribe for or purchase the REIT Shares or any other securities or
property, the value of which is not included in the value of the REIT
Shares (collectively, the "Rights") then the REIT Shares Amount shall also
include the Rights that a holder of that number of REIT Shares would be
entitled to receive.
"REIT Termination Date" means the first day after the date on which at
least a majority of the Independent Trust Managers determine by duly
adopted resolution that it is no longer in the best interests of the REIT
to attempt to qualify as a real estate investment trust.
"Specified Redemption Date" means the tenth Business Day after receipt
by the General Partner of a Redemption Notice.
"Trust Managers" means the trust managers of the REIT, as elected and
qualified from time to time.
"Valuation Date" means the date of receipt by the REIT of a Redemption
Notice or, if such date is not a Business Day, the first Business Day
thereafter.
2. Article II, "Definitions," shall be amended, on the Adoption Date, by
deleting the definition "Unit Price" in its entirety and, thereafter, all
references in the Partnership Agreement to Unit Price shall be deemed to be
references to REIT Share Price.
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3. Article III, "Purpose," is hereby deleted in its entirety and replaced by
the following:
"(a) Purpose. The purpose and business of the Partnership shall be
any business which may be lawfully conducted by a limited partnership
organized pursuant to the Delaware Act, including, without limitation,
directly or indirectly, the (i) owning, operating, maintaining,
administering, developing, holding, improving, rehabilitating,
redeveloping, renovating, expanding, leasing, mortgaging, selling,
exchanging, disposing of, and generally dealing in and with, real estate
and related assets and any other property owned by the Partnership, (ii)
financing or refinancing for any of the foregoing purposes, or for any
other purpose in furtherance of, or necessary, convenient, or incidental to
the business or requirements of the Partnership, (iii) seeking to acquire,
acquiring, obtaining options or other rights to acquire (pursuant to a
purchase for cash and/or other consideration, exchange, merger,
contribution to the capital of the Partnership, or otherwise) interests in,
or in Persons owning, or owning an interest or interests in property or
properties in anticipation of developing same, or any other property as
shall be specifically, in all such cases, designated from time to time by
the REIT, (iv) holding an interest as a partner (general and/or limited),
member or shareholder in a management leasing, development, administrative
or other service company, including interests incidental to such interests,
and (v) engaging in any other activities (including the ownership of
property that is in furtherance of or necessary or incidental or related to
any of the foregoing).
(b) Real Estate Investment Trust Requirements. Notwithstanding
anything to the contrary contained in this Agreement, from the Adoption
Date and until the REIT Termination Date and for so long as the REIT is a
Partner, the Partnership shall operate in such a manner and the Partnership
shall take or omit to take all actions as may be necessary (including
making appropriate distributions from time to time), so as to permit the
REIT (i) to continue to qualify as a Real Estate Investment Trust under
Sections 856 through 860 of the Code so long as such requirements exist and
as such provisions may be amended from time to time, or corresponding
provisions of succeeding law (the "REIT Requirements"), and (ii) to
minimize its exposure to the imposition of an excise tax under Section
4981(a) of the Code or a tax under Section 857(b) of the Code, so long as
such taxes may be imposed and as such provisions may be amended from time
to time, or corresponding provisions of succeeding law, each of (i) and
(ii) to at all times be determined (a) as if the REIT's sole asset is its
Partnership Interest, and (b) without regard to the action or inaction of
the REIT with respect to distributions (by way of dividends or otherwise)
and the timing thereof."
4. Article IV, "Capital Contributions," is hereby amended to include a new
Section 4.11 in its entirety as follows:
"4.11 New Securities. Notwithstanding anything to the contrary in this
Agreement:
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(a) New Securities of the Partnership may not be issued to the
General Partner unless either (1)(A) the New Securities of the
Partnership are issued in connection with the grant, award or issuance
of New Securities of the REIT that have designations, preferences and
other rights such that the economic interests attributable to such New
Securities of the REIT are substantially similar to the designations,
preferences and other rights of the New Securities of the Partnership
issued to the REIT and (B) the REIT shall make a capital contribution
to the Partnership in an amount equal to the proceeds, if any, raised
in connection with the issuance of such New Securities of the REIT
(subject to actual or deemed reimbursement of any expenses, including
underwriting discount, commissions, or fees by the Partnership to the
General Partner pursuant to Section 6.5), or (2) the New Securities of
the Partnership are issued to all Partners in proportion to their
respective Percentage Interests in the Partnership.
(b) The REIT may not grant, award or issue New Securities of the
REIT other than to all holders of REIT Shares unless (i) the REIT
shall cause the Partnership to issue to the REIT New Securities of the
Partnership having designations, preferences and other rights, all
such that the economic interests are substantially the same as those
of the New Securities of the REIT; and (ii) the REIT makes a capital
contribution to the Partnership of the proceeds from the grant, award
or issuance of such New Securities of the REIT (subject to actual or
deemed reimbursement of any expenses, including underwriting discount,
commission or fees by the Partnership to the REIT pursuant to Section
6.5). Without limiting the foregoing, the REIT is expressly
authorized to grant, award or issue New Securities for less than fair
market value, and to cause the Partnership to issue to the REIT
corresponding Partnership Interests, so long as the REIT concludes in
good faith that such issuance is in the best interests of the
Partnership."
5. Article V, "Allocation and Distribution," is hereby amended as follows:
Section 5.1(a) is hereby replaced in its entirety with the following:
"For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, except as otherwise provided in this
Section 5.1, Operating Income, Operating Loss, and all items of income gain,
loss and deduction from a Terminating Capital Transaction recognized during a
fiscal year of the Partnership shall be allocated among the Partners in
accordance with their respective Percentage Interests."
Section 5.3(a) is hereby replaced in its entirety with the following:
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"(a) The General Partner may from time to time in its sole discretion cause
the Partnership to distribute cash, Units, and other property to the Partners in
accordance with their Percentage Interests; provided, however, that the proceeds
from a Terminating Capital Transaction shall be distributed solely in accordance
with Article XIV, after the allocation of any item of income, gain, loss or
deduction with respect thereto and concomitant adjustment in the Partners'
Capital Accounts as a result thereof. Notwithstanding the foregoing, from the
Adoption Date and until the REIT Termination Date, the REIT shall use its best
efforts to cause the Partnership to distribute sufficient amounts of cash to the
REIT to enable the REIT to pay shareholder dividends that will (a) satisfy the
distribution requirements for qualification as a Real Estate Investment Trust as
set forth in Section 857 of the Code and (b) avoid any federal income or excise
tax liability being imposed on the REIT by the Code; provided, however, that in
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no event may a Partner receive a distribution of cash with respect to a Unit if
such Partner is entitled to receive a distribution of such cash with respect to
a REIT Share for which such Unit has been redeemed or exchanged."
Sections 5.3(c) and (d) are hereby deleted in their entirety.
Effective on the Adoption Date, Section 5.3(e) is deleted in its entirety.
6. Article VI, "Management and Operation of Business," is hereby amended as
follows:
The following is hereby added at the end of Section 6.1(a):
"and (xiii) the taking of any such other action, executing, acknowledging,
swearing to or delivering such other documents or instruments, and performing
any and all other acts that the General Partner deems necessary or appropriate
for the formation, continuation and conduct of the business and affairs of the
Partnership (including, without limitation, all actions consistent with allowing
the REIT at all times to qualify as a Real Estate Investment Trust from the
Adoption Date to the REIT Termination Date) and to possess and enjoy all of the
rights and powers of a general partner as provided by the Act."
Section 6.5(b) is hereby replaced in its entirety with the following:
"(b) The REIT shall be reimbursed for all expenses, disbursements and
advances incurred or made in connection with the organization and/or
reorganization of the Partnership, the Operating Partnership and/or the REIT,
the qualification of the Partnership, the Operating Partnership, the REIT and/or
the General Partner to do business, any initial or subsequent offering of REIT
Shares by the REIT and any other issuance of additional Partnership Interests,
REIT Shares or New Securities."
The next to last sentence of Section 6.5(c) is hereby replaced with the
following:
"The Limited Partners acknowledge that the REIT's sole business is the
ownership of Partnership Interests and related assets in connection with the
operation of the Partnership and that all of the REIT's expenses are incurred
for the benefit of the Partnership."
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Section 6.5(d) is hereby replaced in its entirety with the following:
"(d) The REIT in its sole discretion and without the approval of the
Limited Partners may propose and adopt benefit plans, including plans involving
the issuance of Partnership Interests, for the benefit of employees of the
General Partner, the REIT, the Operating Partnership or any Affiliate of any of
them in respect of services performed, directly or indirectly, for the benefit
of the Partnership, the REIT or the Operating Partnership."
Section 6.6 (a) is hereby replaced in its entirety with the following:
"(a) Other than by means of the REIT, the Partnership and the REIT's
interest in other Persons, including the Operating Partnership, no executive
officer of the General Partner, nor any Person in which such executive officer
directly or indirectly holds a controlling interest, may own, operate or manage,
or have any equity interest in any Person owning, operating or managing
convenience stores or retail gasoline facilities, unless such ownership or
operation is first approved by a majority of the disinterested directors of the
General Partner. The foregoing shall not be deemed to apply to the ownership by
any executive officer or any member of his family of equity securities of any
publicly-held entity in the same or similar business as the REIT, the
Partnership or the Operating Partnership, provided such equity ownership by any
such Person does not exceed 10% of the total outstanding voting securities of
such entity.
The following Subsections are added in their entirety:
"(c) Notwithstanding Subsections (a) and (b) of this Section 6.6, the REIT
may engage in any and all activities required by, and relating to, the exchange
of ownership on the Effective Date.
(d) During the term of the Partnership, the REIT shall not directly or
indirectly enter into or conduct any business, other than as the General Partner
or a Limited Partner and the management of the business of the Partnership, and
such activities as are incidental thereto, and the REIT shall not directly or
indirectly enter into or conduct any business other than in connection with the
making of loans or guarantee of loans made to the Partnership as set forth in
Section 6.8, the ownership, acquisition or disposition of Partnership Interests
as a General Partner or as a Limited Partner, the ownership of the stock of one
or more QRSs as may be necessary to facilitate acquisitions by or loans for the
Partnership and such activities as are incidental thereto or to the business of
the REIT, the Partnership or any QRS. The REIT shall not incur any indebtedness
for borrowed money unless the proceeds from such borrowing are reloaned to the
Partnership on the same terms and conditions as the borrowing by the REIT. The
REIT shall not own any assets other than Partnership Interests as a General
Partner or as a Limited Partner and debt obligations of the Partnership, stock
and debt obligations of one or more QRSs formed for the purposes set forth above
and such bank accounts and similar instruments as may be necessary to carry out
the responsibilities set forth in its organizational documents as in effect on
the Effective Date of this Agreement.
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(e) During the term of the Partnership, the REIT will not engage in any
action that would result in the REIT owning any real estate or improvements
thereon other than through the Partnership (or through an interest in any Person
that is directly or indirectly owned or controlled by the Partnership and,
except to the extent that the formation of one or more QRSs is required to cause
such Person to be classified as a partnership for federal income tax purposes,
the REIT's entire economic interest in such Person is owned through the
Partnership) or conduct any business other than directly or indirectly through
the Partnership.
(f) If the REIT purchases REIT Shares, then the REIT shall cause the
Partnership to purchase from the REIT that number of Units equal to the product
of the number of REIT Shares to be purchased by the REIT (and/or the General
Partner) multiplied by the Conversion Factor on the same terms and for the same
aggregate price that the REIT purchased such REIT Shares."
The following Section 6.12(c) is hereby added in its entirety:
"(c) From the Adoption Date and until the REIT Termination Date,
notwithstanding any other provisions of this Agreement or the Act, any action of
the REIT on behalf of the Partnership or any decision of the REIT to refrain
from acting on behalf of the Partnership, undertaken in the good faith belief
that such action or omission is necessary or advisable in order (i) to protect
the ability of the REIT to qualify as a real estate investment trust or (ii) to
allow the REIT to avoid incurring any liability for taxes under Section 857 or
Section 4981 of the Code, is expressly authorized under this Agreement and is
deemed approved by all of the Limited Partners."
Section 6.14, "Maintenance of Net Worth" is hereby deleted in its entirety
7. Article VII, "Rights and Obligations of Limited Partners," is hereby
amended to include a new Section 7.6 in its entirety as follows:
7.6 Redemption Rights.
"a) (i) Except as provided in Sections 7.6 (b) and (c) and except as may
otherwise be prohibited by the Securities Act, on or at any time after the
Adoption Date and until the REIT Termination Date, each Limited Partner, other
than the REIT shall have the right (the "Redemption Right") to require the
Partnership to redeem on a Specified Redemption Date all or a portion of the
Units held by such Limited Partner at a redemption price equal to, and in the
form of the Cash Amount to be paid by the Partnership. The Redemption Right
shall be exercised pursuant to a Redemption Notice (a form of which is attached
as Exhibit A hereto) delivered to the REIT by the Limited Partner who is
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exercising the Redemption Right (the "Redeeming Partner"); provided, however,
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that the Partnership shall not be obligated to satisfy such Redemption Right if
the REIT purchases the Units subject to the Redemption Notice pursuant to
Section 7.6(a)(ii). A Limited Partner may not exercise the Redemption Right for
less than 100 Units or, if such Limited Partner holds less than 100 Units, all
of the Units held by such Limited Partner. The Redeeming Partner shall have no
right, with respect to any Units so redeemed, to receive any distributions paid
after the Specified Redemption Date if the Partnership Record Date for that
distribution is after the Specified Redemption Date. The Assignee of any
Limited Partner
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may exercise the rights such Limited Partner has pursuant to this Section
7.6(a)(i) (in which case the Assignee will be the "Redeeming Partner" for the
purposes of the rights and restrictions contained in this Section 7.6) and such
Limited Partner shall be deemed to have assigned such rights to such Assignee
and shall be bound by the exercise of such rights by such Limited Partner's
Assignee. In connection with any exercise of such rights by such Assignee on
behalf of such Limited Partner, the Redemption Amount shall be paid by the
Partnership directly to such Assignee and not to such Limited Partner.
(ii) Notwithstanding the provisions of Section 7.6(a)(i), a Limited
Partner or Assignee who exercises a Redemption Right shall be deemed to have
offered to sell the Units described in the Redemption Notice to the REIT, and
the REIT may, in its sole and absolute discretion, assume directly and satisfy a
Redemption Right by paying to the Redeeming Partner the Redemption Amount on the
Specified Redemption Date, whereupon the REIT shall acquire the Units offered
for redemption by the Redeeming Partner and shall be treated for all purposes of
this Agreement as the owner of such Units. If the REIT shall exercise its right
to satisfy the Redemption Right in the manner described in the preceding
sentence, the Partnership shall have no obligation to pay any amount to the
Redeeming Partner with respect to such Redeeming Partner's exercise of the
Redemption Right and each of the Redeeming Partner and the Partnership, shall
treat the transaction between the REIT and the Redeeming Partner as a sale of
the Redeeming Partner's Partnership Units to the REIT for federal income tax
purposes. Each Redeeming Partner agrees to execute such documents as the REIT
may reasonably require in connection with the issuance of REIT Shares upon the
Partner's exercise of the Redemption Right. If the REIT elects to assume and
satisfy the Redemption Right, the REIT may deliver REIT Shares as payment of the
Redemption Amount to the Limited Partner only if the REIT Shares are registered
for sale to the public under applicable securities laws, to the extent required.
(iii) Notwithstanding the provisions of Section 7.6(a)(i),a
Limited Partner or Assignee shall not be entitled to exercise a Redemption Right
pursuant to Section 7.6(a)(i) if the delivery of REIT Shares to such Limited
Partner or Assignee by the REIT on the Specified Redemption Date pursuant to
Section 7.6(a)(ii) (regardless of whether the REIT would, in fact, exercise its
rights under Section 7.6(a)(ii)) would cause such Limited Partner or Assignee to
violate the Ownership Limit or any other terms of the REIT's Declaration of
Trust. The REIT, in its sole and absolute discretion, however, may elect to
acquire such Units in exchange for the Cash Amount attributable to such Units.
(iv) Notwithstanding the provisions of Section 7.6(a)(i), a Limited
Partner or Assignee shall not be entitled to exercise the Redemption Right
pursuant to Section 7.6(a)(i) if the delivery of REIT Shares to such Limited
Partner or Assignee by the REIT on the Specified Redemption Date pursuant to
Section 7.6(a)(ii) (regardless of whether the REIT would, in fact, exercise its
rights under Section 7.6(a)(ii)) would be prohibited under applicable law.
(v) If the Redemption Right is satisfied by the REIT by the delivery
of REIT Shares, the Redeeming Partner shall be deemed to become a holder of REIT
Shares as of the close of business on the Specified Redemption Date.
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(b) Each Limited Partner and Assignee covenants and agrees with the REIT
that all Units delivered for redemption shall be delivered to the Partnership or
the REIT free and clear of all liens, and should any liens exist or arise with
respect to such Units, neither the Partnership, nor the REIT shall be under any
obligation to acquire the same. Each Limited Partner and Assignee further
agrees that, if any state or local property transfer tax is payable as a result
of the transfer of its Units to the Partnership or the REIT, such Limited
Partner or Assignee shall assume and pay such transfer tax, and neither the
Partnership nor the REIT shall have any obligation to complete the transfer
until such transfer tax has been paid.
(c) If more than one Unit shall be redeemed for REIT Shares at the same
time by the same Redeeming Partner, the number of full REIT Shares that shall be
issuable upon the exercise thereof shall be computed on the basis of the
aggregate number of REIT Shares represented by the Units so presented. If any
fraction of a REIT Share would be issuable upon the redemption of any Units, the
Partnership or the REIT shall pay an amount in cash equal to the value of a REIT
Share multiplied by such fraction.
(d) Nothing contained in this Agreement shall be construed as conferring
upon the holders of the Units the right to vote or to receive dividends or other
distributions or to consent or to receive notice as shareholders in respect of
any meeting of shareholders for the election of Trust Managers or any other
matter, or any rights whatsoever as shareholders of the REIT prior to the
issuance of REIT Shares on the Specified Redemption Date. The REIT hereby
agrees to reserve for issuance sufficient REIT Shares to satisfy the Redemption
Amount for all Limited Partners."
8. Article XI, "Transfer of Interests" is hereby amended by adding the
following Sections in their entirety as follows:
"11.9 Restrictions on Transfer of Units. Notwithstanding the terms of
this Article XI, after the date to be set forth by the Board of Trust Managers
(such date to be no earlier than the Adoption Date,) no outstanding Unit may be
sold, pledged, hypothecated or otherwise transferred to any Person, other than
to the REIT or the Partnership pursuant to Section 7.6, or a pledge,
hypothecation or encumbrance of Units by the REIT unless, prior to such
transfer, such Unit is exchanged for REIT Shares pursuant to the terms of
Section 7.6.
Section 11.10 Restrictions on Ownership, Transfer, Acquisition and
Redemption of Units.
(a) Sections 11.10 through 11.15 hereof shall be in effect until the
Adoption Date, after which date Sections 11.9 through 11.15 shall apply.
(b) Definitions. For purposes of Sections 11.10 and 11.11, the following
terms shall have the following meanings:
"Acquire" shall mean the acquisition of Beneficial or Constructive
Ownership of Units by any means, including, without limitation, the exercise of
any rights under any option, warrant, convertible security, pledge or other
security interest or similar right to acquire Units,
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but shall not include the acquisition of any such rights unless, as a result,
the acquiror would be considered a Constructive Owner. The terms "Acquires" and
"Acquisition" shall have correlative meanings.
"Beneficiary" shall mean a beneficiary of the Excess Units Trust as
determined pursuant to paragraph (a) of Section 11.11.
"Closing Price" on any day shall mean the last sale price, regular way
on such day, or, if no such sale takes place on that day, the average of the
closing bid and asked prices, regular way, in either case as reported on the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the American Stock Exchange, or if the affected
class or series of Units is not so listed or admitted to trading on the American
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal United States
securities exchange registered under the Securities Exchange Act of 1934 on
which the affected class or series of Units is listed or admitted to trading or,
if the affected class or series of Units is not so listed or admitted to
trading, the last quoted price or, if not quoted, the average of the high bid
and low asked prices on NASDAQ or any other nationally recognized automated
quotation system then in use, or, if the affected class or series of Units is
not so quoted by any such system, the average of the closing bid and asked
prices as furnished by a professional market maker selected by the General
Partner making a market in the affected class or series of Units, or, if there
is no such market maker or such closing prices otherwise are not available, the
fair market value of the affected class or series of Units as of such day, as
determined by the General Partner in its discretion.
"Constructive Ownership" shall mean ownership of Units by a Person who
would be treated as an owner of such Units, either actually or constructively,
directly or indirectly, through the application of Section 318 of the Code, as
modified by Section 7704(d)(3)(B) thereof. The terms "Constructive Owner,"
"Constructively Own," "Constructively Owns" and "Constructively Owned" shall
have correlative meanings.
"Conversion Date" shall mean the first date that limited partners of
FFP Partners, L.P. are permitted or required to exchange units of FFP Partners,
L.P. for REIT Common Shares.
"Excess Units" shall mean Units exchanged as provided in paragraph (d)
of this Section 11.10.
"Excess Units Trust" shall mean the trust created pursuant to
paragraph (a) of Section 11.11.
"Excess Units Trustee" shall mean the Partnership as trustee for the
Excess Units Trust, and any successor trustee appointed by the Trust.
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"Market Price" on any day shall mean the average of the Closing Prices
for the ten (10) consecutive Trading Days immediately preceding such day (or
those days during such 10-day period for which Closing Prices are available).
"Ownership Limit" shall mean 4.9 percent of the outstanding Units of
the Partnership.
"Person" shall mean an individual, corporation, partnership, estate,
trust (including a trust qualified under Section 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be used exclusively
for the purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity, or a group as that term is used for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended.
"Purported Beneficial Holder" shall mean, with respect to any event or
transaction other than a purported Transfer or Acquisition which results in
Excess Units, the Person for whom the applicable Purported Record Holder held
the Units that were, pursuant to paragraph (c) of this Section 11.10,
automatically exchanged for Excess Units upon the occurrence of such event or
transaction. The Purported Beneficial Holder and the Purported Record Holder
may be the same Person.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer or Acquisition which results in Excess Units, the purported
beneficial transferee for whom the Purported Record Transferee would have
acquired Units if such Transfer or Acquisition had been valid under paragraph
(c) of this Section 11.10. The Purported Beneficial Transferee and the Purported
Record Transferee may be the same Person.
"Purported Record Holder" shall mean, with respect to any event or
transaction other than a purported Transfer or Acquisition which results in
Excess Units, the record holder of the Units that were, pursuant to paragraph
(c) of this Section 11.10, automatically exchanged for Excess Units upon the
occurrence of such an event or transaction. The Purported Record Holder and the
Purported Beneficial Holder may be the same Person.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer or Acquisition which results in Excess Units, the record
holder of the Units if such Transfer had been valid under paragraph (b) of this
Section 11.10. The Purported Record Transferee and the Purported Beneficial
Transferee may be the same Person.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the affected class or series of Units is listed or
admitted to trading is open for the transaction of business or, if the affected
class or series of Units is not listed or admitted to trading, shall mean any
day other than a Saturday, Sunday or other day on which banking institutions in
the State of New York are authorized or obligated by law or executive order to
close.
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<PAGE>
"Transfer" shall mean any sale, transfer, gift, hypothecation,
assignment, devise or other disposition of a direct or indirect interest in
Units or the right to vote or receive dividends on Units (including (i) the
granting of any option (including any option to acquire an option or any series
of such options) or entering into any agreement for the sale, transfer or other
disposition of Units or the right to vote or receive dividends on Units or (ii)
the sale, transfer, assignment or other disposition of any securities or rights
convertible into or exchangeable for Units, whether voluntary or involuntary, of
record, constructively or beneficially, and whether by operation of law or
otherwise. The terms "Transfers," "Transferred" and "Transferable" shall have
correlative meanings.
(c) Ownership and Transfer Limitations.
(i) Notwithstanding any other provision of this Partnership Agreement,
except as provided in paragraph (j) of this Section 11.10 and Section 11.11,
from and after the Effective Date, no Person other than the REIT shall
Constructively Own Partnership Units in excess of the Ownership Limit.
(ii) Notwithstanding any other provision of this Partnership
Agreement, except as provided in paragraph (j) of this Section 11.10 and Section
11.12, from and after the Effective Date, any Transfer, Acquisition, change in
the capital structure of the Partnership, or other purported change in
Constructive Ownership of Units or other event or transaction that, if
effective, would result in any Person other than the REIT Constructively Owning
Units in excess of the applicable Ownership Limit shall be void ab initio as to
the Transfer, Acquisition, change in the capital structure of the Partnership,
or other purported change in Constructive Ownership or other event or
transaction with respect to that number of Units which would otherwise be
Constructively Owned by such Person in excess of the applicable Ownership Limit,
and none of the Purported Beneficial Transferee, the Purported Record
Transferee, the Purported Beneficial Holder or the Purported Record Holder, as
applicable, shall acquire any rights in that number of Units.
(iii) Notwithstanding any other provision of this Partnership
Agreement, except as provided in Section 11.10(j), from and after the Effective
Date, any Transfer, Acquisition, change in capital structure of the Partnership,
or other purported change in Constructive Ownership of Units or other event or
transaction that, if effective, would (i) cause the Partnership to own (directly
or Constructively) an interest in a tenant, the rents received or accrued from
whom would not qualify as rents from real property under Section 7704(c)(3) and
(ii) cause the Partnership to fail to satisfy any of the gross income
requirements of Section 7704(c)(3) of the Code, shall be void ab initio as to
the Transfer, Acquisition, change in capital structure of the Partnership, or
other purported change in Constructive Ownership or other event or transaction
with respect to that number of Units which would cause the Partnership to own an
interest (directly or Constructively) in a tenant, the rents received or accrued
from whom would not qualify as rents from real property under Section
7704(c)(3), and none of the Purported Beneficial Transferee, the Purported
Record Transferee, the Purported Beneficial Holder or the Purported Record
Holder shall acquire any rights in that number of Units.
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<PAGE>
(d) Exchange for Excess Units.
(i) If, notwithstanding the other provisions contained in this Article
XI, at any time from and after the Effective Date, there is a purported
Transfer, Acquisition, change in the capital structure of the Partnership, or
other purported change in the Constructive Ownership of Units or other event or
transaction such that any Person would Constructively Own Units in excess of the
applicable Ownership Limit or then, except as otherwise provided in paragraph
(j) of this Section 11.10, such number of Units (rounded up to the next whole
number of Units) in excess of the applicable Ownership Limit automatically shall
be exchanged for an equal number of Excess Units having terms, rights,
restrictions and qualifications identical thereto, except to the extent that
this Article XI requires different terms. Such exchange shall be effective as
of the close of business on the business day next preceding the date of the
purported Transfer, Acquisition, change in capital structure, or other purported
change in Constructive Ownership of Units or other event or transaction.
(ii) If, notwithstanding the other provisions contained in this
Article XI, at any time from and after the Effective Date, there is a purported
Transfer, Acquisition, change in the capital structure of the Partnership, or
other purported change in Constructive Ownership of Units or other event or
transaction which, if effective, would result in a violation of any of the
restrictions described in subparagraphs (ii) or (iii) of paragraph (c) of this
Section 11.10 or, directly or indirectly, would for any reason cause the
Partnership to fail to be classified as a partnership under the Code, then the
number of Units (rounded up to the next whole number of Units) being Transferred
or Acquired or which are otherwise affected by the change in capital structure
or other purported change in Constructive Ownership or other event or
transaction and which would result in a violation of any of the restrictions
described in subparagraphs (ii) and (iii) of paragraph (c) of this Section 11.10
or, directly or indirectly, would for any reason cause the Partnership to fail
to be classified as a partnership under the Code, automatically shall be
exchanged for an equal number of Excess Units having terms, rights, restrictions
and qualifications identical thereto, except to the extent that this Article XI
requires different terms. Such exchange shall be effective as of the close of
business on the business day prior to the date of the purported Transfer,
Acquisition, change in capital structure, or other purported change in
Constructive Ownership or other event or transaction.
(iii) The General Partner recognizes that Section 11.10(d)(i) or
Section 11.10(d)(ii) may become operative because of the purported ownership of
Units by two or more (i) partners of a partnership, (ii) shareholders of a
corporation or (iii) members of any other Person. In such event, the General
Partner shall have the authority in its sole, complete and absolute discretion
to determine the number of Units and the identity of the Units of each partner,
shareholder or member that automatically shall be exchanged for an equal number
of Excess Units.
(e) Remedies For Breach. If the General Partner or its designee shall at
any time determine in good faith that a Transfer, Acquisition, or change in the
capital structure of the Partnership or other purported change in Constructive
Ownership or other event or transaction has taken place in violation of
paragraph (c) of this Section 11.10 or that a Person intends to Acquire
B-15
<PAGE>
or has attempted to Acquire Constructive Ownership of any Units in violation of
paragraph (c) of this Section 11.10, the General Partner or its designee shall
take such action as it deems advisable to refuse to give effect to or to prevent
such Transfer, Acquisition, or change in the capital structure of the
Partnership, or other attempt to Acquire Constructive Ownership of any Units or
other event or transaction, including, but not limited to, refusing to give
effect thereto on the books of the Partnership or instituting injunctive
proceedings with respect thereto; provided, however, that any Transfer,
Acquisition, change in the capital structure of the Partnership, attempted
Transfer, or other attempt to Acquire Constructive Ownership of any Units or
event or transaction in violation of subparagraphs (ii) or (iii) of paragraph
(c) of this Section 11.10 (as applicable) shall be void ab initio and, where
applicable, automatically shall result in the exchange described in paragraph
(d) of this Section 11.10, irrespective of any action (or inaction) by the
General Partner or its designee.
(f) Notice of Restricted Transfer. Any Person who Acquires or attempts to
Acquire Constructive Ownership of Units in violation of paragraph (c) of this
Section 11.10 and any Person who Constructively Owns Excess Units as a
transferee of Units resulting in an exchange for Excess Units, pursuant to
paragraph (c) of this Section 11.10, or otherwise, immediately shall give
written notice to the Partnership, or, in the event of a proposed or attempted
Transfer or Acquisition or purported change in Constructive Ownership, shall
give at least fifteen (15) days prior written notice to the Partnership, of such
event and shall promptly provide to the Partnership such other information as
the Partnership, in its sole discretion, may request in order to determine the
effect, if any, of such Transfer, attempted Transfer, Acquisition, attempted
Acquisition or other purported change in Constructive Ownership on the
Partnership's status as a partnership under the Code.
(g) Owners Required To Provide Information. From and after the Effective
Date:
(i) Every Constructive Owner of more than 5 percent, or such lower
percentage or percentages as determined pursuant to regulations under the Code
or as may be requested by the General Partner in its sole discretion, of the
outstanding Units of any class or series of Units of the Partnership annually
shall, no later than January 31 of each calendar year, give written notice to
the Partnership stating (i) the name and address of such Constructive Owner;
(ii) the number of Units of each class or series of Units Constructively Owned;
and (iii) a description of how such Units are held. Each such Constructive
Owner promptly shall provide to the Partnership such additional information as
the Partnership, in its sole discretion, may request in order to determine the
effect, if any, of such Constructive Ownership on the Partnership's status as a
partnership under the Code and to ensure compliance with the applicable
Ownership Limit and other restrictions set forth herein.
(ii) Each Person who is a Constructive Owner of Units and each Person
(including the shareholder of record) who is holding Units for a Constructive
Owner promptly shall provide to the Partnership such information as the
Partnership, in its sole discretion, may request in order to determine the
Partnership's status as a partnership under the Code, to comply with the
requirements of any taxing authority or other governmental agency, to determine
any
B-16
<PAGE>
such compliance or to ensure compliance with the applicable Ownership Limit and
other restrictions set forth herein.
(h) Remedies Not Limited. Nothing contained in this Article XI except
Section 11.10(j) hereof shall limit the scope or application of the provisions
of this Section 11.10, the ability of the Partnership to implement or enforce
compliance with the terms thereof or the authority of the General Partner to
take any such other action or actions as it may deem necessary or advisable to
protect the Partnership and the interests of its Unitholders by preservation of
the Partnership's status as a partnership under the Code and to ensure
compliance with the applicable Ownership Limit and other restrictions set forth
herein, including, without limitation, refusal to give effect to a transaction
on the books of the Partnership.
(i) Ambiguity. In the case of ambiguity in the application of any of the
provisions of this Section 11.10, including any definition contained in
paragraph (b) hereof, the General Partner shall have the power and authority, in
its sole discretion, to determine the application of the provisions of this
Section 11.10 with respect to any situation, based on the facts known to it.
(j) Exceptions. The General Partner, upon receipt of a ruling from the
Internal Revenue Service, an opinion of counsel, or other evidence satisfactory
to the General Partner, in its sole discretion, in each case to the effect that
the restrictions contained in subparagraphs (iii) of paragraph (c) of this
Section 11.10 will not be violated, may waive or change, in whole or in part,
the application of the applicable Ownership Limit with respect to any Person
that Constructively Owned at least 4.9% of any class of the outstanding Units at
or concurrently with the Effective Date. In connection with any such waiver or
change, the General Partner may require such representations and undertakings
from such Person or affiliates and may impose such other conditions, as the
General Partner deems necessary, advisable or prudent, in its sole discretion,
to determine the effect, if any, of the proposed transaction or ownership of
Units on the Partnership's status as a partnership under the Code.
(k) Increase in Ownership Limit. The General Partner is hereby expressly
vested with the full power and authority from time to time to increase the
Ownership Limit. No such increase shall constitute or be deemed to constitute
an amendment of this Partnership Agreement, and shall take effect automatically
without any action on the part of any Unitholder as of the date specified by the
General Partner that is subsequent to the General Partner's resolution approving
and effecting such reduction.
(l) Legend. From and after the Effective Date, each certificate for Units
shall bear substantially the following legend:
"The securities represented by this certificate are subject to
the restrictions on transfer and ownership for the purpose of
maintenance of the status as a partnership under the Internal Revenue
Code of 1986, as amended (the "Code"). Except as otherwise provided
pursuant to the Partnership Agreement of the Partnership, no Person may
(i) Constructively Own Units of the Partnership in excess of 4.9
percent of the outstanding Units or (ii) Constructively Own Units (of
B-17
<PAGE>
any class or series) which would cause the Partnership to fail to
qualify as a partnership for federal income tax purposes under any
applicable Code Section, including, without limitation, Section 7704 of
the Code. Any Person who has Constructive Ownership, or who Acquires or
attempts to Acquire Constructive Ownership of Units in excess of the
above limitations and any Person who Constructively Owns Excess Units
as a transferee of Units resulting in an exchange for Excess Units (as
described below) immediately must notify the Partnership in writing or,
in the event of a proposed or attempted Transfer or Acquisition or
purported change in the Constructive Ownership, must give written
notice to the Partnership at least fifteen (15) days prior to the
proposed or attempted transfer, transaction or other event. Any
Transfer or Acquisition of Units or other event which results in
violation of the ownership or transfer limitations set forth in the
Partnership Agreement of the Partnership, shall be void ab initio and
the Purported Beneficial and Record Transferee shall not have or
acquire any rights in such Units. If the transfer and ownership
limitations referred to herein are violated, the Units represented
hereby automatically will be exchanged for Excess Units to the extent
of violation of such limitations, and such Excess Units will be held in
trust by the Partnership, all as provided by the Partnership Agreement
of the Partnership. All defined terms used in this legend have the
meanings identified in the Partnership Agreement of the Partnership, as
the same may be amended from time to time, a copy of which, including
the restrictions on transfer, will be sent without charge to each
Unitholder who so requests."
Section 11.11 Excess Units.
(a) Ownership In Partnership. Upon any purported Transfer, Acquisition,
change in the capital structure of the Partnership, or other purported change in
the Constructive Ownership or event or transaction that results in Excess Units
pursuant to paragraph (d) of Section 11.10, such Excess Units shall be deemed to
have been transferred to the Partnership, as Excess Units Trustee of an Excess
Units Trust for the benefit of such Beneficiary or Beneficiaries to whom an
interest in such Excess Units may later be transferred pursuant to paragraph (e)
of this Section 11.11. Excess Units so held in trust shall be issued and
outstanding Units of the Partnership. The Purported Record Transferee (or
Purported Record Holder) shall have no rights in such Excess Units except the
right to designate a transferee of such Excess Units upon the terms specified in
paragraph (e) of this Section 11.11. The Purported Beneficial Transferee (or
Purported Beneficial Holder) shall have no rights in such Excess Units except as
provided in paragraphs (c) and (e) of this Section 11.11.
(b) Distribution Rights. Excess Units shall not be entitled to any
distributions (except as provided in Paragraph (c) of this Section 11.11). Any
distribution paid prior to the discovery by the Partnership that the Units have
been exchanged for Excess Units shall be repaid to the Partnership upon demand,
and any distribution declared but unpaid at the time of such discovery shall be
void ab initio with respect to such Excess Units.
(c) Rights Upon Liquidation.
B-18
<PAGE>
(i) Except as provided below, in the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any other distribution of
the assets, of the Partnership, each holder of Excess Units resulting from the
exchange of preferred Units of any specified series shall be entitled to
receive, ratably with each other holder of Excess Units resulting from the
exchange of preferred Units of such series and each holder of preferred Units of
such series, such accrued and unpaid dividends, liquidation preferences and
other preferential payments, if any, as are due to holders of preferred Units of
such series. In the event that holders of Units of any series of preferred
Units are entitled to participate in the Partnership's distribution of its
residual assets, each holder of Excess Units resulting from the exchange of
preferred Units of any such series shall be entitled to participate, ratably
with (i) each other holder of Excess Units resulting from the exchange of
preferred Units of all series entitled to so participate; (ii) each holder of
preferred Units of all series entitled to so participate; and (iii) each holder
of other Units and Excess Units resulting from the exchange of other Units (to
the extent permitted by paragraph (d) of Section 11.10 hereof), that portion of
the aggregate assets available for distribution (determined in accordance with
applicable law) as the number of such Excess Units held by such holder bears to
the total number of (i) outstanding Excess Units resulting from the exchange of
preferred Units of all series entitled to so participate; (ii) outstanding
preferred Units of all series entitled to so participate; and (iii) other
outstanding Units and Excess Units resulting from the exchange of other Units.
The Partnership, as holder of Excess Units in trust, or, if the Partnership
shall have been dissolved, any trustee appointed by the Partnership prior to its
dissolution, shall distribute ratably to the Beneficiaries of the Excess Units
Trust, when determined, any such assets received in respect of the Excess Units
in any liquidation, dissolution or winding up, or any distribution of the
assets, of the Partnership. Anything to the contrary herein notwithstanding, in
no event shall the amount payable to a holder with respect to Excess Units
resulting from the exchange of preferred Units exceed (i) the price per share
such holder paid for the preferred Units in the purported Transfer, Acquisition,
change in capital structure, or other transaction or event that resulted in the
Excess Units or the price per share such holder paid for the preferred Units
that were exchanged for the Excess Units or (ii) if the holder did not give full
value for such Excess Units (as through a gift, devise or other event or
transaction), a price per share equal to the Market Price for the preferred
Units on the date of the purported Transfer, Acquisition, change in capital
structure or other transaction or event that resulted in such Excess Units or
the Market Price for the preferred Units on the date they were exchanged for the
Excess Units. Any amount available for distribution in excess of the foregoing
limitations shall be paid ratably to the holders of preferred Units and Excess
Units resulting from the exchange of preferred Units to the extent permitted by
the foregoing limitations.
(ii) Except as provided below, in the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any other distribution of
the assets, of the Partnership, each holder of Excess Units resulting from the
exchange of Units shall be entitled to receive, ratably with (i) each other
holder of such Excess Units and (ii) each holder of other Units, that portion of
the aggregate assets available for distribution to holders of Units (including
holders of Excess Units resulting from the exchange of other Units pursuant to
paragraph (d) of Section 11.10 hereof), determined in accordance with applicable
law, as the number of such Excess Units held by such holder bears to the total
number of outstanding other Units and outstanding Excess Units resulting from
the exchange of other Units then outstanding. The Partnership, as holder of
B-19
<PAGE>
the Excess Units in trust, or, if the Partnership shall have been dissolved, any
trustee appointed by the Partnership prior to its dissolution, shall distribute
ratably to the Beneficiaries of the Excess Units Trust, when determined, any
such assets received in respect of the Excess Units in any liquidation,
dissolution or winding up, or any distribution of the assets, of the
Partnership. Anything herein to the contrary notwithstanding, in no event shall
the amount payable to a holder with respect to Excess Units exceed (i) the price
per share such holder paid for the Units in the purported Transfer, Acquisition,
change in capital structure, or other transaction or event that resulted in the
Excess Units or the price per share such holder paid for the Units that were
exchanged for the Excess Units or (ii) if the holder did not give full value for
such Excess Units (as through a gift, devise or other event or transaction), a
price per share equal to the Market Price for the Units on the date of the
purported Transfer, Acquisition, change in capital structure or other
transaction or event that resulted in such Excess Units or the Market Price for
the Units on the date they were exchanged for the Excess Units. Any amount
available for distribution in excess of the foregoing limitations shall be paid
ratably to the holders of other Units and Excess Units resulting from the
exchange of other Units to the extent permitted by the foregoing limitations.
(d) Voting Rights. The holders of Excess Units shall not be entitled to
vote on any matters (except as required by the Delaware Act).
(e) Restrictions on Transfer; Designation of Beneficiary.
(i) Excess Units shall not be Transferable. The Purported Record
Transferee (or Purported Record Holder) may freely designate a Beneficiary of
its interest in the Excess Units Trust (representing the number of Excess Units
held by the Excess Units Trust attributable to the purported Transfer that
resulted in the Excess Units), if (A) the Excess Units held in the Excess Units
Trust would not be Excess Units in the hands of such Beneficiary and (B) the
Purported Beneficial Transferee (or Purported Beneficial Holder) does not
receive a price for designating such Beneficiary that reflects a price per share
for such Excess Units that exceeds (x) the price per share such Purported
Beneficial Transferee (or Purported Beneficial Holder) paid for the Units in the
purported Transfer, Acquisition, change in capital structure, or other
transaction or event that resulted in the Excess Units or the price per share
paid for the Units that were exchanged for the Excess Units or (y) if the
Purported Beneficial Transferee (or Purported Beneficial Holder) did not give
value for such Excess Units (as through a gift, devise or other event or
transaction), a price per share equal to the Market Price for the Units on the
date of the purported Transfer, Acquisition, change in capital structure, or
other transaction or event that resulted in the Excess Units or the Market Price
for the Units on the date they were exchanged for the Excess Units. Upon such
Transfer of an interest in the Excess Units Trust, the corresponding Excess
Units in the Excess Units Trust automatically shall be exchanged for an equal
number of Units (depending on the type and class of Units that originally were
exchanged for such Excess Units) and such Units shall be transferred of record
to the Beneficiary of the interest in the Excess Units Trust designated by the
Purported Record Transferee (or Purported Record Holder), as described above, if
such Units would not be Excess Units in the hands of such Beneficiary. Prior to
any Transfer of any interest in the Excess Units Trust, the Purported Record
Transferee (or Purported Record
B-20
<PAGE>
Holder) must give written notice to the Partnership of the intended Transfer and
the Partnership must have waived in writing its purchase rights under paragraph
(f) of this Section 11.11.
(ii) Notwithstanding the foregoing, if a Purported Beneficial
Transferee (or Purported Beneficial Holder) receives a price for designating a
Beneficiary of an interest in the Excess Units Trust that exceeds the amounts
allowable under subparagraph (i) of this paragraph (e), such Purported
Beneficial Transferee (or Purported Beneficial Holder) shall pay, or cause the
Beneficiary of the interest in the Excess Units Trust to pay, such excess in
full to the Trust.
(iii) If any of the Transfer restrictions set forth in this
paragraph (e) or any application thereof is determined to be void, invalid or
unenforceable by any court having jurisdiction over the issue, the Purported
Record Transferee (or Purported Record Holder) may be deemed, at the option of
the Partnership, to have acted as the agent of the Partnership in acquiring the
Excess Units as to which such restrictions would otherwise, by their terms,
apply, and to hold such Excess Units on behalf of the Partnership.
(f) Purchase Right in Excess Units. Excess Units shall be deemed to have
been offered for sale to the Partnership or its designee at a price per share
equal to the lesser of (i) the price per share in the transaction that created
such Excess Units (or, in the case of a devise or gift or event other than a
Transfer or Acquisition which results in the issuance of Excess Units, the
Market Price at the time of such devise or gift or event other than a Transfer
or Acquisition which results in the issuance of Excess Units) or (ii) the Market
Price of the Units exchanged for such Excess Units on the date the Partnership
or its designee accepts such offer. The Partnership and its assignees shall
have the right to accept such offer for a period of ninety (90) days after the
later of (i) the date of the purported Transfer, Acquisition, change in capital
structure of the Partnership, or purported change in Constructive Ownership or
other event or transaction which resulted in such Excess Units and (ii) the date
on which the General Partner determines in good faith that a Transfer,
Acquisition, change in capital structure of the Partnership, or purported change
in Constructive Ownership or other event or transaction resulting in Excess
Units has occurred, if the Trust does not receive a notice pursuant to paragraph
(e) of Section 11.10, but in no event later than a permitted Transfer pursuant
to, and in compliance with, the terms of paragraph (e) of this Section 11.11.
(g) Remedies Not Limited. Nothing contained in this Article XI except
Section 11.12 hereof shall limit the scope or application of the provisions of
this Section 11.11, the ability of the Partnership to implement or enforce
compliance with the terms hereof or the authority of the General Partner to take
any such other action or actions as it may deem necessary or advisable to
protect the Partnership and the interests of its shareholders by preservation of
the Partnership's status as a partnership and to ensure compliance with the
applicable Ownership Limits and the other restrictions set forth herein,
including, without limitation, refusal to give effect to a transaction on the
books of the Partnership.
Section 11.12 Settlements.
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<PAGE>
Nothing in Sections 11.10 and 11.11 shall preclude the settlement of any
transaction with respect to the Units entered into through the facilities of the
New York Stock Exchange or the American Stock Exchange.
Section 11.13 Severability.
If any provision of this Article XI or any application of any such
provision is determined to be void, invalid or unenforceable by any court having
jurisdiction over the issue, the validity and enforceability of the remainder of
this Article XI shall not be affected and other applications of such provision
shall be affected only to the extent necessary to comply with the determination
of such court.
Section 11.14 Waiver.
The Partnership shall have authority at any time to waive the requirements
that Excess Units be issued or be deemed outstanding in accordance with the
provisions of this Article XI if the Partnership determines, based on an opinion
of tax counsel, that the issuance of such Excess Units or the fact that such
Excess Units are deemed to be outstanding, would jeopardize the status of the
Partnership as a partnership under the Code.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first set forth above.
OUTGOING GENERAL PARTNER
FFP PARTNERS MANAGEMENT
COMPANY, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
INCOMING GENERAL PARTNER:
FFP REAL ESTATE TRUST
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
LIMITED PARTNERS:
All Limited Partners now and hereafter admitted as
limited partners of the Partnership, pursuant to
the power of attorney contained in Section 1.4 of
the Partnership Agreement.
By: FFP Partners Management Company, Inc.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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<PAGE>
EXHIBIT A
REDEMPTION NOTICE
-----------------
The undersigned hereby irrevocably tenders for redemption_________________
Units in FFP Partners, L.P. in accordance with the terms of the Amended and
Restated Agreement of Limited Partnership of FFP Partners, L.P. dated May 21,
1987, as it may be amended from time to time (the "Partnership Agreement"). All
capitalized terms used in this Redemption Notice and not otherwise defined have
the meaning given to them in the Partnership Agreement.
The undersigned hereby represents and warrants that (i) it has full power
and authority to transfer all of its right, title and interest in such Units,
(ii) such Units are free and clear of all liens and encumbrances, and (iii) it
will assume and pay any state or local transfer tax that may be payable as a
result of the transfer of such Units.
Dated:
------------------------
Name of Limited Partner:
-------------------------------------
Signature of Limited Partner:
-------------------------------------
By:
----------------------------------
Title:
-------------------------------
Address:
-------------------------------------
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
Signature Witnessed By:
-------------------------------------
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Declaration of Trust of the Registrant provide that the Registrant
shall indemnify officers and trust managers, and may indemnify its other
employees and agents, to the fullest extent permitted by law. The laws of the
State of Texas permit, and in some cases require, corporations to indemnify
officers, trust managers, agents and employees who are or have been a party to
or are threatened to be made a party to litigation against judgments, fines,
settlements and reasonable expenses under certain circumstances.
The Registrant has also adopted provisions in its Declaration of Trust that
limit the liability of its trust managers and officers to the fullest extent
permitted by the laws of the State of Texas. Under the Registrant's Declaration
of Trust, and as permitted by the laws of the State of Texas, a trust manager or
officer is not liable to the Registrant or its shareholders for damages for
breach of fiduciary duty. Such limitation of liability does not affect liability
for (i) breach of the trust manager's duty of loyalty to the real estate
investment trust or its shareholders, (ii) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law, (iii)
any transaction from which the trust manager derived an improper personal
benefit, or (iv) the payment of any unlawful distribution.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
2.1 - Form of Restructuring Agreement to be dated as of December
28, 1997
3.1 - Declaration of Trust of FFP Real Estate Trust
3.2 - Bylaws of FFP Real Estate Trust
4.1 - Form of certificate evidencing common shares
5.1 - Opinion of Jenkens & Gilchrist, a Professional Corporation,
regarding validity of shares
8.1 - Opinion of Jenkens & Gilchrist, a Professional Corporation,
regarding federal income tax matters
10.1 - Amended and Restated Agreement of Limited Partnership of FFP
Partners, L.P., dated May 21, 1987, as amended by the First
Amendment to Amended and Restated Agreement of Limited
Partnership dated August 14, 1989, and by the Second
Amendment to Amended and Restated Agreement of Limited
Partnership dated July 12, 1991
10.2 - Form of Third Amendment to Amended and Restated Agreement of
Limited Partnership of FFP Partners, L.P., to be dated as of
December 28, 1997. (Included as Appendix B to the Prospectus
that forms a part of this registration statement)
10.3 - Nonqualified Unit Option Plan of FFP Partners, L.P.
10.4 - Form of Employment Agreement between FFP Partners Management
Company, Inc., and certain executive officers dated April 23,
1989, as amended July 22, 1992
23.1 - Consent of KPMG Peat Marwick LLP
23.2 - Consent of Jenkens & Gilchrist (Included in their opinions
filed as Exhibits 5.1 and 8.1)
24.1 - Power of Attorney of Trust Managers and officers of
Registrant (Included on page II-3)
27.1 - Financial data schedule
99.1 - Form of proxy of FFP Partners, L.P.
(b) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts is filed as a part of
the Consolidated Financial Statements of the registrant included in the
prospectus.
Item 22. Undertakings
(1) The undersigned registrant hereby undertakes:
II-1
<PAGE>
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(2) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(3) The undersigned registrant undertakes that every prospectus (a) that
is filed pursuant to paragraph (2) immediately preceding, or (b) that purports
to meet the requirements of section 10(a)(3) of the Securities Act of 1933 and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction. and the company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Worth, State of
Texas, on the 5th day of December, 1997.
FFP REAL ESTATE TRUST
By: /s/ John H. Harvison
-----------------------------------
John H. Harvison
Chief Executive Officer
Each individual whose signature appears below hereby designates and
appoints John H. Harvison and Steven B. Hawkins, and each of them, any one of
whom may act without the joinder of the other, as such person's true and lawful
attorney-in-fact and agents (the "Attorneys-in-Fact") with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as either
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such Attorneys-in-
Fact or either of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John H. Harvison Chairman of the Board of Trust Managers, December 5, 1997
---------------------------------- President and Chief Executive Officer
John H. Harvison
/s/ Steven B. Hawkins Vice President - Finance and December 5, 1997
---------------------------------- Administration, Secretary, Treasurer,
Steven B. Hawkins and Chief Financial Officer
Trust Manager December __, 1997
----------------------------------
Robert E. Garrison, II
Trust Manager December __, 1997
----------------------------------
Joseph F. Leonardo
/s/ J.D. St. Clair Trust Manager December 5, 1997
----------------------------------
J.D. St. Clair
/s/ Randall W. Harvison Trust Manager December 5, 1997
----------------------------------
Randall W. Harvison
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
2.1 - Form of Restructuring Agreement to be dated as of December
28, 1997
3.1 - Declaration of Trust of FFP Real Estate Trust
3.2 - Bylaws of FFP Real Estate Trust
4.1 - Form of certificate evidencing common shares
5.1 - Opinion of Jenkens & Gilchrist, a Professional Corporation,
regarding validity of shares
8.1 - Opinion of Jenkens & Gilchrist, a Professional Corporation,
regarding federal income tax matters
10.1 - Amended and Restated Agreement of Limited Partnership of FFP
Partners, L.P., dated May 21, 1987, as amended by the First
Amendment to Amended and Restated Agreement of Limited
Partnership dated August 14, 1989, and by the Second
Amendment to Amended and Restated Agreement of Limited
Partnership dated July 12, 1991
10.2 - Form of Third Amendment to Amended and Restated Agreement of
Limited Partnership of FFP Partners, L.P., to be dated as of
December 28, 1997. (Including as Appendix B to the Prospectus
that forms a part of this registration statement)
10.3 - Nonqualified Unit Option Plan of FFP Partners, L.P.
10.4 - Form of Employment Agreement between FFP Partners Management
Company, Inc., and certain executive officers dated April 23,
1989, as amended July 22, 1992
23.1 - Consent of KPMG Peat Marwick LLP
23.2 - Consent of Jenkens & Gilchrist (included in their opinions
filed as Exhibits 5.1 and 8.1)
24.1 - Power of Attorney of Directors and officers of Registrant
(included on page II-3)
27.1 - Financial data schedule
99.1 - Form of Proxy for FFP Partners, L.P.
</TABLE>
<PAGE>
EXHIBIT 2.1
RESTRUCTURING AGREEMENT
This Restructuring Agreement ("Agreement"), dated as of December 28, 1997,
among FFP Partners, L.P. (the "Partnership"), a Delaware limited partnership and
FFP Partners Management Company, Inc. ("FFPMC"), a Delaware corporation.
WHEREAS FFPMC is now the General Partner of the Partnership.
WHEREAS the Board of Directors of FFPMC and the limited partners of the
Partnership have approved a restructuring of the Partnership as a result of
which:
(a) FFP Real Estate Trust (the "REIT"), a Texas real estate investment
trust, will become the General Partner of the Partnership.
(b) FFP Operating Partners, L.P. (the "Operating Partnership"), a
Delaware limited partnership will form a new subsidiary, FFP Subsidiary Trust
(the "Subsidiary Trust"), contribute to the Subsidiary Trust substantially all
of the real property owned by the Operating Partnership (the "Real Property")
identified on Schedule 2 to this Agreement, and distribute the interests in the
Subsidiary Trust to the Partnership and FFPMC;
(c) The Partnership and FFPMC will contribute to FFP Properties,
L.P., a Delaware limited partnership ("FFP Properties") the interests in the
Subsidiary Trust;
(d) FFPMC will transfer its general partner interest in the
Partnership to the REIT in exchange for shares of stock of the REIT;
(e) The Partnership will transfer its limited partnership interest in
the Operating Partnership and certain related entities to FFP Marketing Company,
Inc. ("FFP Marketing"), a Texas corporation;
(f) FFPMC will transfer its general partner interest in the Operating
Partnership and certain related entities to FFP Operating LLC ("FFPLLC"), a
Delaware limited liability company;
(g) FFPMC will transfer all of the outstanding shares of FFPLLC to FFP
Marketing;
(h) Certain corporations, partnerships and trusts associated with the
family of John H. Harvison (collectively, the "Harvison Family") identified on
the signature page of this Agreement will surrender their limited partner
interest in the Partnership to the Partnership in exchange for limited partner
interests in FFP Properties;
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
covenant and agree as follows:
ARTICLE 1
DEFINITIONS
In addition to the other terms which are defined elsewhere in this
Agreement, the following terms shall have the meanings ascribed to them below:
1.1 "Agreement" means this Restructuring Agreement.
---------
1.2 "Closing" means the act of consummating on the Closing Date the
-------
actions contemplated by the terms of this Agreement.
1.3 "Closing Date" means the date on which the restructuring takes place.
------------
1.4 "Lease" or "Leases" means the leases, subleases, rights to use, rights
-----------------
to occupy, or licenses of any type whatsoever (whether written or verbal,
recorded or unrecorded) for any portion or all of the real property as may
currently exist under which the Operating Partnership is the landlord, grantor,
licensor, or lessee which are included in the Real Property.
1.5 "License" or "Licenses" means the governmental permits, licenses,
---------------------
certificates of occupancy, or any other document issued by any governmental
authority with respect to the Real Property.
1.6 "Real Property" means the real estate assets listed on Schedule 2
-------------
hereto.
ARTICLE 2
THE OPERATING PARTNERSHIP'S TRANSFER
OF THE REAL PROPERTY TO THE SUBSIDIARY TRUST AND
TRANSFER OF THE SUBSIDIARY TRUST TO THE PARTNERSHIP AND FFPMC
2.1 Transfer of the Operating Partnership's Real Property to the
------------------------------------------------------------
Subsidiary Trust. Subject to the terms and provisions of this Agreement, the
- ----------------
Operating Partnership is transferring, assigning, and conveying to the
Subsidiary Trust, its successors and assigns, as the initial capital
contribution to the Subsidiary Trust, all its right, title and interest in the
Real Property, in exchange for the issuance by the Subsidiary Trust to the
Operating Partnership of 1,000 common shares of the Subsidiary Trust.
2
<PAGE>
2.2 Assumption of Liabilities. The Subsidiary Trust is assuming, as of
-------------------------
the Closing Date, the following and only the following obligations and
liabilities of the Operating Partnership with respect to the Real Property being
acquired:
(a) all obligations and liabilities accruing, arising out of, or
relating to events or occurrences happening after the Closing Date; Leases
set forth in the Real Property; and
(b) all obligations specifically undertaken by the Subsidiary Trust
pursuant to the other provisions of this Agreement.
Except as expressly provided above, the Subsidiary Trust is not assuming
any other obligation or liability of the Operating Partnership, including by way
of illustration but not limitation: (a) any obligation or liability accruing,
arising out of, or relating to any act or omission of the Operating Partnership
or any other commitments or events happening before the Closing Date, and (b)
any other obligation or liability of the Operating Partnership not expressly
assumed by the Subsidiary Trust pursuant to the terms of this Agreement.
2.3 Lease of Real Property. The Subsidiary Trust as lessor is entering
----------------------
into leases with the Operating Partnership as lessee with respect to the Real
Property.
2.4 Transfer of Subsidiary Trust to Partnership and FFPMC. Subject to the
-----------------------------------------------------
terms and provisions of this Agreement, the Operating Partnership is
transferring, assigning, and conveying to the Partnership and FFPMC, their
successors and assigns, as a distribution to the sole partners of the Operating
Partnership, one percent (1%) of all of its right, title, and interest in the
Subsidiary Trust to FFPMC and ninety-nine (99%) of all of its right, title, and
interest in the Subsidiary Trust to the Partnership.
ARTICLE 3
THE PARTNERSHIP'S TRANSFER OF ITS LIMITED PARTNER
INTEREST IN THE OPERATING PARTNERSHIP TO FFP MARKETING
3.1 Transfer of Limited Partner Interest in the Partnership. Pursuant to
-------------------------------------------------------
the terms and provisions of this Agreement the Partnership is transferring,
assigning and conveying to FFP Marketing, its successors and assigns, all its
right, title, and interest in and to its ninety-nine percent (99%) limited
partner interests in the Operating Partnership, FFP Financial Services, L.P.,
Direct Fuels, L.P., and FFP Transportation, L.L.C., and its one hundred percent
(100%) interests in Practical Tank Management, Inc. and FFP Money Order Company,
Inc.
3.2 Consideration for Transfer. Pursuant to the terms and provisions of
--------------------------
this Agreement, in consideration for the transfer of such interest in the
Operating Partnership FFP Marketing is issuing and delivering to the Partnership
certificates evidencing 3,741,621 shares of stock of the FFP Marketing.
3
<PAGE>
ARTICLE 4
FFPMC'S TRANSFER OF ITS GENERAL PARTNER
INTEREST IN THE OPERATING PARTNERSHIP TO FFPLLC
4.1 Transfer of General Partner Interest in the Operating Partnership and
---------------------------------------------------------------------
Related Entities. Pursuant to the terms and provisions of this Agreement FFPMC
- ----------------
is transferring, assigning and conveying to FFPLLC, its successors and assigns,
as a Capital Contribution, all the right, title, and interest in and to its one
percent (1%) general partner interest in the Operating Partnership, FFP
Financial Services, L.P. and FFP Transportation, L.L.C., and its one hundred
percent (100%) interest in Direct Fuels Management Company, Inc.
4.2 Consideration for Transfer. Pursuant to the terms and provisions of
--------------------------
this Agreement, in consideration for the transfer of the one percent (1%)
interest in the Operating Partnership, FFP Financial Services, L.P. and FFP
Transportation, L.L.C., and the one hundred percent (100%) interest in Direct
Fuels Management Company, Inc., FFPLLC is issuing and delivering to FFPMC,
certificates evidencing 1,000 shares of stock of FFPLLC.
ARTICLE 5
FFPMC'S CAPITAL CONTRIBUTION TO FFP MARKETING
5.1 Capital Contribution of FFPMC. Pursuant to the terms and provisions
-----------------------------
of this Agreement, FFPMC is transferring, assigning and conveying to FFP
Marketing, its successors and assigns, that portion of all its right, title, and
interest in and to 1,000 shares of FFPLLC as a Capital Contribution.
5.2 Consideration for Contribution and Transfer. Pursuant to the terms
-------------------------------------------
and provisions of this Agreement, in consideration for the transfer of the 1,000
shares of FFPLLC, FFP Marketing is issuing and delivering to FFPMC certificates
evidencing 37,794 shares of stock of FFP Marketing.
ARTICLE 6
DISTRIBUTION OF MARKETING COMPANY SHARES
TO PARTNERS OF THE PARTNERSHIP
6.1 Distribution. The Partnership is conveying all of the shares of FFP
------------
Marketing it holds as a result of the previous transactions to its partners,
3,704,205 shares in the ratio of one share of FFP Marketing for each Unit of the
Partnership each limited partner holds at the Closing Date and 37,416 shares to
FFPMC, as the general partner of the Partnership.
4
<PAGE>
ARTICLE 7
TRANSFER TO FFP PROPERTIES BY
THE PARTNERSHIP AND FFPMC
7.1 Transfer from the Partnership and FFPMC to FFP Properties. Subject to
---------------------------------------------------------
the terms and provisions of this Agreement, the Partnership and FFPMC are
transferring, assigning, and conveying to FFP Properties, its successors and
assigns, all their right, title and interest in and to the Subsidiary Trust to
FFP Properties.
7.2 Consideration for Transfer to the Partnership. Subject to the terms
---------------------------------------------
and provisions of this Agreement, in consideration for the transfer of such
interest in the Subsidiary Trust, FFP Properties is issuing and delivering to
the Partnership certificates evidencing 3,741,621 general partner units of FFP
Properties.
7.3 Consideration for Transfer to FFPMC. Subject to the terms and
-----------------------------------
provisions of this Agreement, in consideration for the transfer of its one
percent (1%) interest in the Real Property, FFP Properties is issuing and
delivering to FFPMC certificates evidencing 37,794 limited partner units of FFP
Properties.
ARTICLE 8
FFPMC'S TRANSFER OF ITS GENERAL PARTNER
INTEREST IN THE PARTNERSHIP TO THE REIT
8.1 Transfer of General Partner Interest in the Partnership. Pursuant to
-------------------------------------------------------
the terms and provisions of this Agreement, FFPMC is transferring, assigning and
conveying to the REIT, its successors and assigns, all its right, title, and
interest in and to its one percent (1%) general partner interest in the
Partnership and all of FFPMC's right, title and interest in the limited partner
units in FFP Properties to the REIT.
8.2 Consideration for Transfer. Pursuant to the terms and provisions of
--------------------------
this Agreement, in consideration for the transfer of the limited partner units
in the Partnership and FFP Properties, the REIT is issuing and delivering to
FFPMC certificates evidencing 75,210 common shares of the REIT.
5
<PAGE>
ARTICLE 9
THE REIT'S TRANSFER
OF ITS LIMITED PARTNER INTEREST
IN FFP PROPERTIES TO THE PARTNERSHIP
9.1 Transfer of Limited Partner Interest in FFP Properties. Pursuant to
------------------------------------------------------
the terms and provisions of this Agreement, the REIT is transferring, assigning
and conveying to the Partnership, its successors and assigns, all its right,
title, and interest in the limited partner units in FFP Properties to the
Partnership, whereupon the units in FFP Properties will represent general
partner units in FFP Properties.
9.2 Consideration for Transfer. Pursuant to the terms and provisions of
--------------------------
this Agreement, in consideration for the transfer of the limited partner units
in FFP Properties, the Partnership is issuing and delivering to the REIT
certificates evidencing 37,794 units of limited partner interest in the
Partnership.
ARTICLE 10
THE HARVISON FAMILY'S TRANSFER
OF ITS LIMITED PARTNER INTEREST
IN THE PARTNERSHIP TO FFP PROPERTIES
10.1 Transfer of Limited Partner Interest in the Partnership. Pursuant to
-------------------------------------------------------
the terms and provisions of this Agreement, the members of the Harvison Family
is transferring, assigning and conveying to the Partnership, its successors and
assigns, all their right, title, and interest in and to their 39.3% limited
partner interest in the Partnership.
10.2 Consideration for Transfer. Pursuant to the terms and provisions of
--------------------------
this Agreement, in consideration for the transfer of the limited partner
interest in the Partnership, the Partnership is transferring, assigning and
conveying to the members of the Harvison Family certificates evidencing
1,469,943 units of limited partner interest of FFP Properties in the same
proportion as their prior holdings of the limited partner interest in the
Partnership.
ARTICLE 11
CLOSING
11.1 Time and Place of Closing. The Closing with respect to the transfer
-------------------------
of the Real Property has occurred at the offices of Jenkens & Gilchrist, a
Professional Corporation, 1445 Ross Avenue, Suite 3200, Dallas, Texas on the
date of this Agreement (the "Closing Date").
11.2 Effective Time. The Closing will be deemed to have occurred, and
--------------
will be effective, for accounting and tax purposes, immediately before midnight
on the Closing Date.
6
<PAGE>
11.3 Further Assurances. Each party agrees to deliver any further
------------------
assignments, conveyances and other assurances, documents, and instruments of
transfer requested by the other party, and to take all other actions consistent
with the terms of this Agreement for the purpose of effecting the transactions
contemplated by this Agreement.
11.4 Prorations. Within thirty (30) days after the Closing Date, the
----------
following items will be proportioned and prorated, in cash, on a daily basis,
between the parties as of 12:01 a.m. on the day following the Closing Date:
(a) Taxes. General county, city, and school taxes on a tax year
-----
basis for the Real Property.
(b) Utilities. All utility expenses.
---------
(c) Lease Payments. All Lease Payments.
--------------
(d) Insurance. All insurance premiums.
---------
ARTICLE 12
MISCELLANEOUS
12.1 Assignment. Neither this Agreement nor the rights, duties, or
----------
obligations arising hereunder shall be assignable or delegable by either party
without the express prior written consent of the other.
12.2 Parties in Interest. Nothing in this Agreement, whether express or
-------------------
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than any of the parties to this Agreement, the
entities named herein and their respective permitted successors and assigns, nor
is anything in this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall any
provision give any third persons any right of subrogation or action over or
against any party to this Agreement.
12.3 Entire Agreement; Modification; Waiver. This Agreement and the
--------------------------------------
exhibits hereto constitute the entire Agreement between the parties to this
Agreement, on the other, pertaining to the subject matter contained in it and
supersedes all prior agreements, representations, and all understandings of the
parties. No supplement, modification, or amendment of this Agreement shall be
binding unless expressed as such and executed in writing by the parties to this
Agreement. No waiver of any of the provisions of this Agreement shall be deemed
to be or shall constitute a waiver of any other provisions hereof, whether or
not similar, nor shall any such waiver constitute a continuing waiver. No
waiver shall be binding unless expressed as such in a document executed by the
party making the waiver.
7
<PAGE>
12.4 Publicity. All notices to third parties and all other publicity
---------
concerning the transactions contemplated by this Agreement shall be jointly
planned, coordinated, and released by and between the parties to this Agreement.
None of the parties shall act unilaterally in this regard without the prior
written approval of the other; however, the approval shall not be unreasonably
withheld.
12.5 Records. The parties to this Agreement agree to make available to
-------
each other, all financial or other records relating to any period prior to the
Closing Date in their respective possession which may be reasonably required by
the other party.
12.6 Limited Recourse. Notwithstanding anything to the contrary contained
----------------
herein or elsewhere, no general partner, limited partner, officer, director,
stockholder, employee, agent, servant, or other representative of any party to
this Agreement (each an "Individual") shall have any personal liability for the
performance of any obligations, or in respect of any liability, of any of the
parties under this Agreement, and no monetary or other judgment shall be sought
or enforced against any such Individuals or their assets.
12.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of such
counterparts shall constitute but one agreement.
12.8 Transactions Considered Taken. All of the transactions described
-----------------------------
herein shall be considered to have taken place simultaneously, but in the order
specified in this Agreement.
12.9 Captions. The captions in this Agreement are for convenience only
--------
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement. The Schedules attached
hereto shall constitute a part of this Agreement.
12.10 Governing Law. This Agreement and the legal relations between the
-------------
parties hereto shall be governed by, and construed in accordance with, the laws
of the State of Texas without regard to the principles of conflicts of laws.
The covenants contained herein are performable in, and are intended to be
performed in, Tarrant County, Texas.
12.11 Binding Effect. All covenants and agreements contained in this
--------------
Agreement shall bind and inure to the benefit of, and be enforceable by, the
successors and assigns of the parties hereto.
12.12 Severability. Any article, section, subsection, clause, sentence,
------------
paragraph, or provision of this Agreement held by a court of competent
jurisdiction to be invalid, illegal, or ineffective shall not impair,
invalidate, or nullify the remainder of this Agreement, but the effect thereof
shall be confined to the article, section, subsection, clause, sentence
paragraph, or provision so held to be invalid, illegal, or ineffective.
12.13 Non-Waiver. No breach of any of the terms or provisions of this
----------
Agreement shall be deemed consented to or excused, nor shall the validity or
performance of any representation,
8
<PAGE>
promise, or undertaking herein be deemed waived, nor any delay in or deviation
from the time or manner of any performance be deemed consented to unless such
consent, excuse, or waiver shall be in writing and signed by the party claimed
to have consented, excused, or waived. Any such consent, excuse, or waiver shall
not constitute a consent to, waiver of, or excuse for any other similar or
dissimilar, breach, delay, or deviation.
9
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by a duly authorized
officer of each of the parties hereto, all as of the date first above written.
FFP PARTNERS MANAGEMENT COMPANY, INC.
By:
-------------------------------------------
John H. Harvison, Chairman of the Board
FFP PARTNERS, L.P.
By: FFP PARTNERS MANAGEMENT COMPANY, INC., as General
Partner
By:
-------------------------------------------
John H. Harvison, Chairman of the Board
THE HARVISON FAMILY
Economy Oil Company
By:
-------------------------------------------
John H. Harvison, President
Hi-Lo Distributors, Inc.
By:
-------------------------------------------
John H. Harvison, Vice President
Gas-Go, Inc.
By:
-------------------------------------------
John H. Harvison, President
Swifty Distributors
By:
-------------------------------------------
John H. Harvison, Vice President
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Hi-Lo Corporation
By:
-------------------------------------------
John H. Harvison, President
Thrift Distributors, Inc.
By:
-------------------------------------------
John H. Harvison, President
Thrift Wholesale Company
By:
-------------------------------------------
John H. Harvison, President
Thrift-Way, Inc.
By:
-------------------------------------------
John H. Harvison, Vice President
Gas-N-Sav, Inc.
By:
-------------------------------------------
John H. Harvison, Vice President
Nu-Way Energy Corporation
By:
-------------------------------------------
John H. Harvison, Vice President
Southway, Inc.
By:
-------------------------------------------
John H. Harvison, President
11
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EXHIBIT 3.1
DECLARATION OF TRUST
OF
FFP REAL ESTATE TRUST
ARTICLE I
NAME
The name of the trust (the "Trust") is FFP Real Estate Trust. An assumed
name certificate setting forth such name has been filed in the manner prescribed
by law.
ARTICLE II
DURATION
The duration of the Trust is perpetual.
ARTICLE III
PURPOSES AND POWERS
The Trust is formed pursuant to the Texas Real Estate Investment Trust Act
(the "Texas REIT Act") and has the following as its purposes:
To purchase, hold, lease, manage, sell, exchange, develop, subdivide and
improve real property and interests in real property, and in general, to
carry on any other business and do any other acts in connection with the
foregoing and to have and exercise all powers conferred by the laws of the
State of Texas now or hereafter in force upon real estate investment trusts
formed under the Texas REIT Act, or any successor statute, in each case as
the same may be amended, modified or supplemented from time to time, and to
do any or all of the things hereinafter set forth or set forth in the Texas
REIT Act, or any successor statute, in each case as the same may be
amended, modified or supplemented from time to time, to the same extent as
natural persons might or could do. The term "real property" and the term
"interests in real property" for the purposes stated herein shall not
include severed mineral, oil or gas royalty interests.
Without in any manner limiting the generality of the foregoing, and in
addition to all the powers conferred by the laws of the State of Texas now or
hereafter in force upon real estate investment trusts formed under the Texas
REIT Act, or any successor statute, in each case as the same may be amended,
modified or supplemented from time to time, the Trust shall have the power
<PAGE>
(i) to acquire, hold, own, develop, construct, improve, maintain, operate, sell,
lease, transfer, encumber, convey, exchange and otherwise dispose of or deal
with real and personal property directly or through one or more subsidiaries or
affiliates; (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing; and (iii) in general, to possess
and exercise all the purposes, powers, rights and privileges granted to, or
conferred upon real estate investment trusts by the laws of the State of Texas
now or hereafter in force, and to exercise any powers suitable, convenient or
proper for the accomplishment of any of the purposes herein enumerated, implied
or incidental to the powers or purposes herein specified, or which at any time
may appear conducive to or expedient for the accomplishment of any such
purposes.
The foregoing shall, except where otherwise expressed, in no way be limited
or restricted by reference to or inference from the terms of any other clause of
this or any other provision of this Declaration of Trust, or of any amendment
hereto or restatement hereof, and shall each be regarded as independent, and
shall each be construed as powers as well as purposes.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The address of the initial principal office and place of business of the
Trust is 2801 Glenda Avenue, Fort Worth, Texas 76117. The address of the
Trust's registered office is 2801 Glenda Avenue, Fort Worth, Texas 76117, and
the name of its registered agent at that address is Steven B. Hawkins.
ARTICLE V
BOARD OF TRUST MANAGERS
SECTION 5.1 Trust Managers.
The name and business address of the initial Trust Manager is as follows:
Name Mailing Address
---- ---------------
John H. Harvison 2801 Glenda Avenue
Fort Worth, TX 76117-4391
SECTION 5.2 Number and Classification of Trust Managers.
(A) The initial number of Trust Managers of the Trust shall be one (1).
From and after the date hereof, the number of Trust Managers of the Trust shall
be fixed by, or in the manner provided in, the Bylaws of the Trust, and may be
increased or decreased from time to time in such
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a manner as may be prescribed by the Bylaws, but in no event shall there be less
than one (1) or more than twenty-five (25) Trust Managers.
(B) At such time as the board of Trust Managers shall consist of three (3)
or more Trust Managers, the Trust Managers, other than those who may be elected
by the holders of any series of Preferred Shares, shall be divided into three
classes, as nearly equal in number as possible. One class of Trust Managers
initially shall have a term expiring at the first annual meeting of shareholders
held after such division into classes, another class initially shall have a term
expiring at the second annual meeting of shareholders held after such division
into classes, and another class initially shall have a term expiring at the
third annual meeting of shareholders held after such division into classes.
Members of each class shall hold office until their respective successors are
elected and qualified. At each succeeding annual meeting of the shareholders of
the Trust, the successors of the class of Trust Managers whose term expires at
that meeting shall be elected by a majority vote of all votes cast at such
meeting, to hold office for a term expiring at the annual meeting of
shareholders held in the third year following the year of their election.
ARTICLE VI
AUTHORIZED SHARES
SECTION 6.1 Total Capitalization.
The aggregate number of shares of beneficial interest of all classes of
shares of beneficial interest that the Trust shall have authority to issue is
One Hundred Ten Million (110,000,000) shares, consisting of (i) Five Million
(5,000,000) preferred shares, par value $0.01 per share (the "Preferred
Shares"); (ii) Fifty Million (50,000,000) common shares, par value $0.01 per
share (the "Common Shares"); and (iii) Fifty-five Million (55,000,000) excess
shares, par value $0.01 per share (the "Excess Shares"). The Preferred Shares
and the Common Shares are sometimes referred to collectively herein as the
"Equity Shares."
SECTION 6.2 Preferred Shares.
The Preferred Shares may be issued from time to time in one or more series
as authorized by the Board of Trust Managers. Prior to the issuance of shares
of each such series, the Board of Trust Managers, by resolution, shall fix the
number of shares to be included in each series, and the terms, rights,
restrictions and qualifications of the shares of each series. The authority of
the Board of Trust Managers with respect to each series shall include, but not
be limited to, determination of the following:
(i) The designation of the series, which may be by distinguishing
number, letter or title.
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(ii) The dividend rate on the shares of the series, if any, whether any
dividends shall be cumulative and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends
on shares of the series.
(iii) The redemption rights, including conditions and the price or prices,
if any, for shares of the series.
(iv) The terms and amounts of any sinking fund for the purchase or
redemption of shares of the series.
(v) The rights of the shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs
of the Trust, and the relative rights of priority, if any, of
payment of shares of the series.
(vi) Whether the shares of the series shall be convertible into shares of
any other class or series, or any other security, of the Trust or
any other entity, and, if so, the specification of such other class
or series of such other security, the conversion price or prices or
rate or rates, any adjustments thereof, the date or dates on which
such shares shall be convertible and all other terms and conditions
upon which such conversion may be made.
(vii) Restrictions on the issuance of shares of the same series or of any
other class or series.
(viii) The voting rights, if any, of the holders of shares of the series.
(ix) Any other relative rights, preferences and limitations on that
series.
Subject to the express provisions of any other series of Preferred Shares
then outstanding, and notwithstanding any other provision of this Declaration of
Trust, the Board of Trust Managers may increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares, or alter
the designation or classify or reclassify any unissued shares of a particular
series of Preferred Shares, by fixing or altering, in one or more respects, from
time to time before issuing the shares, the terms, rights, restrictions and
qualifications of the shares of any such series of Preferred Shares.
SECTION 6.3 Common Shares.
(A) Common Shares Subject to Terms of Preferred Shares. The Common Shares
shall be subject to the express terms of any series of Preferred Shares.
(B) Dividend Rights. The holders of Common Shares shall be entitled to
receive such dividends as may be declared by the Board of Trust Managers out of
funds legally available therefor.
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<PAGE>
(C) Rights Upon Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up, or any distribution of the assets, of
the Trust, the aggregate assets available for distribution to holders of Common
Shares (including holders of Excess Shares resulting from the exchange of Common
Shares pursuant to paragraph C of Section 6.4 hereof) shall be determined in
accordance with applicable law. Except as provided below as a consequence of
the limitations on distributions to holders of Excess Shares, each holder of
Common Shares shall be entitled to receive, ratably with (i) each other holder
of Common Shares and (ii) each holder of Excess Shares resulting from the
exchange of Common Shares, that portion of such aggregate assets available for
distribution as the number of outstanding Common Shares held by such holder
bears to the total number of outstanding Common Shares and Excess Shares
resulting from the exchange of Common Shares then outstanding. Anything herein
to the contrary notwithstanding, in no event shall the amount payable to a
holder of Excess Shares exceed (i) the price per share such holder paid for the
Common Shares in the purported Transfer or Acquisition (as those terms are
defined in paragraph A of Section 6.4) or change in capital structure or other
transaction or event that resulted in the Excess Shares or (ii) if the holder
did not give full value for such Excess Shares (as through a gift, a devise or
other event or transaction) a price per share equal to the Market Price (as that
term is defined in paragraph A of Section 6.4) for the Common Shares on the date
of the purported Transfer, Acquisition, change in capital structure, or other
transaction or event that resulted in such Excess Shares. Any amount available
for distribution in excess of the foregoing limitations shall be paid ratably to
the holders of Common Shares and other holders of Excess Shares resulting from
the exchange of Common Shares to the extent permitted by the foregoing
limitations.
(D) Voting Rights. Except as may be provided in this Declaration of Trust,
and subject to the express terms of any series of Preferred Shares, the holders
of Common Shares shall have the exclusive right to vote on all matters (as to
which a common shareholder shall be entitled to vote pursuant to applicable law)
at all meetings of the shareholders of the Trust, and shall be entitled to one
(1) vote for each Common Share entitled to vote at such meeting.
SECTION 6.4 Restrictions on Ownership, Transfer, Acquisition and
Redemption of Shares.
(A) Definitions. For purposes of Sections 6.4 and 6.5, the following terms
shall have the following meanings:
"Acquire" shall mean the acquisition of Beneficial or Constructive
Ownership of Equity Shares by any means, including, without limitation, the
exercise of any rights under any option, warrant, convertible security, pledge
or other security interest or similar right to acquire shares, but shall not
include the acquisition of any such rights unless, as a result, the acquiror
would be considered a Beneficial Owner or Constructive Owner. The terms
"Acquires" and "Acquisition" shall have correlative meanings.
"Beneficial Ownership" shall mean ownership of Equity Shares by an
individual who would be treated as an owner of such shares under Section
542(a)(2) of the Code, either directly or constructively through the application
of Section 544, as modified by Section 856(h)(1)(B). For
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<PAGE>
purposes of this definition, the term "individual" also shall include any
organization, trust or other entity that is treated as an individual for
purposes of Section 542(a)(2) of the Code. The terms "Beneficial Owner,"
"Beneficially Own," "Beneficially Owns" and "Beneficially Owned" shall have
correlative meanings.
"Beneficiary" shall mean a beneficiary of the Excess Shares Trust as
determined pursuant to paragraph A of Section 6.5.
"Board of Trust Managers" shall mean the Board of Trust Managers of
the Trust.
"Bylaws" shall mean the Bylaws of the Trust, as the same are in effect
from time to time.
"Closing Price" on any day shall mean the last sale price, regular way
on such day, or, if no such sale takes place on that day, the average of the
closing bid and asked prices, regular way, in either case as reported on the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the American Stock Exchange, or if the affected
class or series of Equity Shares is not so listed or admitted to trading on the
American Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal United
States securities exchange registered under the Securities Exchange Act of 1934
on which the affected class or series of Equity Shares is listed or admitted to
trading or, if the affected class or series of Equity Shares is not so listed or
admitted to trading, the last quoted price or, if not quoted, the average of the
high bid and low asked prices on The Nasdaq Stock Market or any other nationally
recognized automated quotation system then in use, or, if the affected class or
series of Equity Shares is not so quoted by any such system, the average of the
closing bid and asked prices as furnished by a professional market maker
selected by the Board of Trust Managers making a market in the affected class or
series of Equity Shares, or, if there is no such market maker or such closing
prices otherwise are not available, the fair market value of the affected class
or series of Equity Shares as of such day, as determined by the Board of Trust
Managers in its discretion.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute thereto. Reference to any provision of
the Code shall mean such provision as in effect from time to time, as the same
may be amended, and any successor provision thereto, as interpreted by any
applicable regulations as in effect from time to time.
"Common Shares Ownership Limit" shall mean 4.9 percent of the
outstanding Common Shares of the Trust, or, from and after the date hereof, such
greater percentage of the outstanding Common Shares of the Trust as the Board of
Trust Managers may establish pursuant to the authority expressly vested in the
Board of Trust Managers in paragraph K of this Section 6.4 (but in no event to
more than 9.9 percent of the outstanding Common Shares of the Trust, as so
adjusted), subject to the limitations contained in paragraph L of this Section
6.4.
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"Constructive Ownership" shall mean ownership of Equity Shares by a
Person who would be treated as an owner of such shares, either actually or
constructively, directly or indirectly, through the application of Section 318
of the Code, as modified by Section 856(d)(5) thereof. The terms "Constructive
Owner," "Constructively Own," "Constructively Owns" and "Constructively Owned"
shall have correlative meanings.
"Conversion Date" shall mean the first date that limited partners of
FFP Partners, L.P. are permitted or required to exchange units of FFP Partners,
L.P. for Common Shares.
"Equity Shares" shall mean collectively shares of the Trust that are
either Common Shares or Preferred Shares.
"Excess Shares Trust" shall mean the trust created pursuant to
paragraph A of Section 6.5.
"Excess Shares Trustee" shall mean the Trust as trustee for the Excess
Shares Trust, and any successor trustee appointed by the Trust.
"Existing Holder" shall mean collectively John H. Harvison and any
sibling (whether by the whole or half blood), spouse, ancestor or lineal
descendant thereof (provided that in the event the definition of "Family"
pursuant to Section 544(a)(2) of the Code shall be amended, the foregoing
definition shall be deemed to be similarly amended), or any Associate of any of
them as that term is defined in Article 11.1(c).
"Existing Holder Limit" shall mean initially 30 percent of the
outstanding Common Shares of the Trust, or, from and after the date hereof, such
lesser percentage of the outstanding Common Shares of the Trust as the Board of
Trust Managers may establish from time to time pursuant to the authority
expressly vested in the Board of Trust Managers in paragraph J of this Section
6.4, subject to the limitations contained in paragraph L of this Section 6.4.
For purposes of the application of the Existing Holder Limit, the Existing
Holder shall be deemed to own the sum of (a) the Common Shares Beneficially or
Constructively Owned by the Existing Holder and (b) the Common Shares the
Existing Holder would Beneficially or Constructively Own upon exercise of any
conversion right, option or other right (without regard to any temporal
restrictions on the exercise thereof) to directly or indirectly Acquire
Beneficial or Constructive Ownership of Common Shares. For purposes of
determining the Existing Holder Limit, the Common Shares outstanding shall be
deemed to include the maximum number of shares that the Existing Holder may
Beneficially and Constructively Own pursuant to any conversion right, option or
other right (without regard to any temporal restrictions on the exercise
thereof). From and after the date hereof and prior to the Restriction
Termination Date, the Secretary of the Trust, or such other person as shall be
designated by the Board of Trust Managers, shall maintain and, upon request,
make available to the Existing Holder or the Board of Trust Managers, a schedule
which sets forth the then-current Existing Holder Limit.
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"Market Price" on any day shall mean the average of the Closing Prices
for the ten (10) consecutive Trading Days immediately preceding such day (or
those days during such 10-day period for which Closing Prices are available).
"Ownership Limit" shall mean the Common Shares Ownership Limit or the
Preferred Shares Ownership Limit, or both, as the context may require.
"Person" shall mean an individual, corporation, partnership, estate,
trust (including a trust qualified under Section 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be used exclusively
for the purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity, or a group as that term is used for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended; but does not
include an underwriter which participated in a public offering of Equity Shares
for a period of sixty (60) days following the purchase by such underwriter of
such Equity Shares therein, provided that the foregoing exclusion shall apply
only if the ownership of such Equity Shares by an underwriter or underwriters
participating in a public offering would not cause the Trust to fail to qualify
as a REIT by reason of being "closely held" within the meaning of Section 856(a)
of the Code or otherwise cause the Trust to fail to qualify as a REIT.
"Preferred Shares Ownership Limit" shall mean 9.0 percent of the
outstanding shares of a particular series of Preferred Shares of the Trust.
"Purported Beneficial Holder" shall mean, with respect to any event or
transaction other than a purported Transfer or Acquisition which results in
Excess Shares, the Person for whom the applicable Purported Record Holder held
the Equity Shares that were, pursuant to paragraph C of this Section 6.4,
automatically exchanged for Excess Shares upon the occurrence of such event or
transaction. The Purported Beneficial Holder and the Purported Record Holder
may be the same Person.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer or Acquisition which results in Excess Shares, the purported
beneficial transferee for whom the Purported Record Transferee would have
acquired Equity Shares if such Transfer or Acquisition had been valid under
paragraph B of this Section 6.4. The Purported Beneficial Transferee and the
Purported Record Transferee may be the same Person.
"Purported Record Holder" shall mean, with respect to any event or
transaction other than a purported Transfer or Acquisition which results in
Excess Shares, the record holder of the Equity Shares that were, pursuant to
paragraph C of this Section 6.4, automatically exchanged for Excess Shares upon
the occurrence of such an event or transaction. The Purported Record Holder and
the Purported Beneficial Holder may be the same Person.
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"Purported Record Transferee" shall mean, with respect to any purported
Transfer or Acquisition which results in Excess Shares, the record holder of the
Equity Shares if such Transfer had been valid under paragraph B of this Section
6.4. The Purported Record Transferee and the Purported Beneficial Transferee may
be the same Person.
"REIT" shall mean a real estate investment trust under Sections 856
through 860 of the Code.
"Restriction Termination Date" shall mean the first day after the date
hereof on which the Board of Trust Managers and the shareholders of the Trust
determine that it is no longer in the best interests of the Trust to attempt, or
continue, to qualify as a REIT.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the affected class or series of Equity Shares is
listed or admitted to trading is open for the transaction of business or, if the
affected class or series of Equity Shares is not listed or admitted to trading,
shall mean any day other than a Saturday, Sunday or other day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Transfer" shall mean any sale, transfer, gift, hypothecation,
assignment, devise or other disposition of a direct or indirect interest in
Equity Shares or the right to vote or receive dividends on Equity Shares
(including (i) the granting of any option (including any option to acquire an
option or any series of such options) or entering into any agreement for the
sale, transfer or other disposition of Equity Shares or the right to vote or
receive dividends on Equity Shares or (ii) the sale, transfer, assignment or
other disposition of any securities or rights convertible into or exchangeable
for Equity Shares, whether voluntary or involuntary, of record, constructively
or beneficially, and whether by operation of law or otherwise. The terms
"Transfers," "Transferred" and "Transferable" shall have correlative meanings.
(B) Ownership and Transfer Limitations.
(1) Notwithstanding any other provision of this Declaration of Trust,
except as provided in paragraph I of this Section 6.4 and Section 6.6, from and
after the fiscal year end following the Conversion Date and prior to the
Restriction Termination Date, (i) no Person (other than the Existing Holder)
shall Beneficially or Constructively Own Common Shares in excess of the Common
Shares Ownership Limit; (ii) the Existing Holder shall not Beneficially or
Constructively Own Common Shares in excess of the Existing Holder Limit; and
(iii) no Person shall Beneficially or Constructively Own shares of any series of
Preferred Shares in excess of the Preferred Shares Ownership Limit.
(2) Notwithstanding any other provision of this Declaration of Trust,
except as provided in paragraph I of this Section 6.4 and Section 6.6, from and
after the fiscal year end following the Adoption Date and prior to the
Restriction Termination Date, any Transfer, Acquisition, change in the capital
structure of the Trust, or other purported change in Beneficial or Constructive
Ownership of Equity Shares or other event or transaction that, if effective,
would result in any Person (other than the Existing Holder) Beneficially or
Constructively Owning Equity Shares in excess of the applicable Ownership Limit
shall be void ab initio as to the Transfer, Acquisition, change in the capital
structure of the Trust, or other purported change in Beneficial or
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Constructive Ownership or other event or transaction with respect to that number
of Equity Shares which would otherwise be Beneficially or Constructively Owned
by such Person in excess of the applicable Ownership Limit, and none of the
Purported Beneficial Transferee, the Purported Record Transferee, the Purported
Beneficial Holder or the Purported Record Holder, as applicable, shall acquire
any rights in that number of Equity Shares.
(3) Notwithstanding any other provision of this Declaration of Trust,
except as provided in Paragraph I of this Section 6.4 and in Section 6.6, from
and after the fiscal year end following the Conversion Date and prior to the
Restriction Termination Date, any Transfer, Acquisition, change in the capital
structure of the Trust, or other purported change in Beneficial or Constructive
Ownership of Common Shares and/or Preferred Shares or other event or transaction
that, if effective, would result in the Existing Holder Beneficially or
Constructively Owning (i) Common Shares in excess of the Existing Holder Limit
or (ii) Preferred Shares in excess of the Preferred Shares Ownership Limit shall
be void ab initio as to the Transfer, Acquisition, change in the capital
structure of the Trust, or other purported change in the Beneficial or
Constructive Ownership or other event or transaction with respect to that number
of Common Shares which otherwise would be Beneficially or Constructively Owned
by the Existing Holder in excess of the Existing Holder Limit and/or that number
of Preferred Shares which otherwise would be Beneficially or Constructively
Owned by the Existing Holder in excess of the Preferred Shares Ownership Limit,
as the case may be, and the Existing Holder shall acquire no rights in that
number of Common Shares and/or Preferred Shares.
(4) Notwithstanding any other provision of this Declaration of Trust,
except as provided in Section 6.6, from and after the fiscal year end following
the Conversion Date and prior to the Restriction Termination Date, any Transfer,
Acquisition, change in the capital structure of the Trust, or other purported
change in Beneficial or Constructive Ownership (including actual ownership) of
Equity Shares or other event or transaction that, if effective, would result in
the Equity Shares being actually owned by fewer than one hundred (100) Persons
(determined without reference to any rules of attribution) shall be void ab
initio as to the Transfer, Acquisition, change in the capital structure of the
Trust, or other purported change in Beneficial or Constructive Ownership
(including actual ownership) or other event or transaction with respect to that
number of Equity Shares which otherwise would be owned by the transferee, and
the intended transferee or subsequent owner (including a Beneficial or
Constructive Owner) shall acquire no rights in that number of Equity Shares.
(5) Notwithstanding any other provision of this Declaration of Trust,
except as provided in Section 6.6, from and after the fiscal year end following
the Conversion Date and prior to the Restriction Termination Date, any Transfer,
Acquisition, change in the capital structure of the Trust, or other purported
change in Beneficial or Constructive Ownership of Equity Shares or other
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event or transaction that, if effective, would cause the Trust to fail to
qualify as a REIT by reason of being "closely held" within the meaning of
Section 856(h) of the Code or otherwise, directly or indirectly, would cause the
Trust to fail to qualify as a REIT shall be void ab initio as to the Transfer,
Acquisition, change in the capital structure of the Trust, or other purported
change in Beneficial or Constructive Ownership or other event or transaction
with respect to that number of Equity Shares which would cause the Trust to be
"closely held" within the meaning of Section 856(h) of the Code or otherwise,
directly or indirectly, would cause the Trust to fail to qualify as a REIT, and
none of the Purported Beneficial Transferee, the Purported Record Transferee,
the Purported Beneficial Holder or the Purported Record Holder shall acquire any
rights in that number of Equity Shares.
(6) Notwithstanding any other provision of this Declaration of Trust,
except as provided in Section 6.6, from and after the fiscal year end following
the Conversion Date and prior to the Restriction Termination Date, any Transfer,
Acquisition, change in capital structure of the Trust, or other purported change
in Beneficial or Constructive Ownership of Equity Shares or other event or
transaction that, if effective, would (i) cause the Trust to own (directly or
Constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code and (ii) cause the Trust to fail to satisfy any of the
gross income requirements of Section 856(c) of the Code, shall be void ab initio
as to the Transfer, Acquisition, change in capital structure of the Trust, or
other purported change in Beneficial or Constructive Ownership or other event or
transaction with respect to that number of Equity Shares which would cause the
Trust to own an interest (directly or Constructively) in a tenant that is
described in Section 856(d)(2)(B) of the Code, and none of the Purported
Beneficial Transferee, the Purported Record Transferee, the Purported Beneficial
Holder or the Purported Record Holder shall acquire any rights in that number of
Equity Shares.
(7) It is expressly intended that the restrictions on ownership and
transfer described in this Section 6.4(B) shall apply to the redemption rights
provided in Section 7.6 of the First Amended and Restated Agreement of Limited
Partnership of FFP Partners, L.P., as the same has been and may from time to
time hereafter be amended, modified or supplemented (the "FFP Partnership
Agreement"), of FFP Partners, L.P., a Delaware limited partnership ("FFP
Partnership"). Notwithstanding any of the provisions of the FFP Partnership
Agreement to the contrary, a partner of FFP Partnership shall not be entitled to
effect an exchange of an interest in FFP Partners, L.P. into Common Shares if
the Beneficial or Constructive Ownership of such Common Shares would be
prohibited under the provisions of this Section 6.4(B).
(C) Exchange for Excess Shares.
(1) If, notwithstanding the other provisions contained in this Article
VI, at any time from and after the fiscal year end following the Conversion Date
and prior to the Restriction Termination Date, there is a purported Transfer,
Acquisition, change in the capital structure of the Trust, or other purported
change in the Beneficial or Constructive Ownership of Equity Shares or other
event or transaction such that (i) any Person (other than the Existing Holder)
would Beneficially or Constructively Own Equity Shares in excess of the
applicable Ownership Limit or (ii) the Existing Holder would Beneficially or
Constructively Own Common Shares in excess of the Existing Holder
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Limit or any series of Preferred Shares in excess of the Preferred Shares
Ownership Limit, then, except as otherwise provided in paragraph I of this
Section 6.4, such number of Equity Shares (rounded up to the next whole number
of shares) in excess of the applicable Ownership Limit or the Existing Holder
Limit, as the case may be, automatically shall be exchanged for an equal number
of Excess Shares having terms, rights, restrictions and qualifications identical
thereto, except to the extent that this Article VI requires different terms.
Such exchange shall be effective as of the close of business on the business day
next preceding the date of the purported Transfer, Acquisition, change in
capital structure, or other purported change in Beneficial or Constructive
Ownership of Equity Shares or other event or transaction.
(2) If, notwithstanding the other provisions contained in this Article
VI, at any time from and after the fiscal year end following the Conversion Date
and prior to the Restriction Termination Date, there is a purported Transfer,
Acquisition, change in the capital structure of the Trust, or other purported
change in Beneficial or Constructive Ownership of Equity Shares or other event
or transaction which, if effective, would result in a violation of any of the
restrictions described in subparagraphs (2), (3), (4), (5) and (6) of paragraph
B of this Section 6.4 or, directly or indirectly, would for any reason cause the
Trust to fail to qualify as a REIT, then the number of Equity Shares (rounded up
to the next whole number of shares) being Transferred or Acquired or which are
otherwise affected by the change in capital structure or other purported change
in Beneficial or Constructive Ownership or other event or transaction and which
would result in a violation of any of the restrictions described in
subparagraphs (2), (3), (4), (5) and (6) of paragraph B of this Section 6.4 or,
directly or indirectly, would for any reason cause the Trust to fail to qualify
as a REIT, automatically shall be exchanged for an equal number of Excess Shares
having terms, rights, restrictions and qualifications identical thereto, except
to the extent that this Article VI requires different terms. Such exchange
shall be effective as of the close of business on the business day prior to the
date of the purported Transfer, Acquisition, change in capital structure, or
other purported change in Beneficial or Constructive Ownership or other event or
transaction.
(3) The Board of Trust Managers recognizes that Section 6.4(C)(1) or
Section 6.4(C)(2) may become operative because of the purported ownership of
Equity Shares by two or more (i) partners of a partnership, (ii) shareholders of
a corporation or (iii) members of any other Person. In such event, the Board of
Trust Managers shall have the authority in its sole, complete and absolute
discretion to determine the number of Equity Shares and the identity of the
Equity Shares of each partner, shareholder or member that automatically shall be
exchanged for an equal number of Excess Shares.
(D) Remedies For Breach. If the Board of Trust Managers or its designee
shall at any time determine in good faith that a Transfer, Acquisition, or
change in the capital structure of the Trust or other purported change in
Beneficial or Constructive Ownership or other event or transaction has taken
place in violation of paragraph B of this Section 6.4 or that a Person intends
to Acquire or has attempted to Acquire Beneficial or Constructive Ownership of
any Equity Shares in violation of paragraph B of this Section 6.4, the Board of
Trust Managers or its designee shall take such action as it deems advisable to
refuse to give effect to or to prevent such Transfer, Acquisition, or change
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in the capital structure of the Trust, or other attempt to Acquire Beneficial or
Constructive Ownership of any Equity Shares or other event or transaction,
including, but not limited to, refusing to give effect thereto on the books of
the Trust or instituting injunctive proceedings with respect thereto; provided,
however, that any Transfer, Acquisition, change in the capital structure of the
Trust, attempted Transfer, or other attempt to Acquire Beneficial or
Constructive Ownership of any Equity Shares or event or transaction in violation
of subparagraphs (2), (3), (4), (5) or (6) of paragraph B of this Section 6.4
(as applicable) shall be void ab initio and, where applicable, automatically
shall result in the exchange described in paragraph C of this Section 6.4,
irrespective of any action (or inaction) by the Board of Trust Managers or its
designee.
(E) Notice of Restricted Transfer. Any Person who Acquires or attempts to
Acquire Beneficial or Constructive Ownership of Equity Shares in violation of
paragraph B of this Section 6.4 and any Person who Beneficially or
Constructively Owns Excess Shares as a transferee of Equity Shares resulting in
an exchange for Excess Shares, pursuant to paragraph C of this Section 6.4, or
otherwise, immediately shall give written notice to the Trust, or, in the event
of a proposed or attempted Transfer or Acquisition or purported change in
Beneficial or Constructive Ownership, shall give at least fifteen (15) days
prior written notice to the Trust, of such event and shall promptly provide to
the Trust such other information as the Trust, in its sole discretion, may
request in order to determine the effect, if any, of such Transfer, attempted
Transfer, Acquisition, attempted Acquisition or other purported change in
Beneficial or Constructive Ownership on the Trust's status as a REIT.
(F) Owners Required To Provide Information. From and after the date hereof
and prior to the Restriction Termination Date:
(1) Every Beneficial or Constructive Owner of more than 5 percent, or
such lower percentage or percentages as determined pursuant to regulations under
the Code or as may be requested by the Board of Trust Managers in its sole
discretion, of the outstanding shares of any class or series of Equity Shares of
the Trust annually shall, no later than January 31 of each calendar year, give
written notice to the Trust stating (i) the name and address of such Beneficial
or Constructive Owner; (ii) the number of shares of each class or series of
Equity Shares Beneficially or Constructively Owned; and (iii) a description of
how such shares are held. Each such Beneficial or Constructive Owner promptly
shall provide to the Trust such additional information as the Trust, in its sole
discretion, may request in order to determine the effect, if any, of such
Beneficial or Constructive Ownership on the Trust's status as a REIT and to
ensure compliance with the applicable Ownership Limit or the Existing Holder
Limit and other restrictions set forth herein.
(2) Each Person who is a Beneficial or Constructive Owner of Equity
Shares and each Person (including the shareholder of record) who is holding
Equity Shares for a Beneficial or Constructive Owner promptly shall provide to
the Trust such information as the Trust, in its sole discretion, may request in
order to determine the Trust's status as a REIT, to comply with the requirements
of any taxing authority or other governmental agency, to determine any such
compliance
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or to ensure compliance with the applicable Ownership Limit or the Existing
Holder Limit and other restrictions set forth herein.
(G) Remedies Not Limited. Nothing contained in this Article VI except
Section 6.6 hereof shall limit the scope or application of the provisions of
this Section 6.4, the ability of the Trust to implement or enforce compliance
with the terms thereof or the authority of the Board of Trust Managers to take
any such other action or actions as it may deem necessary or advisable to
protect the Trust and the interests of its shareholders by preservation of the
Trust's status as a REIT and to ensure compliance with the applicable Ownership
Limit or the Existing Holder Limit and other restrictions set forth herein,
including, without limitation, refusal to give effect to a transaction on the
books of the Trust.
(H) Ambiguity. In the case of ambiguity in the application of any of the
provisions of this Section 6.4, including any definition contained in paragraph
A hereof, the Board of Trust Managers shall have the power and authority, in its
sole discretion, to determine the application of the provisions of this Section
6.4 with respect to any situation, based on the facts known to it.
(I) Exceptions. The Board of Trust Managers, upon receipt of a ruling from
the Internal Revenue Service, an opinion of counsel, or other evidence
satisfactory to the Board of Trust Managers, in its sole discretion, in each
case to the effect that the restrictions contained in subparagraphs (4), (5) and
(6) of paragraph B of this Section 6.4 will not be violated, may waive or
change, in whole or in part, the application of the applicable Ownership Limit
with respect to any Person that is not an individual, as such term is defined in
Section 542(a)(2) of the Code. In connection with any such waiver or change, the
Board of Trust Managers may require such representations and undertakings from
such Person or affiliates and may impose such other conditions, as the Board
deems necessary, advisable or prudent, in its sole discretion, to determine the
effect, if any, of the proposed transaction or ownership of Equity Shares on the
Trust's status as a REIT.
(J) Reduction of Existing Holder Limit. The Board of Trust Managers is
hereby expressly vested with the full power and authority to reduce the Existing
Holder Limit as in effect from time to time on and after the date hereof, with
the written consent of John H. Harvison or his successor-in-interest or
designee. No such reduction shall constitute or be deemed to constitute an
amendment of this Declaration of Trust, and shall take effect automatically
without any action on the part of any shareholder as of the date specified by
the Board of Trust Managers that is subsequent to the Board resolution approving
and effecting such reduction.
(K) Increase in Common Shares Ownership Limit. Subject to the limitations
contained in paragraph L of this Section 6.4, the Board of Trust Managers is
hereby expressly vested with the full power and authority from time to time to
increase the Common Shares Ownership Limit. No such increase shall constitute
or be deemed to constitute an amendment of this Declaration of Trust, and shall
take effect automatically without any action on the part of any shareholder as
of the date
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specified by the Board of Trust Managers that is subsequent to the Board
resolution approving and effecting such reduction.
(L) Limitations on Modifications.
(1) The Ownership Limit for a class or series of Equity Shares may not
be increased and no additional ownership limitations may be created if, after
giving effect to such increase or creation the Trust would be "closely held"
within the meaning of Section 856(h) of the Code (assuming ownership of Equity
Shares by all Persons (other than the Existing Holder) equal to the greatest of
(i) the actual ownership, (ii) the Beneficial Ownership of Equity Shares by each
Person, or (iii) the applicable Ownership Limit with respect to such Person, and
assuming the ownership by the Existing Holder of Common Shares equal to the
Existing Holder Limit and shares of any series of Preferred Shares equal to the
Preferred Shares Ownership Limit).
(2) Prior to any modification of the Ownership Limit or the Existing
Holder Limit with respect to any Person, the Board of Trust Managers may require
such opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary, advisable or prudent, in its sole discretion, in order to determine
or ensure the Trust's status as a REIT.
(3) Neither the Common Shares Ownership Limit nor the Preferred Shares
Ownership Limit may be increased to a percentage that is greater than 9.9
percent.
(4) The Existing Holder Limit may not be increased.
(M) Legend. From and after the Conversion Date, each certificate for
Equity Shares shall bear substantially the following legend:
"The securities represented by this certificate are subject to
the restrictions on transfer and ownership for the purpose of
maintenance of the Trust's status as a real estate investment trust (a
"REIT") under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code"). Except as otherwise provided pursuant
to the Declaration of Trust of the Trust, no Person may (i)
Beneficially or Constructively Own Common Shares of the Trust in
excess of 5.0 percent (or such greater percent as may be determined by
the Board of Trust Managers of the Trust) of the outstanding Common
Shares (except in such circumstances as the Existing Holder Limit
shall apply); (ii) Beneficially or Constructively Own shares of any
series of Preferred Shares of the Trust in excess of 9.0 percent of
the outstanding shares of such series of Preferred Shares; or (iii)
Beneficially or Constructively Own Common Shares or Preferred Shares
(of any class or series) which would result in the Trust being
"closely held" under Section 856(h) of the Code or which otherwise
would cause the Trust to fail to qualify as a REIT. Any Person who has
Beneficial or Constructive Ownership, or who Acquires or attempts to
Acquire Beneficial or Constructive Ownership of Common Shares and/or
Preferred Shares in excess of the
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above limitations and any Person who Beneficially or Constructively
Owns Excess Shares as a transferee of Common Shares or Preferred
Shares resulting in an exchange for Excess Shares (as described below)
immediately must notify the Trust in writing or, in the event of a
proposed or attempted Transfer or Acquisition or purported change in
the Beneficial or Constructive Ownership, must give written notice to
the Trust at least fifteen (15) days prior to the proposed or
attempted transfer, transaction or other event. Any Transfer or
Acquisition of Common Shares and/or Preferred Shares or other event
which results in violation of the ownership or transfer limitations
set forth in the Declaration of Trust of the Trust shall be void ab
initio and the Purported Beneficial and Record Transferee shall not
have or acquire any rights in such Common Shares and/or Preferred
Shares. If the transfer and ownership limitations referred to herein
are violated, the Common Shares or Preferred Shares represented hereby
automatically will be exchanged for Excess Shares to the extent of
violation of such limitations, and such Excess Shares will be held in
trust by the Trust, all as provided by the Declaration of Trust of the
Trust. All defined terms used in this legend have the meanings
identified in the Declaration of Trust of the Trust, as the same may
be amended from time to time, a copy of which, including the
restrictions on transfer, will be sent without charge to each
shareholder who so requests."
SECTION 6.5 Excess Shares.
(A) Ownership In Trust. Upon any purported Transfer, Acquisition, change
in the capital structure of the Trust, or other purported change in the
Beneficial or Constructive Ownership or event or transaction that results in
Excess Shares pursuant to paragraph C of Section 6.4, such Excess Shares shall
be deemed to have been transferred to the Trust, as Excess Shares Trustee of an
Excess Shares Trust for the benefit of such Beneficiary or Beneficiaries to whom
an interest in such Excess Shares may later be transferred pursuant to paragraph
E of this Section 6.5. Excess Shares so held in trust shall be issued and
outstanding shares of the Trust. The Purported Record Transferee (or Purported
Record Holder) shall have no rights in such Excess Shares except the right to
designate a transferee of such Excess Shares upon the terms specified in
paragraph E of this Section 6.5. The Purported Beneficial Transferee (or
Purported Beneficial Holder) shall have no rights in such Excess Shares except
as provided in paragraphs C and E of this Section 6.5.
(B) Dividend Rights. Excess Shares shall not be entitled to any dividends
or distributions (except as provided in Paragraph C of this Section 6.5). Any
dividend or distribution paid prior to the discovery by the Trust that the
Equity Shares have been exchanged for Excess Shares shall be repaid to the Trust
upon demand, and any dividend or distribution declared but unpaid at the time of
such discovery shall be void ab initio with respect to such Excess Shares.
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(C) Rights Upon Liquidation.
(1) Except as provided below, in the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any other distribution of
the assets, of the Trust, each holder of Excess Shares resulting from the
exchange of Preferred Shares of any specified series shall be entitled to
receive, ratably with each other holder of Excess Shares resulting from the
exchange of Preferred Shares of such series and each holder of Preferred Shares
of such series, such accrued and unpaid dividends, liquidation preferences and
other preferential payments, if any, as are due to holders of Preferred Shares
of such series. In the event that holders of shares of any series of Preferred
Shares are entitled to participate in the Trust's distribution of its residual
assets, each holder of Excess Shares resulting from the exchange of Preferred
Shares of any such series shall be entitled to participate, ratably with (i)
each other holder of Excess Shares resulting from the exchange of Preferred
Shares of all series entitled to so participate; (ii) each holder of Preferred
Shares of all series entitled to so participate; and (iii) each holder of Common
Shares and Excess Shares resulting from the exchange of Common Shares (to the
extent permitted by paragraph C of Section 6.4 hereof), that portion of the
aggregate assets available for distribution (determined in accordance with
applicable law) as the number of such Excess Shares held by such holder bears to
the total number of (i) outstanding Excess Shares resulting from the exchange of
Preferred Shares of all series entitled to so participate; (ii) outstanding
Preferred Shares of all series entitled to so participate; and (iii) outstanding
Common Shares and Excess Shares resulting from the exchange of Common Shares.
The Trust, as holder of Excess Shares in trust, or, if the Trust shall have been
dissolved, any trustee appointed by the Trust prior to its dissolution, shall
distribute ratably to the Beneficiaries of the Excess Shares Trust, when
determined, any such assets received in respect of the Excess Shares in any
liquidation, dissolution or winding up, or any distribution of the assets, of
the Trust. Anything to the contrary herein notwithstanding, in no event shall
the amount payable to a holder with respect to Excess Shares resulting from the
exchange of Preferred Shares exceed (i) the price per share such holder paid for
the Preferred Shares in the purported Transfer, Acquisition, change in capital
structure, or other transaction or event that resulted in the Excess Shares or
the price per share such holder paid for the Preferred Shares that were
exchanged for the Excess Shares or (ii) if the holder did not give full value
for such Excess Shares (as through a gift, devise or other event or
transaction), a price per share equal to the Market Price for the Preferred
Shares on the date of the purported Transfer, Acquisition, change in capital
structure or other transaction or event that resulted in such Excess Shares or
the Market Price for the Preferred Shares on the date they were exchanged for
the Excess Shares. Any amount available for distribution in excess of the
foregoing limitations shall be paid ratably to the holders of Preferred Shares
and Excess Shares resulting from the exchange of Preferred Shares to the extent
permitted by the foregoing limitations.
(2) Except as provided below, in the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any other distribution of
the assets, of the Trust, each holder of Excess Shares resulting from the
exchange of Common Shares shall be entitled to receive, ratably with (i) each
other holder of such Excess Shares and (ii) each holder of Common Shares, that
portion of the aggregate assets available for distribution to holders of Common
Shares (including holders of Excess Shares resulting from the exchange of Common
Shares pursuant to paragraph C of Section
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6.4 hereof), determined in accordance with applicable law, as the number of such
Excess Shares held by such holder bears to the total number of outstanding
Common Shares and outstanding Excess Shares resulting from the exchange of
Common Shares then outstanding. The Trust, as holder of the Excess Shares in
trust, or, if the Trust shall have been dissolved, any trustee appointed by the
Trust prior to its dissolution, shall distribute ratably to the Beneficiaries of
the Excess Shares Trust, when determined, any such assets received in respect of
the Excess Shares in any liquidation, dissolution or winding up, or any
distribution of the assets, of the Trust. Anything herein to the contrary
notwithstanding, in no event shall the amount payable to a holder with respect
to Excess Shares exceed (i) the price per share such holder paid for the Equity
Shares in the purported Transfer, Acquisition, change in capital structure, or
other transaction or event that resulted in the Excess Shares or the price per
share such holder paid for the Equity Shares that were exchanged for the Excess
Shares or (ii) if the holder did not give full value for such Excess Shares (as
through a gift, devise or other event or transaction), a price per share equal
to the Market Price for the Equity Shares on the date of the purported Transfer,
Acquisition, change in capital structure or other transaction or event that
resulted in such Excess Shares or the Market Price for the Equity Shares on the
date they were exchanged for the Excess Shares. Any amount available for
distribution in excess of the foregoing limitations shall be paid ratably to the
holders of Common Shares and Excess Shares resulting from the exchange of Common
Shares to the extent permitted by the foregoing limitations.
(D) Voting Rights. The holders of Excess Shares shall not be entitled to
vote on any matters (except as required by the Texas REIT Act).
(E) Restrictions on Transfer; Designation of Beneficiary.
(1) Excess Shares shall not be Transferable. The Purported Record
Transferee (or Purported Record Holder) may freely designate a Beneficiary of
its interest in the Excess Shares Trust (representing the number of Excess
Shares held by the Excess Shares Trust attributable to the purported Transfer
that resulted in the Excess Shares), if (i) the Excess Shares held in the Excess
Shares Trust would not be Excess Shares in the hands of such Beneficiary and
(ii) the Purported Beneficial Transferee (or Purported Beneficial Holder) does
not receive a price for designating such Beneficiary that reflects a price per
share for such Excess Shares that exceeds (x) the price per share such Purported
Beneficial Transferee (or Purported Beneficial Holder) paid for the Equity
Shares in the purported Transfer, Acquisition, change in capital structure, or
other transaction or event that resulted in the Excess Shares or the price per
share paid for the Equity Shares that were exchanged for the Excess Shares or
(y) if the Purported Beneficial Transferee (or Purported Beneficial Holder) did
not give value for such Excess Shares (as through a gift, devise or other event
or transaction), a price per share equal to the Market Price for the Equity
Shares on the date of the purported Transfer, Acquisition, change in capital
structure, or other transaction or event that resulted in the Excess Shares or
the Market Price for the Equity Shares on the date they were exchanged for the
Excess Shares. Upon such Transfer of an interest in the Excess Shares Trust,
the corresponding Excess Shares in the Excess Shares Trust automatically shall
be exchanged for an equal number of Equity Shares (depending on the type and
class of shares that originally were exchanged for such Excess Shares) and such
Equity Shares shall be transferred of record to the Beneficiary of the interest
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in the Excess Shares Trust designated by the Purported Record Transferee (or
Purported Record Holder), as described above, if such Equity Shares would not be
Excess Shares in the hands of such Beneficiary. Prior to any Transfer of any
interest in the Excess Shares Trust, the Purported Record Transferee (or
Purported Record Holder) must give written notice to the Trust of the intended
Transfer and the Trust must have waived in writing its purchase rights under
paragraph F of this Section 6.5.
(2) Notwithstanding the foregoing, if a Purported Beneficial
Transferee (or Purported Beneficial Holder) receives a price for designating a
Beneficiary of an interest in the Excess Shares Trust that exceeds the amounts
allowable under subparagraph (1) of this paragraph E, such Purported Beneficial
Transferee (or Purported Beneficial Holder) shall pay, or cause the Beneficiary
of the interest in the Excess Shares Trust to pay, such excess in full to the
Trust.
(3) If any of the Transfer restrictions set forth in this paragraph E
or any application thereof is determined to be void, invalid or unenforceable by
any court having jurisdiction over the issue, the Purported Record Transferee
(or Purported Record Holder) may be deemed, at the option of the Trust, to have
acted as the agent of the Trust in acquiring the Excess Shares as to which such
restrictions would otherwise, by their terms, apply, and to hold such Excess
Shares on behalf of the Trust.
(F) Purchase Right in Excess Shares. Excess Shares shall be deemed to have
been offered for sale to the Trust or its designee at a price per share equal to
the lesser of (i) the price per share in the transaction that created such
Excess Shares (or, in the case of a devise or gift or event other than a
Transfer or Acquisition which results in the issuance of Excess Shares, the
Market Price at the time of such devise or gift or event other than a Transfer
or Acquisition which results in the issuance of Excess Shares) or (ii) the
Market Price of the Equity Shares exchanged for such Excess Shares on the date
the Trust or its designee accepts such offer. The Trust and its assignees shall
have the right to accept such offer for a period of ninety (90) days after the
later of (i) the date of the purported Transfer, Acquisition, change in capital
structure of the Trust, or purported change in Beneficial or Constructive
Ownership or other event or transaction which resulted in such Excess Shares and
(ii) the date on which the Board of Trust Managers determines in good faith that
a Transfer, Acquisition, change in capital structure of the Trust, or purported
change in Beneficial or Constructive Ownership or other event or transaction
resulting in Excess Shares has occurred, if the Trust does not receive a notice
pursuant to paragraph E of Section 6.4, but in no event later than a permitted
Transfer pursuant to, and in compliance with, the terms of paragraph E of this
Section 6.5.
(G) Remedies Not Limited. Nothing contained in this Article VI except
Section 6.6 hereof shall limit the scope or application of the provisions of
this Section 6.5, the ability of the Trust to implement or enforce compliance
with the terms hereof or the authority of the Board of Trust Managers to take
any such other action or actions as it may deem necessary or advisable to
protect the Trust and the interests of its shareholders by preservation of the
Trust's status as a REIT and to ensure compliance with the applicable Ownership
Limits and the other restrictions set forth herein, including, without
limitation, refusal to give effect to a transaction on the books of the Trust.
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(H) Authorization. At such time as the Board of Trust Managers authorizes
a series of Preferred Shares pursuant to Section 6.2 of this Article VI, without
any further or separate action of the Board of Trust Managers, there shall be
deemed to be authorized a series of Excess Shares consisting of the number of
shares included in the series of Preferred Shares so authorized and having
terms, rights, restrictions and qualifications identical thereto, except to the
extent that this Article VI requires different terms.
SECTION 6.6 Settlements.
Nothing in Sections 6.4 and 6.5 shall preclude the settlement of any
transaction with respect to the Common Shares entered into through the
facilities of the New York Stock Exchange or the American Stock Exchange.
SECTION 6.7 Issuance of Rights to Purchase Securities and Other Property.
Subject to the rights of the holders of any series of Preferred Shares, the
Board of Trust Managers is hereby authorized to create and to authorize and
direct the issuance (on either a pro rata or non-pro rata basis) by the Trust of
rights, options or warrants for the purchase of Equity Shares of the Trust as
that term is defined in paragraph A of Section 6.4, other securities of the
Trust, or shares or other securities of any successor in interest of the Trust
(a "Successor"), at such times, in such amounts, to such persons, for such
consideration (if any), with such form and content (including without limitation
the consideration for which any Equity Shares of the Trust, other securities of
the Trust, or shares or other securities of any Successor are to be issued) and
upon such terms and conditions as it may, from time to time, determine, subject
only to the restrictions, limitations, conditions and requirements imposed by
the Texas REIT Act, other applicable laws and this Declaration of Trust.
Without limiting the generality of the foregoing, the authority granted hereby
includes the authority to adopt a "rights plan" or similar plan that treats
shareholders in a discriminatory or non pro rata manner, based upon the number
of shares owned thereby or otherwise.
SECTION 6.8 Severability.
If any provision of this Article VI or any application of any such
provision is determined to be void, invalid or unenforceable by any court having
jurisdiction over the issue, the validity and enforceability of the remainder of
this Article VI shall not be affected and other applications of such provision
shall be affected only to the extent necessary to comply with the determination
of such court.
SECTION 6.9 Waiver.
The Trust shall have authority at any time to waive the requirements that
Excess Shares be issued or be deemed outstanding in accordance with the
provisions of this Article VI if the Trust determines, based on an opinion of
tax counsel, that the issuance of such Excess Shares or the fact
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that such Excess Shares are deemed to be outstanding, would jeopardize the
status of the Trust as a REIT (as that term is defined in paragraph A of Section
6.4).
SECTION 6.10 Management of Money and Property Received for Shares.
The Trust Managers shall manage all money and property received for the
issuance of shares for the benefit of the shareholders of the Trust.
SECTION 6.11 Commencement of Business.
The Trust will not commence business until it has received for the issuance
of shares of beneficial interest consideration of at least $1,000 value,
consisting of any tangible or intangible benefit to the Trust, including cash,
promissory notes, services performed, contracts for services to be performed, or
other securities of the Trust.
ARTICLE VII
MATTERS RELATING TO THE POWERS OF THE
TRUST AND ITS TRUST MANAGERS AND SHAREHOLDERS
The following provisions are hereby adopted for the purpose of defining,
limiting and regulating the powers of the Trust and of the Trust Managers and
shareholders thereof:
SECTION 7.1 Matters Relating to the Board of Trust Managers.
(A) Authority as to Bylaws. Except as provided in Section 7.2(G) hereof,
the Trust Managers of the Trust shall have exclusive authority to amend or
repeal the Bylaws of the Trust, or to adopt new Bylaws.
(B) Authority as to Share Issuances. The Board of Trust Managers of the
Trust may authorize the issuance, from time to time, of its shares of beneficial
interest of any class or series, whether now or hereafter authorized, or
securities convertible into shares now or hereafter authorized, for such
consideration as the Board of Trust Managers may deem advisable, subject to such
restrictions or limitations, if any, as may be set forth in this Declaration of
Trust or the Bylaws of the Trust or in the laws of the State of Texas. The
Board of Trust Managers may classify or reclassify any unissued shares from time
to time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications, or
terms or conditions of redemption of the shares.
(C) Manner of Election. Unless and except to the extent that the Bylaws of
the Trust shall so require, the election of Trust Managers of the Trust need not
be by written ballot.
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(D) Removal of Trust Managers. Subject to the rights of the holders of any
series of Preferred Shares to elect additional Trust Managers (or remove such
additional Trust Managers, once elected) under specified circumstances, any
Trust Manager may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of 80 percent of the then-
outstanding Equity Shares entitled to vote generally in the election of Trust
Managers (the "Voting Shares"), voting together as a single class.
(E) Permissible Criteria for Consideration of Best Interests. In
determining what is in the best interest of the Trust in connection with any
proposed transaction, a Trust Manager of the Trust shall consider all of the
relevant factors, which may include (i) the immediate and long-term effects of
the transaction on the Trust's shareholders, including shareholders, if any, who
do not participate in the transaction; (ii) the social and economic effects of
the transaction on the Trust's employees, suppliers, creditors and customers and
others dealing with the Trust and on the communities in which the Trust operates
and is located; (iii) whether the transaction is acceptable, based on the
historical and current operating results and financial condition of the Trust;
(iv) whether a more favorable price could be obtained for the Trust's shares or
other securities in the future; (v) the reputation and business practices of the
other party or parties to the proposed transaction, including its or their
management and affiliates, as they would affect employees of the Corporation;
(vi) the future value of the Trust's securities; (vii) any legal or regulatory
issues raised by the transaction; and (viii) the business and financial
condition and earnings prospects of the other party or parties to the proposed
transaction including, without limitation, debt service and other existing
financial obligations, financial obligations to be incurred in connection with
the transaction, and other foreseeable financial objections of such other party
or parties.
(F) Determinations by Board. The determination as to any of the following
matters, made in good faith by or pursuant to the direction of the Board of
Trust Managers consistent with the Declaration of Trust of the Trust and in the
absence of actual receipt of an improper benefit in money, property or services
or active and deliberate dishonesty established by a court, shall be final and
conclusive and shall be binding upon the Trust and every holder of its shares:
(i) the amount of the net income of the Trust for any period and the amount of
assets at any time legally available for the payment of dividends, redemption of
its shares or the payment of other distributions on its shares; (ii) the amount
of paid-in surplus, net assets, other surplus, annual or other net profit, net
assets in excess of capital, undivided profits or excess of profits over losses
on sales of assets; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves shall have
been created shall have been paid or discharged); (iii) the fair value, or any
sale, bid or asked price to be applied in determining the fair value, of any
asset owned or held by the Trust; and (iv) any matters relating to the
acquisition, holding and disposition of any assets by the Trust.
(G) Reserved Powers of Board. The enumeration and definition of particular
powers of the Board of Trust Managers included in this Article VII shall in no
way be limited or restricted by reference to or inference from the terms of any
other clause of this or any other provision of the Declaration of Trust of the
Trust, or construed or deemed by inference or otherwise in any manner
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to exclude or limit the powers conferred upon the Board of Trust Managers under
the laws of the State of Texas as now or hereafter in force.
(H) Alteration of Authority Granted to the Board of Trust Managers. The
affirmative vote of that proportion of the then-outstanding Voting Shares
necessary to approve an amendment to this Declaration of Trust pursuant to the
Texas REIT Act, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with Section 7.1 of this Article VII.
(I) REIT Qualification. From and after the Conversion Date, the Board of
Trust Managers shall use its best efforts to cause the Trust and its
shareholders to qualify for U.S. federal income tax treatment in accordance with
the provisions of the Code applicable to REITs (as those terms are defined in
paragraph A of Section 6.4 hereof).In furtherance of the foregoing, from and
after the Conversion Date, the Board of Trust Managers shall use its best
efforts to take such actions as are necessary, and may take such actions as it
deems desirable (in its sole discretion) to preserve the status of the Trust as
a REIT; provided, however, that in the event that the Board of Trust Managers
determines, in its sole discretion, that it no longer is in the best interests
of the Trust to qualify as a REIT, the Board of Trust Managers shall take such
actions as are required by the Code, the Texas REIT Act and other applicable
law, to cause the matter of termination of qualification as a REIT (as that term
is defined in paragraph A of Section 6.4) to be submitted to a vote of the
shareholders of the Trust pursuant to paragraph A of Section 7.2.
SECTION 7.2 Matters Relating to the Shareholders.
(A) Liability of Shareholders. A holder of Equity Shares, or an owner of
any beneficial interest in Equity Shares, of the Trust is not under an, and
shall not have any, obligation or liability of any nature whatsoever to the
Trust or to its obligees with respect to: (i) the Equity Shares other than the
obligation to pay to the Trust the full amount of the consideration, fixed in
compliance with the Texas REIT Act, for which the Equity Shares were issued;
(ii) any contractual obligation of the Trust on the basis that the holder or
owner is or was the alter ego of the Trust, or on the basis of actual fraud or
constructive fraud, a sham to perpetrate a fraud, or other similar theory; or
(iii) any obligation of the Trust on the basis of the failure of the Trust to
observe any formality, including the failure to (1) comply with any requirement
of the Texas REIT Act or of this Declaration of Trust or of the Bylaws of the
Trust; or (2) observe any requirement prescribed by the Texas REIT Act or by
this Declaration of Trust or the Bylaws of the Trust for acts taken by the
Trust, its Trust Managers, or its shareholders.
(B) Termination of REIT Status. Anything contained in this Declaration of
Trust to the contrary notwithstanding, the affirmative vote of the holders of a
majority of the then-outstanding Voting Shares, voting as a single class, and
the approval of the Board of Trust Managers, shall be required to terminate
voluntarily the Trust's status as a REIT (as that term is defined in paragraph A
of Section 6.4).
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(C) No Cumulative Rights. Except as may be expressly provided with respect
to any class or series of Preferred Shares, shareholders of the Trust shall not
have cumulative voting rights in the election of trust managers.
(D) No Preemptive Rights. Except as may be expressly provided with respect
to any class or series of Preferred Shares, no holders of shares of the Trust,
of whatever class or series, shall have any preferential right of subscription
for the purchase of any shares of any class or series or for the purchase of any
securities convertible into shares of any class or series of the Trust other
than such rights, if any, as the Board of Trust Managers, in its sole
discretion, may determine, and for such consideration as the Board of Trust
Managers, in its sole discretion, may fix; and except as may be expressly
provided with respect to any class or series of Preferred Shares, any shares of
any class or series of convertible securities which the Board of Trust Managers
may determine to offer for subscription to the holders of shares may, as the
Board of Trust Managers shall determine in its sole discretion, be offered to
holders of any then-existing class, classes or series of shares or other
securities to the exclusion of holders of any or all other then-existing classes
or series of securities.
(E) Action by Shareholders Without a Meeting. Any action required to be
taken at any meeting of the shareholders, and/or any action that may be taken at
any meeting of the shareholders, must be taken at an actual meeting, with
notice, unless notice is so waived. Action may not be taken by consent of the
shareholders as provided under Texas law.
(F) Special Meetings of the Shareholders. Subject to the rights of the
holders of any class or series of Preferred Shares of the Company to elect
additional Trust Managers under specified circumstances, special meetings of the
shareholders may be called only by the Chairman of the Board, the Vice Chairman
of the Board, the Chief Executive Officer, the President, the Board of Trust
Managers pursuant to a resolution adopted by a majority of the total number of
Trust Managers constituting the whole Board of Trust Managers, or by written
request to the Secretary by the holders of not less than 50 percent of all of
the shares then outstanding and entitled to vote at such meeting; provided that
(i) the Secretary shall inform the shareholders requesting such meeting of the
reasonably estimated cost of preparing and disseminating notice thereof and
shall not be required to give such notice until the Company has received payment
in such amount from such shareholders and (ii) unless requested by holders of a
majority of the Voting Shares, the Secretary shall not be required to call a
special meeting to consider any matter which is substantially the same as a
matter voted on at any special meeting of the shareholders held during the
twelve (12) months preceding the request to call such new special meeting.
(G) Authority as to Bylaws. The shareholders of the Trust shall have no
authority to amend or repeal the Bylaws of the Trust, or to adopt new Bylaws
unless (i) specifically authorized to do so by a resolution duly adopted by the
Board of Trust Managers, or (ii) any Bylaw duly adopted as herein provided
expressly vests authority in the shareholders of the Trust to amend or repeal
any such Bylaw, or provides that any such Bylaw may not be amended or appealed
without such approval of the shareholders of the Trust as may be therein
provided.
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(H) Voting. With respect to any matter, other than the election of Trust
Managers or a matter for which the affirmative vote of the holders of a
specified portion of the shares entitled to vote is required by the Texas REIT
Act or this Declaration of Trust, the affirmative vote of the holders of a
majority of the shares entitled to vote on that matter and represented in person
or by proxy at a meeting of shareholders at which a quorum is present shall be
the act of the shareholders. Unless otherwise provided in this Declaration of
Trust, Trust Managers shall be elected by a plurality of the votes cast by the
holders of shares entitled to vote in the election of Trust Managers at a
meeting of shareholders at which a quorum is present.
ARTICLE VIII
LIMITATION OF LIABILITY OF TRUST MANAGERS
No Trust Manager of the Trust shall be liable to the Trust for any act,
omission, loss, damage, or expense arising from the performance of his duty
under the Trust save only for his own willful misfeasance or willful malfeasance
or gross negligence.
In addition to, and in no respect whatsoever in limitation of, the
foregoing, the liability of each Trust Manager of the Trust for monetary damages
shall be eliminated to the fullest extent permitted under the laws of the State
of Texas, as the same exist or may be hereafter amended (but, in the case of any
such amendment, only to the extent that such amendment permits broader
elimination or limitation of liability of a Trust Manager than said law
permitted prior to such amendment), and no Trust Manager of the Trust shall be
liable to the Trust or its shareholders for monetary damages except to the
extent, and only to the extent, such elimination or limitation of liability is
expressly prohibited under the laws of the State of Texas, as the same exist or
may be hereafter amended (but, in the case of any such amendment, only to the
extent that such amendment permits broader elimination or limitation of
liability of a Trust Manager than said law permitted prior to such amendment).
If after the date hereof the laws of the State of Texas are amended to authorize
broader elimination or limitation of liability of a Trust Manager, upon the
effective date of such amendment the liability of a Trust Manager shall without
further act also be eliminated and limited to such broader extent to the fullest
extent not prohibited by the laws of the State of Texas as so amended. The
provisions of this Article VIII shall be deemed to be a contract with each Trust
Manager of the Trust who serves as such at any time while such provisions are in
effect, and each such Trust Manager shall be deemed to be serving as such in
reliance on the provisions of this Article VIII. No repeal or amendment of this
Declaration of Trust shall adversely affect any right or any elimination or
limitation of liability of a Trust Manager existing at the time of the repeal or
amendment.
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ARTICLE IX
INDEMNIFICATION
(A) Each person who was or is made a party or is threatened to be made a
party or is involved in any threatened, pending or completed action, suit or
proceeding, whether formal or informal, whether of a civil, criminal,
administrative or investigative nature (hereinafter a "proceeding"), by reason
of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a Trust Manager or officer of the Trust, whether the
basis of such proceeding is an alleged action or inaction in an official
capacity or in any other capacity while serving as a Trust Manager or officer,
shall be indemnified and held harmless by the Trust to the fullest extent
permissible under Texas law, as the same exists or may hereafter exist in the
future (but, in the case of any future change, only to the extent that such
change permits the Trust to provide broader indemnification rights than the law
permitted prior to such change), against all costs, charges, expenses,
liabilities and losses (including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes, or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue to a person who has ceased to
be a Trust Manager or officer and shall inure to the benefit of his or her
heirs, executors and administrators.
(B) The Trust shall pay expenses actually incurred in connection with any
proceeding in advance of its final disposition; provided, however, that if Texas
law then requires the payment of such expenses incurred in advance of the final
disposition of a proceeding shall be made only upon delivery to the Trust of an
undertaking, by or on behalf of such Trust Manager or officer, to repay all
amounts so advanced if it shall ultimately be determined that such Trust Manager
or officer is not entitled to be indemnified.
(C) If a claim under paragraph (B) of this Article IX is not paid in full
by the Trust within thirty days after a written claim has been received by the
Trust, the claimant may at any time thereafter bring suit against the Trust to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. Neither the failure of the Trust (including its Board, independent legal
counsel, or its shareholders) to have made a determination that indemnification
of the claimant is permissible in the circumstances because the claimant has met
the applicable standard of conduct, if any, nor an actual determination by the
Trust (including its Board, independent legal counsel, or its shareholders) that
the claimant has not met the standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the standard of
conduct.
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ARTICLE X
AMENDMENT
The Trust reserves the right at any time and from time to time to amend,
alter, change or repeal any provision contained in its Declaration of Trust and
any other provisions authorized by the laws of the State of Texas at the time in
force may be added or inserted in the manner now or hereafter prescribed herein
or by applicable law, and all rights, preferences and privileges of whatsoever
nature conferred upon shareholders, Trust Managers or any other persons
whomsoever by and pursuant to this Declaration of Trust in its present form or
as hereafter amended are granted subject to the rights reserved in this Article
X; provided, however, that any amendment or repeal of Articles VIII, IX or this
Article X of this Declaration of Trust shall not adversely affect any right or
protection existing hereunder immediately prior to such amendment or repeal.
Article XI or Article XII of this Declaration of Trust may be amended only upon
the affirmative vote of the holders of 80% of the shares entitled to vote on
such matters, voting together as a single class. Any other provisions of this
Declaration of Trust may be amended upon the affirmative vote of the holders of
a majority of the shares entitled to vote on such matters, voting together as a
single class.
ARTICLE XI
SPECIAL VOTING REQUIREMENTS
SECTION 11.1 DEFINITIONS.
(A) In General. In this Article XI, the following words have the meanings
indicated.
(B) Affiliates. "Affiliate," including the term "Affiliated Person," means
a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, a specified
person.
(C) Associate. "Associate," when used to indicate a relationship with any
person, means:
(1) Any Corporation or organization (other than the Corporation or a
subsidiary of the Corporation) of which such person is an officer, director, or
partner or is, directly or indirectly, the beneficial owner of 10 percent or
more of any class of equity securities;
(2) Any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
fiduciary capacity; and
(3) Any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director or officer of
the Corporation or any of its Affiliates.
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(D) Beneficial Owner. "Beneficial Owner," when used with respect to any
Voting Shares, means a person:
(1) That, individually or with any of its Affiliates or Associates,
beneficially owns Voting Shares, directly or indirectly; or
(2) That, individually or with any of its Affiliates or Associates,
has:
(i) The right to acquire Voting Shares (whether such right is
exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement, or
understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise; or
(ii) The right to vote Voting Shares pursuant to any agreement,
arrangement, or understanding; or
(3) That has any agreement, arrangement, or understanding for the
purpose of acquiring, holding, voting, or disposing of Voting Shares with any
other person that beneficially owns, or whose Affiliates or Associates
Beneficially Own, directly or indirectly, such Voting Shares.
(E) Business Combination. "Business Combination" means:
(1) Unless the merger, consolidation, or share exchange does not
alter the contract rights of the shares as expressly set forth in the
Declaration of Trust or change or convert in whole or in part the outstanding
shares of beneficial interest of the Trust, any merger, consolidation, or share
exchange of the Trust or any subsidiary with (i) any interested shareholder or
(ii) any other Corporation (whether or not itself an Interested Shareholder)
which is, or after the merger, consolidation, or share exchange would be, an
Affiliate of an Interested Shareholder that was an Interested Shareholder prior
to the transaction;
(2) Any sale, lease, transfer, or other disposition, other than in
the ordinary course of business or pursuant to a dividend or any other method
affording substantially proportionate treatment to the holders of Voting Shares,
in one transaction or a series of transactions in any 12-month period, to any
Interested Shareholder or any Affiliate of any Interested Shareholder (other
than the Trust or any of its subsidiaries) of any assets of the Trust or any
subsidiary having, measured at the time the transaction or transactions are
approved by the board of Trust Managers of the Trust, an aggregate book value as
of the end of the Trust's most recently ended fiscal quarter of 10 percent or
more of the total market value of the outstanding shares of the Trust or of its
net worth as of the end of its most recently ended fiscal quarter;
(3) The issuance or transfer by the Trust, or any subsidiary, in one
transaction or a series of transactions, of any equity securities of the Trust
or any subsidiary which have an
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aggregate market value of 5 percent or more of the total Market Value of the
outstanding shares of the Trust to any Interested Shareholder or any Affiliate
of any Interested Shareholder (other than the Trust or any subsidiary) except
pursuant to the exercise of warrants or rights to purchase securities offered
pro rata to all holders of the Trust's Voting Shares or any other method
affording substantially proportionate treatment to the holders of Voting Shares;
(4) The adoption of any plan or proposal for the liquidation or
dissolution of the Trust in which anything other than cash will be received by
an Interested Shareholder or any Affiliate of any Interested Shareholder;
(5) Any reclassification of securities (including any reverse share
split), or recapitalization of the Trust, or any merger, consolidation, or share
exchange of the Trust with any subsidiary which has the effect, directly or
indirectly, in one or a series of transactions, of increasing by 5 percent or
more of the total number of outstanding shares, the proportionate amount of the
outstanding shares of any class of equity securities of the Trust or any
subsidiary which is directly or indirectly owned by any Interested Shareholder
or any Affiliate of any Interested Shareholder; or
(6) The receipt by any Interested Shareholder or any Affiliate of any
Interested Shareholder (other than the Trust or any subsidiary) of the benefit,
directly or indirectly (except proportionately as a shareholder), of any loan,
advance, guarantee, pledge, or other financial assistance or any tax credit or
other tax advantage provided by the Trust or any of its subsidiaries.
(F) Common Shares. "Common Shares" means any shares other than preferred
or preference shares.
(G) Control. "Control", including the terms "controlling", "controlled by"
and "under common control with", means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, by contract, or
otherwise, and the beneficial ownership of 10 percent or more of the votes
entitled to be cast by the Trust's Voting Shares creates a presumption of
control.
(H) Corporation. "Corporation" includes a real estate investment trust.
(I) Equity Security. "Equity Security" means:
(1) Any stock or similar security, share of beneficial interest,
certificate of interest, or participation in any profit sharing agreement,
voting trust certificate, or certificate of deposit for an equity security;
(2) Any security convertible, with or without consideration, into an
equity security, or any warrant or other security carrying any right to
subscribe to or purchase any equity security; or
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(3) Any put, call, straddle, or other option or privilege of buying
an equity security from or selling an equity security to another without being
bound to do so.
(J) Interested Shareholder. "Interested Shareholder" means any person
(other than the Trust or any subsidiary or the Existing Holder as defined in
paragraph A of Section 6.4) that:
(1)(i) Is the beneficial owner, directly or indirectly, of 10
percent or more of the voting power of the outstanding
Voting Shares of the Trust; or
(ii) Is an Affiliate or Associate of the Trust and at any
time within the 2 year period immediately prior to the
date in question was the Beneficial Owner, directly or
indirectly, or 10 percent or more of the voting power of
the then outstanding Voting Shares of the Trust.
(2) For the purpose of determining whether a person is an Interested
Shareholder, the number of Voting Shares deemed to be outstanding shall include
shares deemed owned by the person through application of subsection (D) of this
section but may not include any other Voting Shares which may be issuable
pursuant to any agreement, arrangement, or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(K) Market Value. "Market Value" means:
(1) In the case of shares, the highest closing sale price, regular
way, during the 30 day period immediately preceding the date in question of such
a share on the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the American Stock Exchange, or,
if such shares are not reported on a consolidated transaction reporting system,
on the American Stock Exchange, or, if such shares are not listed or admitted to
trading on the American Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such shares are listed or admitted to trading, or,
if such shares are not so listed or admitted to trading, the highest closing bid
quotation with respect to such a share during the 30 day period preceding the
date in question on The Nasdaq Stock Market, or any other nationally recognized
automated quotation system then in use, or, if no such quotations are available,
the fair market value on the date in question of such a share as determined by
the Board of Trust Managers of the Trust in good faith; and
(2) In the case of property other than cash or shares, the fair
market value of such property on the date in question as determined by the Board
of Trust Managers of the Trust in good faith.
(L) Subsidiary. "Subsidiary" means, unless the context indicates
otherwise, any Corporation of which voting stock having a majority of the votes
entitled to be cast is owned, directly or indirectly, by the Trust.
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(M) Voting Shares. "Voting Shares" means shares of beneficial interest of
the Trust entitled to vote generally in the election of Trust Managers.
SECTION 11.2 VOTING REQUIREMENTS.
(A) Unless an exemption under Section 11.3(C) or (D) of this Article
applies, the Trust may not engage in any business combination with any
interested shareholder or any affiliate of the interested shareholder for a
period of 5 years following the most recent date on which the interested
shareholder became an interested shareholder.
(B) Unless an exemption under Section 11.3 of this Article applies, in
addition to any vote otherwise required by law or this Declaration of Trust, a
business combination that is not prohibited by subsection (A) of this Section
11.2 shall be recommended by the board of Trust Managers and approved by the
affirmative vote of at least:
(1) 80 percent of the votes entitled to be cast by outstanding Voting
Shares of the Trust, voting together as a single voting group; and
(2) Two-thirds of the votes entitled to be cast by holders of Voting
Shares other than Voting Shares held by the interested shareholder who will (or
whose affiliate will) be a party to the business combination or by an affiliate
or associate of the interested shareholder, voting together as a single voting
group.
SECTION 11.3 WHEN VOTING REQUIREMENT NOT APPLICABLE
(A) For purposes of this Section 11.3:
(1) "Announcement Date" means the first general public announcement
of the proposal or intention to make a proposal of the business combination or
its first communication generally to shareholders of the Trust, whichever is
earlier,
(2) "Determination Date" means the most recent date on which the
interested shareholder became an interested shareholder, and
(3) "Valuation Date" means:
(i) For a business combination voted upon by shareholders, the
latter of the day prior to the date of the shareholders'
vote or the day 20 days prior to the consummation of the
business combination; and
(ii) For a business combination not voted upon by shareholders,
the date of the consummation of the business combination.
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(B) The vote required by Section 11.2(B) of this Article does not apply to
a business combination as defined in Section 11.1(E)(1) of this Article if each
of the following conditions is met:
(1) The aggregate amount of the cash and the Market Value as of the
valuation date of consideration other than cash to be received per share by
holders of common shares in such Business Combination is at least equal to the
highest of the following:
(i) The highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested Shareholder for any Common Shares of
the same class or series acquired by it within the 5-year
period immediately prior to the Announcement Date of the
proposal of the Business Combination, plus an amount equal
to interest compounded annually from the earliest date on
which the highest per share acquisition price was paid
through the Valuation Date at the rate for 1-year United
States Treasury obligations from time to time in effect,
less the aggregate amount of any cash dividends paid and
the Market Value of any dividends paid in other than cash,
per Common Share from the earliest date through the
Valuation Date, up to the amount of the interest; or
(ii) The highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested Shareholder for any Common Shares of
the same class or series acquired by it on, or within the
5-year period immediately before, the Determination Date,
plus an amount equal to interest compounded annually from
the earliest date on which the highest per share
acquisition price was paid through the Valuation Date at
the rate for 1-year United States Treasury obligations from
time to time in effect, less the aggregate amount of any
cash dividends paid and the Market Value of any dividends
paid in other than cash, per Common Share from the earliest
date through the Valuation Date, up to the amount of the
interest; or
(iii) The Market Value per Common Share of the same class or
series on the announcement date, plus an amount equal to
interest compounded annually from that date through the
Valuation Date at the rate for 1-year United States
Treasury obligations from time to time in effect, less the
aggregate amount of any cash dividends paid and the Market
Value of any dividends paid in other than cash, per Common
Share from that date through the Valuation Date, up to the
amount of the interest; or
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(iv) The Market Value per Common Share of the same class or
series on the Determination Date, plus an amount equal to
interest compounded annually from that date through the
Valuation Date at the rate for 1-year United States
Treasury obligations from time to time in effect, less the
aggregate amount of any cash dividends paid and the Market
Value of any dividends paid in other than cash, per Common
Share from that date through the Valuation Date, up to the
amount of the interest; or
(v) The price per share equal to the Market Value per Common
Share of the same class or series on the Announcement Date
or on the Determination Date, whichever is higher,
multiplied by the fraction of:
1. The highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by
the Interested Shareholder for any Common Shares of the same
class or series acquired by it within the 5-year period
immediately prior to the Announcement Date, over
2. The Market Value per Common Share of the same class or
series on the first day in such 5-year period on which the
Interested Shareholder acquired any Common Shares.
(2) The aggregate amount of the cash and the Market Value as of the
Valuation Date of consideration other than cash to be received per share by
holders of shares of any class or series of outstanding shares other than Common
Shares in the Business Combination is at least equal the highest of the
following (whether or not the Interested Shareholder has previously acquired any
shares of the particular class or series):
(i) The highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested Shareholder for any shares of such
class or series acquired by it within the 5-year period
immediately prior to the Announcement Date of the proposal
of the Business Combination, plus an amount equal to
interest compounded annually from the earliest date on which
the highest per share acquisition price was paid through the
Valuation Date at the rate for 1-year United States Treasury
obligations from time to time in effect, less the aggregate
amount of any cash dividends paid and the Market Value of
any dividends paid in other than cash, per share of the
class or series from the earliest date through the Valuation
Date, up to the amount of the interest; or
(ii) The highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested
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Shareholder for any shares of such class or series
acquired by it on, or within the 5-year period
immediately prior to, the Determination Date, plus an
amount equal to interest compounded annually from the
earliest date on which highest per share acquisition
price was paid through the Valuation Date at the rate
for 1-year United States Treasury obligations from time
to time in effect, less the aggregate amount of any cash
dividends paid and the Market Value of any dividends
paid in other than cash, per share of the class or
series from the earliest date through the Valuation
Date, to the amount of the interest; or
(iii) The highest preferential amount per share to which the
holders of shares of such class or series are entitled
in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Trust; or
(iv) The Market Value per share of such class or series on
the Announcement Date, plus an amount equal to interest
compounded annually from that date through the Valuation
Date at the rate for 1-year United States Treasury
obligations from time to time in effect, less the
aggregate amount of any cash dividends paid and the
Market Value of any dividends paid in other than cash,
per share of the class or series from that date through
the Valuation Date, up to the amount of the interest; or
(v) The Market Value per share of such class or series on
the determination date, plus an amount equal to interest
compounded annually from that date through the Valuation
Date at the rate for 1-year United States Treasury
obligations from time to time in effect, less aggregate
amount of any cash dividends paid and the Market Value
of any dividends paid in other than cash, per share of
the class or series from that date through the Valuation
Date, up to the amount of the interest; or
(vi) The price per share equal to the market value per share
of such class or series on the Announcement Date or on
the Determination Date, whichever is higher, multiplied
by the fraction of:
1. The highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder for any shares of any
class of Voting Shares acquired by it within the 5-year period
immediately prior to the Announcement Date, over
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2. The Market Value per share of the same class of
Voting Shares on the first day in such 5-year period on which
the Interested Shareholder acquired any shares of the same
class of Voting Shares.
(3) The consideration to be received by holders of any class or
series of outstanding shares is to be in cash or in the same form as the
Interested Shareholder has previously paid for shares of the same class or
series. If the Interested Shareholder has paid for shares of any class or series
with varying forms of consideration, the form of consideration for such class or
series shall be either cash or the form used to acquire the largest number of
shares of such class or series previously acquired by it.
(4)(i) After the Determination Date and prior to the consummation of
such Business Combination:
1. There shall have been no failure to declare and pay
at the regular date therefor any full periodic dividends
(whether or not cumulative) on any outstanding preferred
shares of the Trust;
2. There shall have been:
A. No reduction in the annual rate of dividends
paid on any class or series of shares of the Trust
that are not preferred shares (except as necessary
to reflect any subdivision of the shares); and
B. An increase in such annual rate of dividends as
necessary to reflect any reclassification
(including any reverse share split),
recapitalization, reorganization or any similar
transaction which has the effect of reducing the
number of outstanding shares; and
3. The Interested Shareholder did not become the
Beneficial Owner of any additional shares of the Trust except
as part of the transaction which resulted in such Interested
Shareholder becoming an Interested Shareholder or by virtue of
proportionate share splits or share dividends.
(ii) The provisions of sub-paragraphs 1. and 2. of
subparagraph 4(i) above do not apply if no Interested
Shareholder or an Affiliate or Associate of the
Interested Shareholder voted as a Trust Manager of the
Trust in a manner inconsistent with such sub-
subparagraphs and the Interested Shareholder, within 10
days after any act or failure to act inconsistent with
such sub-subparagraphs, notifies the board of Trust
Managers of the Trust in writing that the Interested
Shareholder
35
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disapproves thereof and requests in good faith that the
board of Trust Managers rectify such act or failure to
act.
(C) (1) The provisions of Section 11.2 of this Article do not apply to
Business Combinations that have specifically or generally been approved or
exempted therefrom, in whole or in part, by resolution of the board of Trust
Managers of the Trust at any time prior to the Determination Date.
(2) Unless by its terms a resolution adopted under this subsection is
made irrevocable, it may be altered or repealed by the board of Trust Managers,
but this shall not affect any Business Combinations that have been consummated,
or are the subject of an existing agreement entered into, prior to the
alteration or repeal.
(D) The provisions of Section 11.2 of this Article do not apply to any
Business Combination of the Trust with an Interested Shareholder that became an
Interested Shareholder inadvertently, if the Interested Shareholder: (1) as soon
as practicable (but not more than 10 days after the Interested Shareholder knew
or should have known it had become an Interested Shareholder) divests itself of
a sufficient amount of the Voting Shares of the Trust so that it no longer is
the beneficial owner, directly or indirectly, of 10 percent or more of the
outstanding Voting Shares of the Trust; and (2) would not at any time within the
5-year period preceding the Announcement Date with respect to the Business
Combination have been an Interested Shareholder except by inadvertence.
(E) The provisions of Section 11.2 of this Article do not apply to any
Business Combination occurring before the Conversion Date, as that term is
defined in Section 6.4(A).
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IN WITNESS WHEREOF, the undersigned, as the sole Trust Manager, does hereby
execute this Declaration of Trust as of the _____ day of ________________, 1997.
-----------------------------------------
John H. Harvison
STATE OF TEXAS )
)
COUNTY OF TARRANT )
This instrument was ACKNOWLEDGED before me on ___________________________
_____, 1997, by JOHN H. HARVISON, the Trust Manager of FFP Real Estate Trust, a
Texas real estate trust, named herein, on behalf of the said real estate
investment trust.
-----------------------------------------
Notary Public - State of Texas
-----------------------------------------
Printed Name of Notary Public
My Commission Expires:
- ---------------------------
[SEAL]
37
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
FFP REAL ESTATE TRUST
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - OFFICES AND RECORDS...............................................1
SECTION 1.1 PRINCIPAL OFFICE..........................................1
SECTION 1.2 ADDITIONAL OFFICES........................................1
SECTION 1.3 BOOKS AND RECORDS.........................................1
ARTICLE II - SHAREHOLDERS.....................................................1
SECTION 2.1 ANNUAL MEETING............................................1
SECTION 2.2 SPECIAL MEETINGS..........................................1
SECTION 2.3 PLACE OF MEETING..........................................2
SECTION 2.4 NOTICE OF MEETING.........................................2
SECTION 2.5 MEETING WITHOUT NOTICE; WAIVER OF NOTICE..................2
SECTION 2.6 QUORUM....................................................2
SECTION 2.7 ADJOURNMENT...............................................2
SECTION 2.8 PROXIES...................................................2
SECTION 2.9 NOTICE OF SHAREHOLDER BUSINESS AND
NOMINATIONS...............................................3
A. ANNUAL MEETING OF SHAREHOLDERS...............................3
B. SPECIAL MEETINGS OF SHAREHOLDERS.............................4
C. GENERAL......................................................4
SECTION 2.10 PROCEDURE FOR ELECTION OF TRUST MANAGERS..................5
SECTION 2.11 VOTE OF SHAREHOLDERS......................................5
SECTION 2.12 OPENING AND CLOSING THE POLLS.............................5
SECTION 2.13 INSPECTORS................................................5
SECTION 2.14 INFORMAL ACTION...........................................6
ARTICLE III - BOARD OF TRUST MANAGERS.........................................6
SECTION 3.1 GENERAL POWERS............................................6
SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS.........................6
SECTION 3.3 REGULAR MEETINGS..........................................6
SECTION 3.4 SPECIAL MEETINGS..........................................7
SECTION 3.5 NOTICE....................................................7
SECTION 3.6 QUORUM....................................................7
SECTION 3.7 PARTICIPATION BY CONFERENCE TELEPHONE.....................7
SECTION 3.8 PRESUMPTION OF ASSENT.....................................8
SECTION 3.9 ADJOURNMENTS..............................................8
SECTION 3.10 INFORMAL ACTION...........................................8
SECTION 3.11 VACANCIES.................................................8
SECTION 3.12 REMOVAL...................................................8
SECTION 3.13 COMMITTEES................................................9
ARTICLE IV - OFFICERS........................................................10
SECTION 4.1 CATEGORIES OF OFFICERS...................................10
SECTION 4.2 ELECTION AND TERM OF OFFICE..............................10
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 4.3 CHAIRMAN OF THE BOARD....................................10
SECTION 4.4 VICE CHAIRMAN OF THE BOARD...............................10
SECTION 4.5 CHIEF EXECUTIVE OFFICER..................................11
SECTION 4.6 PRESIDENT................................................11
SECTION 4.7 VICE PRESIDENTS..........................................11
SECTION 4.8 SECRETARY................................................11
SECTION 4.9 TREASURER................................................12
SECTION 4.10 REMOVAL..................................................12
SECTION 4.11 SALARIES.................................................12
SECTION 4.12 VACANCIES................................................12
SECTION 4.13 RESIGNATIONS.............................................13
ARTICLE V - SHARE CERTIFICATES AND TRANSFERS.................................13
SECTION 5.1 SHARE CERTIFICATES.......................................13
SECTION 5.2 RECORD DATE AND CLOSING OF TRANSFER BOOKS................13
SECTION 5.3 REGISTERED SHAREHOLDERS..................................14
SECTION 5.4 LOST CERTIFICATES........................................14
ARTICLE VI - MISCELLANEOUS PROVISIONS........................................14
SECTION 6.1 FISCAL YEAR..............................................14
SECTION 6.2 DIVIDENDS................................................14
SECTION 6.3 SEAL.....................................................14
SECTION 6.4 EXECUTION OF WRITTEN INSTRUMENTS.........................14
SECTION 6.5 SIGNING OF CHECKS AND NOTES..............................14
SECTION 6.6 VOTING OF SECURITIES HELD IN OTHER ENTITIES..............15
ARTICLE VII - AMENDMENTS.....................................................15
</TABLE>
-ii-
<PAGE>
BYLAWS
OF
FFP REAL ESTATE TRUST
ORGANIZED UNDER THE LAWS OF THE STATE OF TEXAS
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1 PRINCIPAL OFFICE. The initial address of the principal
office of the Trust in the State of Texas is 2801 Glenda Avenue, Fort Worth,
Texas 76117.
SECTION 1.2 ADDITIONAL OFFICES. The Trust may have such other offices,
either within or without the State of Texas, as the Board of Trust Managers from
time to time may designate or as the business of the Trust from time to time may
require.
SECTION 1.3 BOOKS AND RECORDS. The books and records of the Trust may be
kept, either within or without the State of Texas, at such place or places as
the Board of Trust Managers from time to time may designate.
ARTICLE II
SHAREHOLDERS
SECTION 2.1 ANNUAL MEETING. An annual meeting of the shareholders of the
Trust shall be held each year, commencing with 1998, on such date and at such
time as may be fixed by resolution of the Board of Trust Managers.
SECTION 2.2 SPECIAL MEETINGS. Subject to the rights of the holders of any
class or series of preferred shares of the Trust ("Preferred Shares") to elect
additional trust managers under specified circumstances, special meetings of the
shareholders may be called only by the Chairman of the Board, the Vice Chairman
of the Board, the Chief Executive Officer, the President, the Board of Trust
Managers pursuant to a resolution adopted by a majority of the total number of
trust managers constituting the whole Board of Trust Managers (the "Whole
Board"), or by written request to the Secretary by the holders of not less than
50 percent of all of the shares then outstanding and entitled to vote at such
meeting (the "Voting Shares"); provided that (i) the Secretary shall inform the
shareholders requesting such meeting of the reasonably estimated cost of
preparing and disseminating notice thereof and shall not be required to give
such notice until the Trust has received payment in such amount from such
shareholders and (ii) unless requested by holders of a majority of the Voting
Shares, the Secretary shall not be required to call a special meeting to
consider any matter which is substantially the same as a matter voted on at any
special meeting of the shareholders held during the twelve (12) months preceding
the request to call such new special meeting.
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<PAGE>
SECTION 2.3 PLACE OF MEETING. Meetings shall be held at the principal
office of the Trust or at such other place, within or without the State of
Texas, as the Board of Trust Managers from time to time by resolution may
designate.
SECTION 2.4 NOTICE OF MEETING. Written or printed notice, stating the
place, day and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be prepared and
delivered by the Trust, not less than ten (10) days nor more than sixty (60)
days before the date of the meeting, personally or by mail, to each shareholder
of record entitled to vote at such meeting and to each shareholder or other
person, if any, entitled to notice of the meeting. If delivered by mail, such
notice shall be deemed to be delivered when deposited in the United States mail
with postage thereon prepaid, addressed to the shareholder at his or her address
as it appears on the share transfer books of the Trust. If delivered
personally, such notice shall be deemed given when so delivered to the
shareholder as provided above and if by facsimile, such notice shall be deemed
given upon completion of the facsimile transmission to the shareholder as
provided above. Meetings may be held without notice if all shareholders
entitled to vote are present, or if notice is waived by those not present in
accordance with Section 2.5 of these Bylaws. Any previously scheduled meeting
of the shareholders may be postponed by resolution of the Board of Trust
Managers upon public notice given prior to the date scheduled for such meeting.
SECTION 2.5 MEETING WITHOUT NOTICE; WAIVER OF NOTICE. Either before or
after a shareholders' meeting, a shareholder may waive notice thereof by
executing a waiver of notice to be filed with the Trust's records of shareholder
meetings. Any such written notice shall be deemed to be the equivalent of
notice pursuant to Section 2.4 hereof. Attendance at a shareholders' meeting,
either in person or by proxy, by a person entitled to notice thereof shall
constitute a waiver of notice of the meeting unless such person attends for the
sole and express purpose of objecting to the transaction of business on the
ground that the meeting was not lawfully called or convened.
SECTION 2.6 QUORUM. Except as otherwise provided by law or by the
Declaration of Trust of the Trust, as the same may be amended or restated from
time to time (the "Declaration of Trust"), the holders of a majority of the
Voting Shares, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders, except that when specified business is to be voted on
by a class or series voting as a class, the holders of a majority of the shares
of such class or series shall constitute a quorum for the transaction of such
business.
SECTION 2.7 ADJOURNMENT. A meeting of shareholders convened on the date
for which it was called may be adjourned prior to the completion of business
thereat to a date not more than one hundred twenty (120) days after the record
date of the original meeting. Notice of a subsequent meeting held as a result
of an adjournment, other than by announcement at the meeting at which the
adjournment was taken, shall not be necessary. If a quorum is present or
represented at such subsequent meeting, any business may be transacted thereat
which could have been transacted at the meeting which was adjourned.
SECTION 2.8 PROXIES. At all meetings of shareholders, a shareholder
entitled to vote may vote in person or by proxy executed in writing thereby or
by his duly authorized
2
<PAGE>
attorney-in-fact. A proxy shall not be valid after eleven (11) months from the
date of its execution unless a longer period is expressly stated therein. A
proxy shall be revocable unless the proxy form states conspicuously that the
proxy is irrevocable and the proxy is coupled with an interest. Each proxy must
be filed with the Secretary of the Trust or his representative at or before the
time of the meeting to which it relates.
SECTION 2.9 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.
A. ANNUAL MEETING OF SHAREHOLDERS.
(1) Nominations of persons for election to the Board of Trust Managers
of the Trust and the proposal of business to be considered by the shareholders
may be made at an annual meeting of shareholders (i) by or at the direction of
the Chairman of the Board of Trust Managers; or (ii) by any shareholder of the
Trust who is entitled to vote at the meeting, who has complied with the notice
procedures set forth in clauses (2) and (3) of this Paragraph A and who was a
shareholder of record at the time such notice is delivered to the Secretary of
the Trust.
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (iii) of Paragraph A(1) of
this Section 2.9, the shareholder must have given timely notice thereof in
writing to the Secretary of the Trust. To be timely, a shareholder's notice
shall be delivered to the Secretary at the principal office of the Trust not
less than seventy (70) days nor more than ninety (90) days prior to the
anniversary of the preceding year's annual meeting; provided, however, that,
with respect to the 1998 annual meeting, the date of the 1997 annual meeting
shall be deemed to be December 1, 1997, and further provided that in the event
that the date of an annual meeting is advanced by more than thirty (30) days or
delayed by more than sixty (60) days from such anniversary date, to be timely
notice by the shareholder must be so delivered not earlier than the ninetieth
(90th) day prior to such annual meeting and not later than the close of business
on the later of the seventieth (70th) day prior to such annual meeting or the
tenth (10th) day following the day on which public announcement of the date of
such meeting is first made. Such shareholder's notice shall set forth (i) as to
each person whom the shareholder proposes to nominate for election or reelection
as a trust manager, all information relating to such person that is required to
be disclosed in solicitations of proxies for election of trust managers, or is
otherwise required, pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended, or any successor statute thereto (the "Exchange Act"),
including such person's written consent to being named in the proxy statement as
a nominee and to serving as a trust manager if elected; (ii) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the shareholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made (a) the name and address of such shareholder, as they appear on the Trust's
share transfer books, and the name and address of such beneficial owner; (b) the
class or series and number of shares of beneficial interest of the Trust which
are owned beneficially and of record by such shareholder and such beneficial
owner; and (c) the date or dates upon which the shareholder acquired ownership
of such shares.
3
<PAGE>
(3) Notwithstanding anything in the second sentence of Paragraph A(2)
of this Section 2.9 to the contrary, in the event that the number of trust
managers to be elected to the Board of Trust Managers of the Trust is increased
and there is no public announcement naming all of the nominees for trust manager
or specifying the size of the increased Board of Trust Managers made by the
Trust at least seventy (70) days prior to the first anniversary of the preceding
year's annual meeting, a shareholder's notice required by Paragraph A of this
Section 2.9 shall also be considered timely, but only with respect to nominees
for any new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Trust not later than the
close of business on the tenth (10th) day following the day on which such public
announcement is first made by the Trust.
B. SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Trust's notice of meeting pursuant to Section 2.4 of
these Bylaws. Nominations of persons for election to the Board of Trust
Managers may be made at a special meeting of shareholders at which trust
managers are to be elected pursuant to the Trust's notice of meeting (i) by or
at the direction of the Board of Trust Managers or (ii) by any shareholder of
the Trust who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Section 2.9 and who is a shareholder of record at
the time such notice is delivered to the Secretary of the Trust. Nominations by
shareholders of persons for election to the Board of Trust Managers may be made
at such a special meeting of shareholders if the shareholder's notice as
required by Paragraph A(2) of this Section 2.9 shall be delivered to the
Secretary at the principal office of the Trust not earlier than the ninetieth
(90th) day prior to such special meeting and not later than the close of
business on the later of the seventieth (70th) day prior to such special meeting
or the tenth (10th) day following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by the
Board of Trust Managers to be elected at such meeting.
C. GENERAL.
(1) Only persons who are nominated in accordance with the procedures
set forth in this Section 2.9 shall be eligible to serve as trust managers, and
only such business shall be conducted at a meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Section. Except as otherwise provided by law, the Declaration of Trust or
these Bylaws, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made or brought in accordance with the procedures set forth in this
Section 2.9 and, if any proposed nomination or business is determined not to be
in compliance herewith, to declare that such defective nomination or proposal
shall be disregarded.
(2) For purposes of this Section 2.9, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Trust with the Securities and Exchange Commission pursuant to Section 13, 14 or
15(d) of the Exchange Act.
4
<PAGE>
(3) Notwithstanding the foregoing provisions of this Section 2.9, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Bylaw shall be deemed to affect any rights of
shareholders to request inclusion of proposals in the Trust's proxy statement
pursuant to Rule l4a-8 under the Exchange Act or to create any additional rights
with respect to any such inclusion.
SECTION 2.10 PROCEDURE FOR ELECTION OF TRUST MANAGERS. Subject to
the rights of the holders of any class or series of Preferred Shares to elect
trust managers under specified circumstances, and to the laws of the State of
Texas, each shareholder having the right to vote for the election of trust
managers shall, unless otherwise provided in the Declaration of Trust or by
applicable law, have the right to vote, in person or by proxy, the number of
shares owned by such shareholder for as many persons as there are to be elected
and for whose election such shareholder has the right to vote. Unless otherwise
provided by the Declaration of Trust, no shareholder shall have the right or be
permitted to cumulate his or her votes on any basis. Election of trust managers
at all meetings of the shareholders at which trust managers are to be elected
may be viva voce, unless the chairman of the meeting shall order, or any
shareholder shall demand, that voting be by written ballot, and, except as
otherwise expressly provided with respect to the right of the holders of any
series of Preferred Shares to elect additional trust managers under specified
circumstances, a majority of the votes cast thereat shall elect. Voting on any
other question or election may be viva voce, unless the chairman of the meeting
shall order, or any shareholder shall demand, that voting be by written ballot.
SECTION 2.11 VOTE OF SHAREHOLDERS. Subject to the rights of the
holders of any class or series of Preferred Shares to elect trust managers under
specified circumstances, and to the laws of the State of Texas, each shareholder
having the right to vote shall be entitled at every meeting of shareholders to
one (1) vote for every share standing in his or her name on the record date
fixed by the Board of Trust Managers pursuant to Section 5.2 of these Bylaws.
Except as otherwise provided by law, the Declaration of Trust, these Bylaws, any
resolution adopted by the Board of Trust Managers authorizing a series of
Preferred Shares, or any resolution adopted by a majority of the Whole Board,
all matters submitted to the shareholders at any meeting (other than the
election of trust managers) shall be decided by a majority of the votes cast
with respect thereto.
SECTION 2.12 OPENING AND CLOSING THE POLLS. The chairman of the meeting
shall fix, and announce at the meeting, the date and time of the opening and the
closing of the polls for each matter upon which the shareholders are to vote at
the meeting .
SECTION 2.13 INSPECTORS. At any meeting of shareholders, the chairman of
such meeting may, and upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting. Such inspector or inspectors shall
ascertain and report the number of shares represented at such meeting in person
or by proxy, based upon the determination of such inspector or inspectors of the
validity and effect of proxies, count all votes, report the results and perform
such other acts as are proper to conduct voting with impartiality and fairness
to all shareholders. Each report of inspectors shall be in writing and signed by
the inspector or, if there is more than one, by a majority of inspectors acting
at such meeting, in which event the report of
5
<PAGE>
the majority shall be the report of the inspectors. The report of the inspector
or inspectors on the number of shares represented at a meeting and the results
of voting thereat shall be prima facie evidence thereof.
SECTION 2.14 INFORMAL ACTION. Any action required or permitted to be taken
at a meeting of shareholders may be taken without a meeting if the following are
filed with the Trust's records of shareholder meetings:
(1) a unanimous written consent which sets forth the action and is
signed by each shareholder entitled to vote thereon; and
(2) a written waiver of any right to dissent signed by each
shareholder, if any, entitled to notice of the meeting but not entitled to vote
thereat.
ARTICLE III
BOARD OF TRUST MANAGERS
SECTION 3.1 GENERAL POWERS. The business and affairs of the Trust shall
be managed by, or under the direction of, its Board of Trust Managers. In
addition to the powers and authorities expressly conferred by these Bylaws, the
Board of Trust Managers may exercise all such powers of the Trust and do all
such lawful acts and things as are not by law or by the Declaration of Trust or
these Bylaws required to be exercised or done by the shareholders.
SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights of
the holders of any class or series of Preferred Shares to elect trust managers
under specified circumstances, the number of trust managers shall be fixed from
time to time pursuant to a resolution adopted by a majority of the Whole Board,
but shall consist of not more than twenty-five (25) nor less than one (1) trust
managers who need not be residents of the State of Texas and need not hold
shares in the Trust. At all times as the Board of Trust Managers shall consist
of three (3) or more trust managers, the trust managers, other than those who
may be elected by the holders of any class or series of Preferred Shares, shall
be divided, with respect to the time for which they severally hold office, into
three (3) classes, as nearly equal in number as possible, with the term of
office of the first class to expire at the first annual meeting of shareholders
held after such division into classes, the term of office of the second class to
expire at the second annual meeting of shareholders held after such division
into classes and the term of office of the third class to expire at the third
annual meeting of shareholders held after such division into classes. Each trust
manager shall hold office until his or her successor shall have been duly
elected and qualified. At each annual meeting of shareholders commencing with
the first annual meeting held after such division into classes, trust managers
elected to succeed those trust managers whose terms then expire shall be elected
for a term of office to expire at the third (3rd) succeeding annual meeting of
shareholders after their election, with each trust manager to hold office until
his or her successor shall have been duly elected and qualified.
SECTION 3.3 REGULAR MEETINGS. A regular meeting of the Board of
Trust Managers to elect officers and consider other business shall be held
without notice other than this
6
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Section 3.3 immediately after, and at the same place as, each annual meeting of
shareholders. The Board of Trust Managers may, by resolution, designate the time
and place for additional regular meetings without notice other than such
resolution.
SECTION 3.4 SPECIAL MEETINGS. Special meetings of the Board of Trust
Managers shall be called at the request of the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or a majority
of the Board of Trust Managers. The person or persons authorized to call special
meetings of the Board of Trust Managers may fix the place and time of the
meeting.
SECTION 3.5 NOTICE. Notice of any special meeting shall be given to
each trust manager at his business or residence as recorded in the books and
records of the Trust or at such other address as such trust manager may
designate in writing to the Secretary of the Trust by mail, by telegram or
express courier, charges prepaid, by facsimile or telephonic communication. If
mailed, such notice shall be deemed adequately delivered if deposited in the
United States mails so addressed, with postage thereon prepaid, at least five
(5) days before the day of such meeting. If by telegram, such notice shall be
deemed adequately delivered if the telegram is delivered to the telegraph
company at least twenty-four (24) hours before the time set for such meeting. If
by express courier, the notice shall be deemed adequately given if delivered to
the courier company at least two (2) days before the day of such meeting. If by
telephone or facsimile, the notice shall be deemed adequately delivered if given
at least twelve (12) hours prior to the time set for such meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Trust Managers need be specified in the notice of such meeting,
except for amendments to these Bylaws as provided under Article VII hereof. A
meeting may be held at any time without notice if all the trust managers are
present or if those not present waive notice of the meeting in writing, either
before or after such meeting. Attendance of a trust manager at a meeting shall
constitute waiver of notice of that meeting unless he or she attends for the
sole and express purpose of objecting to the transaction of business on the
ground that the meeting was not lawfully called or convened.
SECTION 3.6 QUORUM. A number of trust managers equal to at least a
majority of the trust managers then in office shall constitute a quorum for the
transaction of business; provided, however, that if the Whole Board consists of
two or three trust managers, two trust managers shall constitute a quorum, if
the Whole Board consists of one trust manager, one trust manager shall
constitute a quorum and that in no event may less than one third (1/3) of the
Whole Board constitute a quorum. Anything else herein to the contrary
notwithstanding, if at any meeting of the Board of Trust Managers there shall be
less than a quorum present, a majority of the trust managers present may adjourn
the meeting from time to time without further notice. Except as may otherwise be
provided by the Declaration of Trust, these Bylaws or applicable law, the act of
the majority of the trust managers present at a meeting at which a quorum is
present shall be the act of the Board of Trust Managers. The trust managers
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal or departure of enough trust
managers to leave less than a quorum.
SECTION 3.7 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the
Board of Trust Managers, or any committee thereof, may participate in a meeting
of such
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Board or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 3.7 shall
constitute presence in person at such meeting.
SECTION 3.8 PRESUMPTION OF ASSENT. A trust manager of the Trust who
is present at a meeting of the trust managers at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent shall be entered in the minutes of the meeting or unless he
or she shall file a written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof.
SECTION 3.9 ADJOURNMENTS. Any meeting of the Board of Trust
Managers may be adjourned prior to the completion of business thereat. Notice of
the subsequent meeting held as a result of an adjournment, other than by
announcement at the meeting at which the adjournment is taken, shall not be
necessary. If a quorum is present at such subsequent meeting, any business may
be transacted thereat which could have been transacted at the meeting which was
adjourned.
SECTION 3.10 INFORMAL ACTION. If all of the trust managers consent in
writing to any action required or permitted to be taken at a meeting of the
Board of Trust Managers or a committee thereof and the writing or writings
evidencing such consent is or are filed by the Secretary of the Trust with the
minutes of proceedings of the Board of Trust Managers or such committee, the
action shall be as valid as though it had been taken at a meeting of the Board
or committee.
SECTION 3.11 VACANCIES. Except as otherwise provided in this Section 3.11,
subject to the rights of the holders of any class or series of Preferred Shares
to elect additional trust managers under specified circumstances, unless the
Board of Trust Managers otherwise determines, vacancies resulting from death,
resignation, retirement, disqualification, or other cause relating to a then-
existing Board position shall be filled by the affirmative vote of a majority of
the remaining trust managers, though less than a quorum of the Board of Trust
Managers, and newly created trust managerships resulting from an increase in the
authorized number of trust managers shall be filled by the affirmative vote of a
majority of the Whole Board and, in either event, trust managers so chosen shall
hold office for a term expiring at the annual meeting of shareholders at which
the term of office of the class to which they have been elected expires and
until such trust manager's successor shall have been duly elected and qualified.
No decrease in the number of authorized trust managers constituting the Whole
Board shall shorten the term of any incumbent trust manager. Vacancies on the
Board of Trust Managers due to the removal of a trust manager may be filled by
the shareholders at an annual or special meeting called for that purpose, and
trust managers so chosen shall hold office for a term expiring at the annual
meeting of shareholders at which the term of office of the class to which they
have been elected expires and until each such trust manager's successor shall
have been duly elected and qualified. The appointment or election of a successor
trust manager shall be considered an amendment to the Declaration of Trust.
SECTION 3.12 REMOVAL. Subject to the rights of the holders of any class or
series of Preferred Shares to elect additional trust managers under specified
circumstances, any trust
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manager, or the entire Board of Trust Managers, may be removed from office at
any time, but only for cause and only by the affirmative vote of the holders of
at least 80 percent of the then outstanding Voting Shares, voting together as a
single class.
SECTION 3.13 COMMITTEES. The Board of Trust Managers, by resolution
or resolutions passed by a majority of the Whole Board, may designate from among
the members of the trust managers one or more committees which, to the extent
provided in such resolution or resolutions, shall have and may exercise all of
the authority of the Board of Trust Managers in the business and affairs of the
Trust to the extent consistent with the Texas Real Estate Investment Trust Act,
as amended from time to time, or any successor statute thereto (the "Texas REIT
Act"), except the power to amend the Declaration of Trust, to approve a plan of
merger or share exchange, to declare dividends or distributions on shares, to
amend these Bylaws, to issue shares except in the manner and to the extent
prescribed by the Declaration of Trust, these Bylaws or any resolution
designating the committee, to fill vacancies in the trust managers or in the
committee, to elect or remove officers of the Trust or members of the committee,
to fix the compensation of any member of the committee, to recommend to the
shareholders any action requiring shareholder approval, or to approve any
merger, consolidation or share exchange which does not require shareholder
approval, each committee to consist of one (1) or more trust managers of the
Trust, including, without limitation the following committees:
(1) An Executive Committee, which shall have such authority as shall
be delegated by the Board of Trust Managers, including, without
limitation, authority to acquire and dispose of real property and
to execute contracts and agreements on behalf of the full Board
of Trust Managers including, without limitation, those relating
to the incurrence of debt by the Trust or subsidiaries thereof,
and shall advise the Board of Trust Managers from time to time
with respect to such matters as the Board of Trust Managers shall
direct.
(2) An Audit Committee. The Audit Committee shall make
recommendations concerning the engagement of independent public
accountants, review with the independent public accountants the
plans and results of each audit engagement, approve professional
services provided by the independent public accountants, review
the independence of the independent public accountants, consider
the range of audit and non-audit fees and review the adequacy of
the Trust's internal accounting controls.
(3) An Executive Compensation Committee, which shall determine
compensation for the Trust's executive officers and shall
administer any share incentive or other compensation plans
adopted by the Trust.
The Board of Trust Managers may designate one or more trust managers as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of such committee. Unless the Board of Trust Managers
shall provide otherwise, the presence of one-half (1/2) of the total membership
of any committee of the Board of Trust Managers shall constitute a quorum for
the transaction of business at any meeting of such committee and the act of a
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majority of those present shall be the act of such committee. Each committee
shall keep regular minutes of its proceedings and report the same to the full
Board of Trust Managers when so requested.
ARTICLE IV
OFFICERS
SECTION 4.1 CATEGORIES OF OFFICERS. The elected officers of the Trust
shall consist of a Chairman of the Board, a Vice Chairman of the Board, a Chief
Executive Officer, a President, one or more Executive Vice Presidents or Vice
Presidents, a Secretary and a Treasurer. Such other officers, assistant
officers, agents and employees as the Board of Trust Managers may from time to
time deem necessary may be elected by the Board of Trust Managers or appointed
by the Chairman of the Board. The Chairman of the Board and the Vice Chairman of
the Board shall be chosen from among the trust managers. Two or more offices may
be held by the same person, except that a person may not concurrently serve as
the President and a Vice President or Executive Vice President. Each officer
chosen or appointed in the manner prescribed by the Board of Trust Managers
shall have such powers and duties as generally pertain to his or her office or
offices, subject to the specific provisions of this Article IV. Such officers
also shall have such powers and duties as from time to time may be conferred by
the Board of Trust Managers or by any committee thereof authorized to do so.
SECTION 4.2 ELECTION AND TERM OF OFFICE. The elected officers of the
Trust shall be elected annually by the Board of Trust Managers at the regular
meeting of the Board of Trust Managers held after each annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as is convenient. Each officer
shall hold office until his or her successor shall have been duly elected and
shall have qualified, or until his or her death or until he or she shall resign
or be removed from office.
SECTION 4.3 CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the shareholders and of the Board of Trust Managers.
The Chairman of the Board shall be responsible for general management of the
affairs of the Trust and shall perform all duties incidental to the office which
may be required by law, and all such other duties as may properly be required by
the Board of Trust Managers. Except where by law the signature of the Chief
Executive Officer or the President is required, the Chairman of the Board shall
possess the same power as the Chief Executive Officer and the President to sign
all certificates, contracts, and other instruments of the Trust which may be
authorized by the Board of Trust Managers. The Chairman of the Board shall make
such reports to the Board of Trust Managers and the shareholders as are properly
required by the Board of Trust Managers. The Chairman of the Board shall see
that all orders and resolutions of the Board of Trust Managers and of any
committee thereof are carried into effect.
SECTION 4.4 VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the
Board shall, in the absence of the Chairman, preside at all meetings of the
shareholders and of the Board of Trust Managers. The Vice Chairman of the Board
shall, together with the Chairman of the Board and the Chief Executive Officer,
act in a general executive capacity and shall have such
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powers and duties as set forth in these Bylaws or as from time to time may be
established by the Board of Trust Managers. The Vice Chairman of the Board may,
in the absence of or because of the inability to act of the Chairman of the
Board, and if so authorized by the Board of Trust Managers, perform all duties
of the Chairman of the Board. Except where by law the signature of the Chief
Executive Officer or the President is required, the Vice Chairman of the Board
shall possess the same power as the Chief Executive Officer and the President to
sign all certificates, contracts, and other instruments of the Trust which may
be authorized by the Board of Trust Managers.
SECTION 4.5 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall act in a general executive capacity and shall assist the Chairman of the
Board in the administration and operation of the Trust's business and general
supervision of its policies and affairs. The Chief Executive Officer may, in the
absence of or because of the inability to act of the Chairman of the Board,
perform all duties of the Chairman of the Board and, in the absence of or
because of the inability to act of the Chairman of the Board and the Vice
Chairman of the Board, preside at all meetings of shareholders and of the Board
of Trust Managers. The Chief Executive Officer may sign, alone or with the
Secretary or any assistant secretary or any other officer of the Trust properly
authorized by the Board of Trust Managers, certificates, contracts and other
instruments of the Trust as authorized by the Board of Trust Managers.
SECTION 4.6 PRESIDENT. The President shall be the chief operating
officer of the Trust, shall act in a general executive capacity and shall assist
the Chairman of the Board and the Chief Executive Officer in the administration
and operation of the Trust's business and general supervision of its policies
and affairs. The President may, in the absence of or because of the inability to
act of the Chairman of the Board and the Chief Executive Officer, perform all
duties of the Chairman of the Board and, in the absence of or because of the
inability to act of the Chairman of the Board, the Vice Chairman of the Board
and the Chief Executive Officer, preside at all meetings of shareholders and of
the Board of Trust Managers. The President may sign, alone or with the Secretary
or any assistant secretary or any other officer of the Trust properly authorized
by the Board of Trust Managers, certificates, contracts and other instruments of
the Trust as authorized by the Board of Trust Managers.
SECTION 4.7 VICE PRESIDENTS. The Vice President or Vice Presidents,
if any, including any Executive Vice Presidents, shall perform the duties of the
Chief Executive Officer and the President in the absence or disability of both
the Chief Executive Officer and the President, and shall have such powers and
perform such other duties as the Board of Trust Managers or the Chairman of the
Board from time to time may prescribe.
SECTION 4.8 SECRETARY. The Secretary shall give, or cause to be
given, notice of all meetings of shareholders and trust managers and all other
notices required by law, by the Declaration of Trust or by these Bylaws, and in
case of his or her absence or refusal or neglect so to do, any such notice may
be given by any person thereunto directed by the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or the Board
of Trust Managers, upon whose request the meeting is called, as provided in
these Bylaws. The Secretary shall record all the proceedings of the meetings of
the Board of Trust Managers, any committees thereof and the shareholders of the
Trust in a book or books to be kept for that
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purpose, and shall perform such other duties as from time to time may be
prescribed by the Board of Trust Managers, the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer or the President. The
Secretary shall have custody of the seal, if any, of the Trust and shall affix
the same to all instruments requiring it, when authorized by the Board of Trust
Managers, the Chairman of the Board, the Vice Chairman of the Board, the Chief
Executive Officer or the President, and shall attest to the same.
SECTION 4.9 TREASURER. The Treasurer shall have custody of all
Trust funds and securities and shall keep full and accurate account of receipts
and disbursements in books belonging to the Trust. The Treasurer shall deposit
all moneys and other valuable effects in the name and to the credit of the Trust
in such depositories as may be designated by the Board of Trust Managers. The
Treasurer shall disburse the funds of the Trust in such manner as may be ordered
by the Board of Trust Managers, the Chairman of the Board, the Vice Chairman of
the Board, the Chief Executive Officer or the President, taking proper vouchers
for such disbursements. The Treasurer shall render to the Chairman of the Board,
the Chief Executive Officer, the President and the Board of Trust Managers,
whenever requested, an account of all his or her transactions as Treasurer and
of the financial condition of the Trust. If required by the Board of Trust
Managers, the Treasurer shall give the Trust a bond for the faithful discharge
of his or her other duties in such amount and with such surety as the Board of
Trust Managers shall prescribe. The Treasurer also shall perform such duties and
have such powers as the Board of Trust Managers from time to time may prescribe.
SECTION 4.10 REMOVAL. Any officer elected by the Board of Trust
Managers or appointed in the manner prescribed hereby may be removed by a
majority of the members of the Whole Board whenever, in their judgment, the best
interests of the Trust would be served thereby. No elected or appointed officer
shall have any contractual rights against the Trust for compensation by virtue
of such election or appointment beyond the date of the election or appointment
of his or her successor, his or her death, resignation or removal, whichever
event shall first occur, except as otherwise provided in an employment or
similar contract or under an employee deferred compensation plan.
SECTION 4.11 SALARIES. The Board of Trust Managers shall fix the
salaries of the Chairman of the Board, the Vice Chairman of the Board, the Chief
Executive Officer and the President of the Trust, or may delegate the authority
to do so to a duly constituted Executive Compensation Committee. The salaries
of other officers, agents and employees of the Trust may be fixed by the Board
of Trust Managers, by a committee of the Board, by the Chairman of the Board or
by another officer or committee to whom that function has been delegated by the
Board of Trust Managers or the Chairman of the Board.
SECTION 4.12 VACANCIES. Any newly created office or vacancy in any
office because of death, resignation or removal shall be filled by the Board of
Trust Managers or, in the case of an office not specifically provided for in
Section 4.1 hereof, by or in the manner prescribed by the Board of Trust
Managers. The officer so selected shall hold office until his or her successor
is duly selected and shall have qualified, unless he or she sooner resigns or is
removed from office in the manner provided in these Bylaws.
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SECTION 4.13 RESIGNATIONS. Any trust manager or officer, whether
elected or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the Vice Chairman of the Board, the
Chief Executive Officer, the President or the Secretary, and such resignation
shall be deemed to be effective as of the close of business on the date said
notice is received by the Chairman of the Board, the Vice Chairman of the Board,
the Chief Executive Officer, the President or the Secretary. No action shall be
required of the Board of Trust Managers or the shareholders to make any such
resignation effective.
ARTICLE V
SHARE CERTIFICATES AND TRANSFERS
SECTION 5.1 SHARE CERTIFICATES. Each shareholder shall be entitled
to a certificate or certificates, in a form approved by the Board of Trust
Managers and consistent with the Texas REIT Act, which shall represent and
certify the number, kind and class of shares owned by him or her in the Trust.
Each certificate shall be signed by the Chairman of the Board, the President or
a Vice President, and by the Secretary or the Treasurer (or an assistant
secretary or assistant treasurer, if any) and, pursuant to resolutions of the
Board of Trust Managers, any such signature may be in facsimile. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed on, a certificate has ceased to hold such office
before the certificate is issued, it nevertheless may be issued by the Trust
with the same effect as if he or she held such office at the date of issue.
SECTION 5.2 RECORD DATE AND CLOSING OF TRANSFER BOOKS. The Board of
Trust Managers may fix, in advance, a date as the record date for the purpose of
determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders, or shareholders entitled to receive payment of any dividend or
distribution or the allotment of any rights, or the shareholders entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or in order to make a determination of shareholders for any other proper
purpose. The record date may not be prior to the close of business on the day
the record date is fixed. Such record date shall not be prior to the close of
business on the day such date is fixed and not more than sixty (60) days, and in
case of a meeting of shareholders, not less than ten (10) days, prior to the
date on which the particular action requiring such determination of shareholders
is to be taken. The stock transfer books of the Trust may not be closed for a
period longer than twenty (20) days.
If no record date is fixed and the Trust's stock transfer books are not
closed, the determination of shareholders entitled to notice of, or to vote at,
a meeting of shareholders shall be at the close of the business on the day on
which notice of the meeting is mailed. If no record date is fixed, the record
date for determining shareholders for any purpose other than that specified in
the preceding sentence shall be at the close of business on the day on which the
resolution of the Board of Trust Managers relating thereto is adopted.
When a determination of shareholders of record entitled to notice of, or to
vote at, any meeting of shareholders has been made as provided in this Section
5.2, such determination shall
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apply to any future meeting in respect of an adjournment thereof, unless the
trust managers fix a new record date under this section for such future meeting.
SECTION 5.3 REGISTERED SHAREHOLDERS. The Trust shall be entitled to treat
the holder of record of shares as the holder in fact and, except as otherwise
provided by the laws of the State of Texas, shall not be bound to recognize any
equitable or other claim to or interest in the shares.
Shares of the Trust shall be transferred on its books only upon the
surrender to the Trust of the share certificates duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, and upon
presentation of adequate evidence of the validity of the transfer under this
Section 5.3 and the laws of the State of Texas. In that event, the surrendered
certificates shall be canceled, new certificates issued to the person entitled
to them and the transaction recorded on the books of the Trust.
SECTION 5.4 LOST CERTIFICATES. The Board of Trust Managers may direct a
new certificate to be issued in place of a certificate alleged to have been
destroyed or lost if the owner makes an affidavit that it is destroyed or lost.
The Board, in its discretion, may, as a condition precedent to issuing the new
certificate, require the owner to give the Trust a bond as indemnity against any
claim that may be made against the Trust on the certificate allegedly destroyed
or lost.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 FISCAL YEAR. The fiscal year of the Trust shall begin on the
first (1st) day of January and end on the thirty-first (31st) day of December of
each year.
SECTION 6.2 DIVIDENDS. The Board of Trust Managers may from time to time
declare, and the Trust may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Declaration of
Trust.
SECTION 6.3 SEAL. The seal of the Trust, if any, shall have inscribed
thereon the name of the Trust and shall be in such form as may be approved by
the Board of Trust Managers. The seal may be used by causing it or a facsimile
thereof to be impressed, affixed or otherwise reproduced.
SECTION 6.4 EXECUTION OF WRITTEN INSTRUMENTS. Contracts, deeds,
documents, and other instruments shall be executed by the Chairman of the Board,
the Vice Chairman of the Board, the Chief Executive Officer, the President or a
Vice President and attested by the Secretary or an assistant secretary, unless
the Board of Trust Managers shall designate other authorized signatories or
other procedures for their execution.
SECTION 6.5 SIGNING OF CHECKS AND NOTES. Checks, notes, drafts, and
demands for money shall be signed by such person or persons as may be designated
by the Board
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of Trust Managers, the Chairman of the Board, the Vice Chairman of the Board,
the Chief Executive Officer or the President.
SECTION 6.6 VOTING OF SECURITIES HELD IN OTHER ENTITIES. In the absence
of other arrangements by the Board of Trust Managers, securities issued by any
other trust, corporation, partnership or other entity and owned or controlled by
this Trust may be voted at any securityholders' meeting of such other entity by
the Chairman of the Board of this Trust or, if he or she is not present at the
meeting, by the Chief Executive Officer, the President, the Vice Chairman of the
Board or any Vice President of this Trust, and in the event none of the Chairman
of the Board, the Chief Executive Officer, the President, the Vice Chairman of
the Board or any Vice President is to be present at a meeting, the securities
may be voted by such person as the Chairman of the Board and the Secretary of
the Trust shall, by duly executed proxy, designate to represent the Trust at the
meeting.
ARTICLE VII
AMENDMENTS
AUTHORITY AS TO BYLAWS. The shareholders of the Trust shall have no
authority to amend or repeal the Bylaws of the Trust, or to adopt new Bylaws
unless (i) specifically authorized to do so by a resolution duly adopted by the
Board of Trust Managers, or (ii) any Bylaw duly adopted as herein provided
expressly vests authority in the shareholders of the Trust to amend or repeal
any such Bylaw, or provides that any such Bylaw may not be amended or appealed
without such approval of the shareholders of the Trust as may be therein
provided.
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EXHIBIT 5.1
[LETTERHEAD OF JENKENS & GILCHRIST A PROFESSIONAL CORPORATION APPEARS HERE]
December 5, 1997
FFP Real Estate Trust
2801 Glenda Avenue
Fort Worth, Texas 76117
Re: FFP Real Estate Trust Issuance of Common Shares
Gentlemen:
We have acted as counsel to FFP Real Estate Trust (the "Trust"), a Texas
real estate investment trust, in connection with the preparation of the
registration statement on Form S-4 and the amendments thereto (the "Registration
Statement") filed by the Trust with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and relating to the issuance of
3,779,415 shares of common stock of the Trust, par value $.01 per share (the
"Shares"), in connection with the restructuring (the "Restructuring") of FFP
Partners, L.P. You have requested the opinion of this firm with respect to
certain legal aspects of the proposed offering.
In connection therewith, we have examined and relied upon the original, or
copies, certified to our satisfaction, of (i) Declaration of Trust and the
Bylaws of the Trust, as amended; (ii) minutes and records of the corporate
proceedings of the Trust with respect to the issuance of the Shares and related
matters; (iii) the Registration Statement and exhibits thereto, and (iv) such
other documents and instruments as we have deemed necessary for the expression
of opinions herein contained. In making the foregoing examinations, we have
assumed the genuineness of all signatures and the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
documents submitted to us as certified or photostatic copies. As to various
questions of fact material to this opinion and as to the content and form of the
Bylaws, minutes, records, resolutions and other documents or writings of the
Trust, we have relied, to the extent we deem reasonably appropriate, upon
representations or certificates of officers or trust managers of the Trust and
upon documents, records and instruments furnished to us by the Trust, without
independent check or verification of their accuracy.
Based upon the foregoing examination, we are of the opinion that the Shares
of the Trust to be issued in connection with the Restructuring, as described in
the Registration Statement, have been duly authorized for issuance and upon
consummation of the Restructuring, such Shares, when issued, will be fully paid
and nonassessable.
<PAGE>
FFP Real Estate Trust
December 4, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name as it appears under the
caption "Legal Matters" in the Prospectus and Proxy Statement forming a part of
the Registration Statement. In giving such consent, we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, and the rules and regulations of the
Securities and Exchange Commission issued thereunder.
Sincerely,
JENKENS & GILCHRIST,
a Professional Corporation
By: /s/ W. Alan Kailer
--------------------------------
W. Alan Kailer, for the Firm
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF JENKENS & GILCHRIST A PROFESSIONAL CORPORATION APPEARS HERE]
December 4, 1997
FFP Partners, L.P.
2801 Glenda Avenue
Fort Worth, Texas 76117
Re: Restructuring of FFP Partners, L.P.
Dear Gentlemen:
We have acted as counsel to FFP Partners, L.P., a Delaware limited
partnership (the "FFP Partners"), FFP Marketing Company, Inc., a Texas
corporation (the "Marketing Company"), and FFP Real Estate Trust, a Texas real
estate investment trust (the "REIT") in connection with the Restructuring of FFP
Partners pursuant to a Proxy Statement/Prospectus (the "Proxy Statement"), a
Registration Statement on Form S-4 of the Marketing Company (the "Marketing
Company Registration Statement"), and a Registration Statement on Form S-4 of
the REIT (the "REIT Registration Statement") originally filed with the
Securities and Exchange Commission under the Securities Act of 1933 on December
5, 1997. Capitalized terms not defined herein shall have the meaning ascribed
to them in the Proxy Statement.
You have requested our opinion with respect to certain matters in
connection with the Proxy Statement.
In connection with the foregoing request, FFP Partners and FFP's General
Partner have made the following representations:
(a) FFP Partners has been and will continue to be operated in
accordance with (i) all applicable partnership statutes, (ii) their
resective partnership agreements, and (iii) the description thereof in the
Proxy Statement;
(b) FFP Partners will not elect to be treated as an association
taxable as a corporation;
<PAGE>
[LETTERHEAD OF JENKENS & GILCHRIST A PROFESSIONAL CORPORATION APPEARS HERE]
FFP Partners, L.P.
December 4, 1997
Page 2
(c) FFP Partners satisfies the Pre-1997 Classification Requirements
provided in Section 301.7701-3(f)(2) of the Regulations;
(d) For each taxable year beginning after December 28, 1997, less than
10% of the gross income of FFP Partners will be derived from sources other
than "qualifying income" within the meaning of Section 7704(d) of the Code;
(e) For purposes of Section 7704 of the Code and the Treasury
Regulations thereunder, the Partnership qualifies as an "existing
partnership" within the meaning of Section 1.7704-2 of the Regulations and
will continue to so qualify through December 31, 1997;
(f) Immediately prior to the Restructuring, all indebtedness of the
Operating Partnership will be recourse indebtedness for which no limited
partner of the Operating Partnership is considered to bear the economic
risk of loss; and
(g) At the time of the Contribution, Operating Partnership's aggregate
adjusted tax basis in its assets will be greater than the amount of the
Operating Partnership's indebtedness.
Based upon the foregoing representations and the facts and assumptions
described in the Proxy Statement, the Code, existing regulations thereunder,
published rulings and judicial decisions currently outstanding, it is our
opinion that the discussion of federal income tax law set forth in the Proxy
Statement under the headings "Summary--What are my tax consequences in these
transactions?" and "Federal Income Tax Considerations" is correct.
The information set forth herein is as of the date hereof. We assume no
obligation to advise you of changes that may thereafter be brought to our
attention. Our opinions are based upon laws, regulations, published rulings and
judicial decisions in effect at the date hereof, and we do not opine with
respect to any law, regulation, rule, or governmental policy that may be enacted
or adopted after the date hereof, nor assume any responsibility to advise you of
such future changes that may affect our opinions.
<PAGE>
[LETTERHEAD OF JENKENS & GILCHRIST A PROFESSIONAL CORPORATION APPEARS HERE]
FFP Partners, L.P.
December 4, 1997
Page 3
We are rendering this opinion as of the time the Registration Statement
becomes effective. We hereby consent to the use of our name in the Registration
Statement and to the filing of this opinion as an exhibit to the Registration
Statement. This consent does not constitute an admission that we are "experts"
within the meaning of such term as used in the Securities Act of 1933.
Respectfully submitted,
JENKENS & GILCHRIST, P.C.
By: /s/ William P. Bowers
-----------------------
William P. Bowers,
Authorized Signatory
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
FFP PARTNERS, L.P.
<PAGE>
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
FFP PARTNERS, L.P.
This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is entered into
by and among FFP Partners Management Company, Inc., a Delaware corporation, as
the General Partner, and John H. Harvison, as the Organizational Limited
Partner, together with the Persons who become Limited Partners of the
Partnership, as provided herein.
The Partnership was formed by the filing or a certificate of limited
partnership with the Secretary of State of Delaware on December 31, 1986. The
General Partner and the Organizational Limited Partner now desire to amend and
restate the limited partnership agreement of the Partnership in its entirety as
follows:
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 Formation. The General Partner and the Organizational Limited Partner
have formed and hereby continue the Partnership as a limited partnership
pursuant to the provisions of the Delaware Act. Except as expressly provided
herein to the contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the
Delaware Act. The Partnership Interest of any Partner shall be personal property
for all purposes.
1.2 Name. The name of the Partnership shall be "FFP Partners, L.P." The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of any General Partner or
any Affiliate. The words "Limited Partnership" shall be included in the
Partnership's name where necessary for the purposes of complying with the laws
of any jurisdiction that so requires. The General Partner in its sole discretion
may change the name of the Partnership at any time and from time to time.
1.3 Registered Office; Principal Office. The address of the registered
office of the Partnership in the State of Delaware shall be 1209 Orange Street,
New Castle County, Wilmington, Delaware 19801, and the registered agent for
service of process on the Partnership in the State of Delaware at such
registered office shall be The Corporation Trust Company. The principal office
of the Partnership shall be located at 2801 Glenda Avenue, Fort Worth, Texas
76117, or such other place as the General Partner may from time to time
designate to the Partners. The Partnership may maintain offices at such other
place or places as the General Partner deems advisable. The business address of
the General Partner is 2801 Glenda Avenue, Fort Worth, Texas 76117; the General
Partner may change its address at any time and from time to time.
1.4 Power of Attorney.
<PAGE>
(a) Each Partner hereby constitutes and appoints the General Partner and
the Liquidator (and any successor to either of them by merger, assignment,
election or otherwise), and each of their authorized officers, with full power
of substitution as his true and lawful agent and attorney-in-fact, with full
power and authority in his name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) this Agreement, all certificates and other
instruments and all amendments thereof which the General Partner or the
Liquidator deems reasonable and appropriate or necessary to form, qualify, or
continue the qualification of, the Partnership as a limited partnership (or a
partnership in which limited partners have limited liability) in the State of
Delaware and in all other jurisdictions in which the Partnership may conduct
business or own property; (B) all instruments which the General Partner or the
Liquidator deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its terms; (C)
all conveyances and other instruments or documents which the General Partner or
the Liquidator deems appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this Agreement,
including a certificate of cancellation; (D) all instruments relating to the
admission, withdrawal or substitution of any Partner pursuant to Article XI,
Article XII or Article XIII; and (E) all instruments (including this Agreement
and any and all amendments and restatements hereof) relating to the
determination of the rights, preferences and privileges of any class or series
of Units issued pursuant to Section 4.3 of this Agreement; and
(ii) sign, execute swear to and acknowledge all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or necessary,
in the sole discretion of the General Partner or the Liquidator, to make,
evidence, give, confirm or ratify any vote, consent, approval, agreement or
other action which is made or given by the Partners hereunder or is consistent
with the terms of this Agreement and/or appropriate or necessary, in the sole
discretion of the General Partner or the Liquidator, to effectuate the terms or
intent of this Agreement; provided, however, that when required by Section 15.3
or Section 15.9 or any provision of this Agreement which establishes a
percentage of the Limited Partners required to take any action, the General
Partner or the Liquidator may exercise the power of attorney made in this
subsection (ii) only after the necessary vote, consent or approval by a Majority
Interest or other required percentage.
Nothing herein contained shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with Article XV or as may be
otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, and it shall survive and not be affected
by the subsequent death, incompetency, disability, incapacity, dissolution,
bankruptcy or termination of any Partner or the transfer of all or any portion
of his Partnership Interest and shall extend to such Partner's heirs,
successors, assigns and personal representatives. Each such Partner hereby
agrees to be bound by any representations made by the General Partner or the
Liquidator, acting in good faith pursuant to such power of attorney; and each
such Partner hereby waives any and all defenses which may
<PAGE>
be available to contest, negate or disaffirm the action of the General Partner
or the Liquidator, taken in good faith under such power of attorney. Each
Partner shall execute and deliver to the General Partner or the Liquidator
within 15 days after receipt of the General Partner's or the Liquidator's
request therefor, such further designations, powers of attorney and other
instruments as the General Partner or the Liquidator deems necessary to
effectuate this Agreement and the purposes of the Partnership.
1.5 Term. The Partnership commenced upon the filing of the Certificate of
Limited Partnership of the Partnership in accordance with the Delaware Act and
shall continue in existence until the close of Partnership business on December
31, 2037, or until the earlier termination of the Partnership in accordance with
the provisions of Article XIV. The General Partner shall not commence or engage
in any business on behalf of the Partnership until after the Commencement Date,
other than matters necessary or incidental to the Partnership's organization
(including, without limitation, the issuance of an interest in the Partnership
to the Organizational Limited Partner) and qualification, the organization and
qualification of the Operating Partnership or the issuance of Units to the
Initial Limited Partners.
1.6 Organizational Limited Partner. In order to create the Partnership under
the Delaware Act, the General Partner has accepted contributions to the capital
of the Partnership in the amount of $990 from the Organizational Limited Partner
for an interest in the Partnership, and the Organizational Limited Partner has
been admitted to the Partnership as a Limited Partner. As of the Commencement
Date and the admission to the Partnership of the Initial Limited Partners, the
interest in the Partnership of the Organizational Limited Partner shall be
terminated and the amounts contributed by him to the Partnership shall be
refunded and the Organizational Limited Partner shall withdraw as a Limited
Partner. Ninety-nine percent (99%) of any interest or other profit which may
have resulted from the investment or other use of such amounts paid by the
Organizational Limited Partner to the Partnership shall be allocated and
distributed to the Organizational Limited Partner and the balance thereof shall
be allocated and distributed to the General Partner. The interest in the
Partnership of the Organizational Limited Partner is not transferable except by
operation of law.
ARTICLE II
DEFINITIONS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 12.3 and shown as a Limited Partner on the
books and records of the Partnership.
"Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Section 4.5(d)(i).
<PAGE>
"Affiliate" means any Person that directly or indirectly controls, is
controlled by, or is under common control with the Person in question. As used
in the definition of "Affiliate," the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management policies of a Person, whether through ownership of voting securities,
by contract or otherwise.
"Affiliated Partnership" means a partnership which is an Affiliate of the
Partnership and in which the Partnership owns a partnership interest.
"Affiliated Partnership Agreement" means the partnership agreement entered
into by the partners of an Affiliated Partnership.
"Agreed Value" of the interest in the Original Properties transferred by
the Transferors to the Partnership, pursuant to Section 4.2, means the sum of
(a) that amount arrived at by multiplying the number of Class B Units issued in
exchange for the conveyance of such properties pursuant to the Conveyance
Agreement by the Initial Class A Unit Price, plus (b) the amount of any
indebtedness or liabilities either assumed by the Partnership upon such exchange
or to which such Contributed Property is subject, when contributed. "Agreed
Value" of the interest in the Original Properties being contributed by the
Transferors on behalf of the General Partner pursuant to Section 4.1(a), means
the amount which is proportionate to the Agreed Value of the interest
transferred by the Transferors to the Partnership, pursuant to Section 4.2(a),
based on the respective interest so contributed or transferred. "Agreed Value"
of any other Contributed Property transferred to the Partnership means the fair
market value of such property or other consideration as determined by the
General Partner using such reasonable method of valuation as may be adopted by
the General Partner. The General Partner shall, in its discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate Agreed
Value of the Contributed Properties transferred to the Partnership in a single
or integrated transaction among each separate property. The Agreed Value of any
Contributed Property shall reflect any adjustments made pursuant to Sections
4.5(b)(iv) and 4.5(c).
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may he amended, supplemented or restated from time to time.
"Assignee" means a Person to whom one or more Units have been transferred,
by assignment or otherwise in a manner permitted under this Agreement, and who
has delivered a Transfer Application to the Transfer Agent pursuant to this
Agreement, but who has not become a Substituted Limited Partner.
"Book-Tax Disparities" means the differences between a Partner's Capital
Account balance, as maintained pursuant to Section 4.5, and such balance had the
Capital Account been maintained strictly in accordance with tax accounting
principles (such disparities reflecting the differences between the Carrying
Value of either Contributed Properties or Adjusted Properties, as adjusted from
time to time, and the adjusted basis thereof for federal income tax purposes).
<PAGE>
"Built-in Gain" or "Built-in Loss" means the difference between the
Carrying Value of each item of Partnership property, as adjusted from time to
time, and the adjusted basis thereof for federal income tax purposes.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the Government of the United States or the
States of Texas or New York shall not be regarded as a Business Day.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 4.5.
"Capital Contribution" means any cash and cash equivalents or Contributed
Property (or services rendered) which a Partner contributes to the Partnership,
pursuant to Sections 4.1, 4.2 or 4.3.
"Capital Transaction" means any taxable disposition of Partnership assets
or property that results in a net taxable gain or loss that the General Partner
deems substantial as compared to the net income or net loss from operations for
the fiscal year in which the disposition occurs.
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
cost recovery and amortization deductions charged to the Partners' Capital
Accounts pursuant to Section 4.5(a) with respect to such property, and (b) with
respect to any other property, the adjusted basis of such property for federal
income tax purposes, as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with Sections 4.5(c)
and 4.5(d), and to reflect changes, additions or other adjustments to the
Carrying Value for dispositions, acquisitions or improvements of Partnership
properties, as deemed appropriate by the General Partner.
"Certificate" means a certificate issued by the Partnership evidencing
ownership of one or more Units.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership filed with the Secretary of State of the State of Delaware pursuant
to Section 6.2, as it may be amended and/or restated from time to time.
"Class A Limited Partner" and "Class B Limited Partner" have the respective
meanings specified in the definition of "Limited Partner" below in this Article
II.
"Class A Units" means that certain class of Units representing the
Partnership Interests of all Class A Limited Partners.
"Class B Units" means that certain class of Units representing the
Partnership interests of all Class B Limited Partners.
"Class Percentage Interest" means, with respect to one or more Limited
Partners or Assignees included in a class, that fraction, expressed as a
percentage, the numerator of which is
<PAGE>
such Limited Partners' or Assignees' Units of such class, and the denominator of
which is the total number of such Units of such class outstanding as of the date
of such determination,
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, and applicable regulations thereunder. Any reference herein
to a specific section or sections of the Code shall be deemed to include a
reference to any corresponding provision of future law.
"Commencement Date" means the same as the "Closing Date"' as defined in the
Underwriting Agreement.
"Contributed Property" means each Contributing Partner's interest in each
property or other consideration, in such form as may be permitted by the
Delaware Act, but excluding cash and cash equivalents, contributed to the
Partnership by such Contributing Partner (or deemed contributed to the
Partnership upon termination thereof pursuant to Section 708 of the Code). Once
the Carrying Value of a Contributed Property is adjusted pursuant to Section
4.5(d)(i), such property shall no longer constitute a Contributed Property for
purposes of Section 5.2(b) but shall be deemed an Adjusted Property for such
purposes.
"Contributing Partner" means each Partner contributing (or deemed to have
contributed, upon termination of the Partnership pursuant to Section 708 of the
Code or otherwise) a Contributed Property to the Partnership in exchange for
Units.
"Conveyance Agreement" means that agreement among the Transferors, the
General Partner, the Partnership and the Operating Partnership wherein, among
other things, (a) the Transferors, on behalf of themselves and the General
Partner, each contribute and convey to the Partnership certain designated assets
and the Partnership assumes designated liabilities, if any, and related
obligations, and (b) the Partnership contributes and conveys such assets to the
Operating Partnership and the Operating Partnership assumes such designated
liabilities, if any, and related obligations.
"Deficiency" has the meaning specified in Section 5.3(d).
"Deficit" has the meaning specified in Section 5.3(e).
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act,
6 Del. C. (S)17-101, et seq., as it may be amended from time to time, and any
successor to such Act.
"Departing Partner" means a former General Partner, as of the effective
date of any withdrawal or removal of such former General Partner pursuant to
Section 13.1 or 13.2.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
any successor to such statute.
"General Partner" means FFP Partners Management Company, Inc., or its
successor in its capacity as general partner of the Partnership.
<PAGE>
"Indemnitee" has the meaning specified in Section 6.9.
"Initial Class A Unit Price" means that price specified in the Underwriting
Agreement for the Initial Offering as the price at which a Class A Unit will be
purchased from the Partnership by the Underwriters.
"Initial Limited Partners" means the Transferors purchasing Class B Units
and the Underwriters purchasing Class A Units in the Initial Offering, in
accordance with Section 4.2 and shown as such on the books and records of the
Partnership.
"Initial Offering" means the first public offering of Class A Units
(including pursuant to any exercise of the overallotment option), all as
described in the Registration Statement.
"Issue Price" means the price at which a Unit is purchased from the
Partnership.
"Limited Partner" means any Person who is a Limited Partner of the
Partnership, including a Class A Limited Partner and a Class B Limited Partner,
but not including the Organizational Limited Partner (i.e., each Initial Limited
Partner, each Substituted Limited Partner, each Additional Limited Partner, and
any Departing Partner upon the conversion of its Partnership Interest or its
interest in the Operating Partnership into Units pursuant to Section 13.2), and
shown as a Limited Partner on the books and records of the Partnership; a
Limited Partner may be designated a "Class A Limited Partner" or "Class B
Limited Partner" depending upon the class of Units such Limited Partner holds,
and for the purposes of determining allocations and distributions under Articles
V and XIV, an Assignee.
"Liquidator" has the meaning specified in Section 14.3.
"Majority Interest" means the owners of more than 50% of the aggregate
Percentage Interests owned by all Partners. Except as otherwise expressly
provided in this Agreement or under applicable law or regulation, Units held in
the name of the General Partner as Record Holder on the pertinent Record Date
shall be entitled to vote or approve and be counted on any matter submitted to
Partners for their vote or approval.
"Maximum Tax Liability" means an amount equal to (a) the aggregate taxable
income with respect to all Class A Units for a fiscal year (as estimated by the
General Partner using assumptions and projections it deems necessary) divided by
the number of outstanding Class A Units as of the end of the particular year,
multiplied by (b) the highest effective federal income tax rate for individuals
in effect for that fiscal year.
"Minimum Gain" means the amount, if any, by which the total principal
balance of the indebtedness of the Partnership that is secured by assets of the
Partnership and for which no Partner has any personal liability (excluding any
portion of such principal balance that would not be treated as an amount
realized under Section 1001 of the Code and Section 1.1001-2(a) of the Treasury
Regulations if such indebtedness were foreclosed upon) exceeds the Partnership's
<PAGE>
adjusted tax basis in such assets. For purposes of this Agreement, a Partners
share of Partnership Minimum Gain shall be determined in accordance with the
provisions of Treasury Regulation Section 1.704-1 (b)(4)(iv)(f).
"NASDAQ" means. the National Association of Securities Dealers Automated
Quotation System.
"National Securities Exchange" means an exchange registered with the
Securities and Exchange Commission under Section 6(a) of the Exchange Act.
"Net Agreed Value" means (a) in the case of a partnership interest in the
Operating Partnership contributed to the Partnership by a Departing Partner
pursuant to Section 13.2, the amount of the capital account attributable to such
partnership interest under the Operating Partnership Agreement as of the end of
the fiscal month immediately preceding the fiscal month during which such
contribution is made, (b) in the case of any Contributed Property, the Agreed
Value of such property or other consideration reduced by any indebtedness or
liabilities either assumed by the Partnership upon such contribution or to which
such property is subject when contributed, and (c) in the case of any property
currently distributed to a Partner pursuant to Section 5.3 or distributed in
liquidation of the Partnership pursuant to Sections 14.3 and 14.4, the
Partnership's Carrying Value of such property at the time such property is
distributed reduced by any indebtedness either assumed by such Partner upon such
distribution or to which such property is subject at the time of distribution.
"Operating Income" and "Operating Loss" of the Partnership, as the case may
be, means, for any taxable period, the amount by which the gross income of the
Partnership (other than income and gain in a Terminating Capital Transaction and
other than items of income or gain allocated pursuant to Section 5.1(b) through
(d) and Section 5.2(b) through (h)) during such period, exceeds (in the case of
Operating Income) or is less than (in the case of Operating Loss) the sum of all
items of loss or deduction that are allowable as deductions (other than items of
depreciation, cost recovery and amortization, loss and deduction in a
Terminating Capital Transaction and other than items of deduction or loss
allocated pursuant to Section 5.1(b) through (d) and Section 5.2(b) through (h))
to the Partnership under the Code with respect to such period, as calculated for
federal income tax purposes and reported by the Partnership on its federal
income tax partnership return.
"Operating Partnership" means FFP Operating Partners, L.P., the limited
partnership established under the Delaware Act and by the Operating Partnership
Agreement.
"Operating Partnership Agreement" means the limited partnership agreement
pursuant to which the Operating Partnership is formed, as it may he amended or
restated from time to time.
"Opinion of Counsel" means a written opinion of counsel (who may be regular
counsel to the Partnership or the General Partner) acceptable to the General
Partner,
"Organizational Limited Partner" means John H. Harvison, in his capacity as
the organizational limited partner pursuant to this Agreement.
<PAGE>
"Original Properties" means those certain assets of the Transferors, all as
described in the Conveyance Agreement, interests in which are to he contributed
to the Partnership by the Transferors on behalf of themselves and the General
Partner pursuant to Article IV
"Outstanding" means the number of Units issued by the Partnership and shown
on the Partnership's books and records to be outstanding, less any Units held by
the Partnership or the Operating Partnership.
"Partner" means the General Partner or a Limited Partner.
"Partnership" means the limited partnership organized pursuant to this
Agreement.
"Partnership Interest" means the interest of a Partner or Assignee in the
Partnership.
"Percentage Interest" means (a) as to the General Partner, 1%, and (b) as
to any Limited Partner or Assignee included in a class, the product of 99% times
the Class Percentage Interest of each such Limited Partner or Assignee with
respect to the class for which the determination is being made, provided that
unless otherwise specifically stated herein, or in the designation fixed by the
General Partner pursuant to Section 4.3(a) with respect to a particular class,
the determinations of Percentage Interest of Limited Partners and Assignees of
all classes shall be made as though all Limited Partners and Assignees were
members of one class.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Prescribed Asset Value" means, as of any date of determination, that
amount equal to the sum of (a) the quotient obtained by dividing (i) an amount
equal to the product of (1) the total number of Outstanding Units of a
particular class (immediately prior to an issuance of Units of such class
pursuant to Section 4.3, if such issuance triggered an asset valuation pursuant
to Section 4.5(d)(i)) times (2)(A) in the case of a valuation occasioned by an
issuance of Units of such class pursuant to Section 4.3, the Issue Price as of
the date of issuance or (B) in the case of a valuation occasioned by a deemed
distribution resulting from a constructive termination of the Partnership
pursuant to Section 708 of the Code, the Unit Price for Units of such class as
of the date of deemed distribution, by (ii) the Percentage Interest represented
by all Outstanding Units of that class (immediately prior to an issuance of
Units pursuant to Section 4.3 if such issuance triggered an asset valuation
pursuant to Section 4.5(d)(i)) or by the Percentage Interest represented by all
Outstanding Units of all classes (immediately prior to an asset valuation
pursuant to Section 4.5(d)(ii)), plus (b) the amount of any outstanding
Partnership liability or other indebtedness, as of the date of determination.
"Purchase Date" means the date determined by the General Partner as the
date for purchase of all Outstanding Units (other than Units owned by the
General Partner and its Affiliates) pursuant to Section 17.1(b).
<PAGE>
"Purchase Funds" means an amount in cash equal to the aggregate Purchase
Price of all Units subject to purchase by the General Partner on the Purchase
Date in accordance with Section 17.1.
"Purchase Price" means an amount per Unit equal to the greater of (a) the
highest cash price paid by the General Partner or any Affiliate thereof for any
Unit purchased during the 90 days immediately prior to the date on which the
notice described in Section 17.1(b) is first mailed, if any such purchase
occurred during such period, or (b)(i) if the Units are listed or admitted to
trading on one or more National Securities Exchanges, the average of the last
reported sale prices per Unit regular way or, in case no such reported safe has
taken place on any such day, the average of the last reported bid and asked
prices per Unit regular way, in either case on the principal National Securities
Exchange on which the Units are listed or admitted to trading, for the 30
trading days immediately preceding the date of the mailing of such notice, (ii)
if the Units are not listed or admitted to trading on a National Securities
Exchange but are quoted by NASDAQ, the average of the closing bid per Unit for
the 30 trading days immediately preceding the date of the mailing of such
notice, as furnished by the National Quotation Bureau Incorporated or such other
nationally recognized quotation service as may be selected by the General
Partner for such purpose if said Bureau is not at the time furnishing
quotations, or (iii) if the Units are not listed for trading on a National
Securities Exchange or quoted by NASDAQ, an amount equal to the fair market
value of a Unit as of the date of the mailing of such notice, as determined by
the General Partner using any reasonable method of valuation.
"Recapture Income" means any gain recognized by the Partnership (but
computed without regard to any adjustment as may be required by Section 734 or
743 of the Code) upon the disposition of any property or asset of the
Partnership that does not constitute capital gain for federal income tax
purposes because such gain represents the recapture of deductions previously
taken with respect to such property or assets.
"Record Date" means the date established by the General Partner for
determining (a) the identity of Limited Partners entitled to notice of or to
vote at any meeting of Limited Partners or entitled to vote by ballot or give
consent to Partnership action in writing without a meeting or entitled to
exercise rights in respect of any other lawful action of Limited Partners, or
(b) the identity of Record Holders entitled to receive any report or
distribution.
"Record Holder" as applied to a Unit means the Limited Partner or Assignee
in whose name the Unit is registered on the books of a Transfer Agent as of the
close of business on a particular Business Day.
"Registration Statement" means the Registration Statement on Form S-1, as
it has been or as it may be amended from time to time, filed by the Partnership
with the Securities and Exchange Commission under the Securities Act to register
the offering and sale of the Class A Units in the Initial Offering.
"Residual Gain" or "Residual Loss" means any net gain or net loss, as the
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or
<PAGE>
other disposition of a Contributed Property or Adjusted Property, to the extent
such net gain or net loss is not allocated pursuant to Section 5.2(b) to
eliminate Book-Tax Disparities.
"Securities Act" means the Securities Act of 1933, as amended, and any
successor to such statute.
"Subordination Period" means that period beginning with the Commencement
Date and terminating on the last day of fiscal year 1989.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 12.2 in place of and with all the
rights of a Limited Partner and who is shown as a Limited Partner on the books
and records of the Partnership.
"Terminating Capital Transaction" means any sale, condemnation, exchange,
abandonment or other disposition, whether by foreclosure or otherwise, of all or
substantially all of the then remaining assets of the Partnership and/or any
other transaction which will result in a dissolution of the Partnership.
"Transfer Agent" means a bank, trust company or other Person (including the
General Partner) appointed by the Partnership to act as transfer agent for
Units.
"Transfer Application" means an application and agreement for transfer of
Units in the form set forth on the back of a Certificate or in a form
substantially to the same effect in a separate instrument by which a transferee
(a) requests admission as a Substituted Limited Partner, (b) agrees to be bound
by the terms and conditions of, and executes, this Agreement, (c) represents
that he has authority to enter into this Agreement, (d) grants powers of
attorney to the General Partner and the Liquidator and (e) makes the consents
and waivers contained herein.
"Transferors" means Dynamic Industries, Inc., a Texas corporation, Economy
Oil Company, a Texas corporation, Gas-A-Way Distributors, Inc., a Texas
corporation, Gas-Go, Inc., a Louisiana corporation, Gas-N-Sav, Inc., a Texas
corporation, Hi-Lo Corporation, a Texas corporation, Hi-Lo Distributors, Inc., a
Texas corporation, Nu-Way Oil Company, a Texas corporation, Nu-Way Distributing
Company, a Texas corporation, Southway, Inc., a Texas corporation, State Gas &
Oil, Inc., a Texas corporation, Thrift Wholesale Company, a Texas corporation,
Thrift Distributors, Inc., a Texas corporation, Thrift-Way, Inc., a Texas
corporation, and Swifty Distributors, Inc., a Texas corporation.
"Transferors' Other Properties" means the property and equipment of the
Transferors which will be purchased by the Partnership using proceeds from the
Initial Offering.
"Underwriters" means the underwriting firms named in the Underwriting
Agreement that agree to purchase Units from the Partnership.
<PAGE>
"Underwriting Agreement" means that agreement between the Partnership, the
Operating Partnership, and the Underwriters, among others, with respect to the
Initial Offering, as it may be amended or supplemented from time to time.
"Unit" means a Partnership Interest of a Limited Partner or Assignee in the
Partnership representing such fractional part of the Partnership Interests of
all the Limited Partners and Assignees as shall be determined by the General
Partner pursuant to Sections 4.2 and 4.3 in connection with the issuance of
Partnership Interests to the Initial Limited Partners and the making of Capital
Contributions by Additional Limited Partners; provided that each Unit at any
time outstanding shall represent the same fractional part of the Partnership
Interests of all Limited Partners and Assignees as each other Unit (unless any
class or series of Units issued pursuant to Section 4.3(a) shall have
designations, preferences or special rights such that a Unit of such class or
series shall represent a greater or lesser part of the Partnership Interests of
all Limited Partners and Assignees than a Unit of any other class or series of
Units, in which event the Partnership Interest represented by a Unit of such
class or series shall be determined in accordance with such designations,
preferences and special rights as are fixed by the General Partner pursuant to
Section 4.3(a) with respect to such class or series of Units).
"Unit Price" of a Unit of any class means, as of any date of determination,
(a) if the Units of such class are listed or admitted to trading on one or more
National Securities Exchanges, the average of the last reported sale prices per
Unit regular way or, in case no such reported sale has taken place on any such
day, the average of the last reported bid and asked prices per Unit regular way,
in either case on the principal National Securities Exchange on which the Units
of such class are listed or admitted to trading, for the four trading days
immediately preceding the date of determination, (b) if the Units of such class
are not listed or admitted to trading on a National Securities Exchange but are
quoted by NASDAQ, the average of the closing bid prices per Unit of such class
for the four trading days immediately preceding such date of determination, as
furnished by the National Quotation Bureau Incorporated or such other nationally
recognized quotation service as may be selected by the General Partner for such
purpose if said Bureau is not at the time furnishing quotations, or (c) if the
Units of such class are not listed for trading on a National Securities Exchange
or quoted by NASDAQ, an amount equal to the fair market value of a Unit of such
class as of such date of determination, as determined by the General Partner
using any reasonable method of valuation.
"Unrealized Gain" attributable to a Partnership property means, as of any
date of determination, the excess, if any, of the fair market value of such
property (as determined under Section 4.5(d)) as of such date of determination
over the Carrying Value of such property as of such date of determination (prior
to any adjustment to be made pursuant to Section 4.5(d) as of such date).
"Unrealized Loss" attributable to a Partnership property means, as of any
date of determination, the excess, if any, of the Carrying Value of such
property as of such date of determination (prior to any adjustment to be made
pursuant to Section 4.5(d) as of such date) over the fair market value of such
property (as determined under Section 4.5(d)) as of such date of determination.
<PAGE>
ARTICLE III
PURPOSE
The purpose and business of the Partnership shall be any business which may
lawfully be conducted by a limited partnership organized pursuant to the
Delaware Act, including, without limitation, the acquisition, ownership,
leasing, management, operation and disposition of the Original Properties and
the Transferors'
Other Properties; the acquisition, management, operation and disposition of
convenience stores, truck stops and self-service gasoline facilities and
equipment in the United States and, if deemed advisable by the General Partner
in its sole discretion, in foreign countries; the carrying on of any business
relating thereto, incidental thereto or arising therefrom; the entering into of
any partnership, joint venture or other similar arrangement to engage in any of
the foregoing or the ownership of interests in any entity engaged in any of the
foregoing, including the ownership of a limited partner's interest in the
Operating Partnership; and anything incidental or necessary to the foregoing.
Any of the foregoing activities may be conducted directly by the Partnership or
indirectly through the Operating Partnership, and any properties, assets or
liabilities related to such activities may be acquired and held by the Operating
Partnership
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 General Partner.
(a) On the Commencement Date, the General Partner (or the Transferors on
its behalf) shall contribute to the Partnership cash and cash equivalents in an
amount, or property or other consideration in such form as may be permitted by
the Delaware Act, including an interest in the Original Properties described in
the Conveyance Agreement, having a Net Agreed Value such that its Capital
Contribution then being made as General Partner shall be equal to 1% of the
total Capital Contributions (based on the amounts credited to Capital Accounts
on account thereof) to the Partnership then being made pursuant to Sections 4.1
and 4.2. At the time of such Capital Contribution, the Partnership may assume
(or take the contributed properties subject to) certain liabilities and shall
assume certain related obligations in accordance with the Conveyance Agreement.
(b) (i) On or following the Commencement Date, whenever a Partner makes a
Capital Contribution to the Partnership pursuant to Section 4.3, the General
Partner shall contribute to the Partnership cash in an amount, or property
having a Net Agreed Value, such that its Capital Contribution as General Partner
shall be equal to 1% of the total Capital Contributions (based on the amounts
credited to Capital Accounts on account thereof) to the Partnership, including
those then being made pursuant to this Section 4.1 or Section 4.3, as the case
may be.
<PAGE>
(ii) After the Subordination Period (or, if later, after the fiscal
year with respect to which any Deficiency is eliminated by cash distributions),
the General Partner may, but shall not be obligated to, make voluntary
contributions to the Partnership of cash and cash equivalents in an amount, or
property having a Net Agreed Value, in an amount equal to the product of (a) the
amount by which the Capital Account per Class B Unit as of the last day of the
Subordination Period (or, if later, the last day of the fiscal year with respect
to which any Deficiency is eliminated by cash distributions) exceeds the Capital
Account per Class A Unit as of the last day of the Subordination Period (or, if
later, the last day of the fiscal year with respect to which any Deficiency is
eliminated by cash distributions), multiplied by (b) the number of Outstanding
Class B Units.
(c) Any Capital Contribution required of the General Partner pursuant to
Section 4.1(b) may be accomplished by the redesignation of Capital Contributions
with respect to Units owned by the General Partner as Capital Contributions with
respect to its Partnership Interest as General Partner, whereupon the General
Partner shall be deemed to have surrendered to the Partnership those Units, and
shall deliver to the Transfer Agent for cancellation those Units, the Capital
Contributions with respect to which have thus been redesignated. For purposes of
any such redesignation, the Net Agreed Value of Capital Contributions with
respect to Units shall, for each Unit being surrendered, be (i) the cash
consideration per Unit that is received by the Partnership upon the issuance of
any Units solely in exchange for cash in the transaction that gives rise to the
requirement for the additional Capital Contribution of the General Partner, or
(ii) the Unit Price per Unit as of a date reasonably related to such
redesignation in the event Units are issued at least partially in exchange for
consideration other than cash in the transaction that gives rise to the
requirement for the additional Capital Contribution of the General Partner.
(d) In connection with making any required general partner's capital
contributions to the Operating Partnership pursuant to Article IV of the
Operating Partnership Agreement, the General Partner may tender to the
Partnership any Units it owns in exchange for a portion of the Partnership's 99%
interest in the Operating Partnership. In such event, the General Partner shall
be deemed to have surrendered any such Units to the Partnership for
cancellation. Upon the tender of such Units, the Partnership shall distribute to
the General Partner 99% of an interest as a limited partner in the Operating
Partnership that bears the same ratio to the entire limited partner interest in
the Operating Partnership as the number of such tendered Units bears to the
aggregate of all Outstanding Units, as determined immediately prior to the date
of tender.
4.2 Limited Partners.
(a) The Transferors shall contribute to the Partnership cash and cash
equivalents in an amount, or property or other consideration in such form as may
be permitted by the Delaware Act (including specifically the interests in the
Original Properties as described in the Conveyance Agreement), in exchange for
that number of Class B Units, all as set forth in the Conveyance Agreement. In
the event and to the extent that the overallotment option as described in the
Registration Statement is exercised by the Underwriters, the Units issued by the
Partnership upon such exercise shall be Class A Units, which shall be purchased
from the Partnership at the Initial
<PAGE>
Class A Unit Price times the number of Units purchased upon exercise, all
pursuant to the Underwriting Agreement. In the event and to the extent that the
overallotment option is not so exercised or expires by its terms, additional
Class B Units shall be issued to the Transferors, which shall be subject to the
same terms and conditions of this Agreement and to the same extent as the Class
B Units issued above pursuant to this Section 4.2(a). At the time of such
Capital Contribution, the Partnership shall assume (or take the Original
Properties subject to) certain related obligations all in accordance with the
Conveyance Agreement.
(b) The Underwriters (i) shall contribute to the Partnership in cash on
the Commencement Date the amount of the Initial Class A Unit Price multiplied by
the number of Class A Units specified in the Underwriting Agreement to be
purchased from the Partnership by the Underwriters at the "Closing Date," as
such term is used in the Underwriting Agreement, and (ii) on or following such
Commencement Date (but not later than the first Business Day following the
expiration date of the overallotment option granted to the Underwriters as
described in the Underwriting Agreement) may contribute to the Partnership in
cash, pursuant to exercise of the overallotment option, an amount of the Initial
Class A Unit Price multiplied by a number of Class A Units equal in an amount up
to 15% of the number of Class A Units purchased from the Partnership by the
Underwriters under (i) above.
(c) After the Subordination Period (or, if later, after the fiscal year
with respect to which any Deficiency is eliminated by cash distributions), the
holders of Class B Units may, but shall not be obligated to, make voluntary
contributions to the Partnership of cash and cash equivalents in an amount, or
property having a Net Agreed Value, equal to the product of (i) the amount, if
any, by which the Capital Account per Class A Unit as of the last day of the
Subordination Period (or, if later, the last day of the fiscal year with respect
to which any Deficiency is eliminated by cash distributions) exceeds the Capital
Account per Class B Unit as of the last day of the Subordination Period (or, if
later, the last day of the fiscal year with respect to which any Deficiency is
eliminated by cash distributions), multiplied by (ii) the number of Outstanding
Class B Units.
(d) On and after the expiration of the Subordination Period (or, if later,
after any fiscal year with respect to which any Deficiency is eliminated by cash
distributions), Class B Units shall be convertible into Class A Units; provided,
however, that such conversion shall not occur unless and until either (i) the
General Partner shall have made the voluntary contribution permitted by Section
4.l(b)(ii) and the Partnership shall have made the special distribution with
respect to Class B Units permitted by Section 5.3(f) or (ii) the holders of the
Class B Units shall have made the voluntary contribution permitted by Section
4.2(c).
4.3 Additional Issuances of Securities; Additional Issuance of Units.
(a) (i) The Partnership shall have such classes of Units as the General
Partner may establish pursuant to this Section 4.3. As of the Closing Date,
there shall be two classes of Units: the Class A Units and the Class B Units.
The General Partner, acting on behalf of the Partnership and subject to the
terms and conditions of this Agreement, may admit other classes of Limited
Partners, issue Class A Units and Class B Units and such other class or classes
of Units as may
<PAGE>
be established. The Class A Units and the Class B Units shall be identical
except that (A) distributions with respect to the Class B Units shall be subject
to subordination to the Class A Units during the Subordination Period (or, if
later, during any fiscal year for which any Deficiency exists as of the first
day thereof) pursuant to Section 5.3(c), (B) allocations with respect to the
Class B Units shall be made pursuant to Section 5.2 and (C) upon the expiration
of the Subordination Period (or, if later, the expiration of the fiscal year
with respect to which any Deficiency is eliminated by cash distributions) the
Class B Units shall be convertible into Class A Units in accordance with, but
subject to the terms and conditions of, Section 11.7.
(ii) Subject to Section 4.3(b) and 6.1(c) below, in order to raise
additional capital or to acquire assets, to redeem or retire Partnership debt,
to comply with any provision of the Operating Partnership Agreement or for any
other Partnership purposes, the General Partner is authorized to cause the
Partnership to issue Units in addition to those issued pursuant to Section 4.2
at any time or from time to time to the General Partner, to Limited Partners or
to other Persons and to admit them to the Partnership as Additional Limited
Partners, all without any consent or approval of the Limited Partners or any
percentage thereof (other than in the situation described in the last sentence
of Section 4.3(b)). Subject to Section 4.3(b), the General Partner shall have
sole and complete discretion in determining the consideration and terms and
conditions with respect to any future issuance of Units. In addition, the
General Partner shall have sole and complete discretion to cause the Partnership
to issue Units from time to time in one or more classes, or one or more series
of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to existing classes and series of Units, as
shall be fixed by the General Partner in the exercise of its sole and complete
discretion, including, without limitation, (i) the allocation of items of
Partnership income, gain, loss, deduction and credit to each such class or
series of Units; (ii) the right of each such class or series of Units to share
in Partnership distributions; (iii) the rights of each such class or series of
Units upon dissolution and liquidation of the Partnership; (iv) the price at
which and the terms and conditions, if any, upon which each such class or series
of Units may be redeemed by the Partnership; (v) the rate at which and the terms
and conditions upon which each such class or series of Units may be converted
into another class or series of Units of the Partnership, if any such class or
series is convertible into other securities of the Partnership; (vi) the rate at
which and the terms and conditions upon which such class or series of Units may
be exchanged, at the option of the Partnership or at the option of the holder of
Units of such class or series, for any other securities (including those of the
Partnership) if any such class or series of Units are issued having the
privilege of being so exchangeable expressly pursuant to the terms of such class
or series; (vii) the terms and conditions upon which each such class or series
of Units will be issued and all other matters relating to the assignment
thereof; and (viii) the right of each such class or series of Units to vote on
Partnership matters, including matters relating to the relative rights,
preferences and privileges of each such class or series. Upon or prior to the
issuance of any class or series of Units which shall not be identical to the
Class A Units or Class B Units issued on the Commencement Date to the Initial
Limited Partners, the General Partner, without the consent at the time of any
Limited Partner or Assignee, each Limited Partner and Assignee hereby consenting
to any and each such amendment, may amend any provision of this Agreement and,
exercising the power of attorney granted pursuant to Section 1.4 (a)(i)(E), may
execute, swear to, acknowledge, deliver, file and
<PAGE>
record such documents as the General Partner may in its sole discretion
determine to be necessary or appropriate in connection therewith in order to
reflect the authorization and issuance of each such class or series of Units and
the relative rights and preferences as to the matters set forth in the preceding
sentence. The General Partner is also authorized to cause the Partnership to
issue any other type of security, including, without limitation, secured and
unsecured debt obligations of the Partnership, debt obligations of the
Partnership convertible into any class or series of Units that may be issued by
the Partnership or exchangeable for such other security or securities (of the
Partnership or otherwise), or options, rights, warrants or appreciation rights
relating to any class or series of Units, any debt obligations or any
combination of any of the foregoing, from time to time to the General Partner or
to Limited Partners or other Persons on terms and conditions established in the
sole and complete discretion of the General Partner. Any such issuance of other
types of securities may be made without the approval at the time of any Limited
Partner or Assignee, each Limited Partner and Assignee hereby approving of any
and each such issuance, and upon or prior to the issuance of any such other type
of security, the General Partner, without the approval at the time of any
Limited Partner or Assignee, each Limited Partner and Assignee hereby approving
of any and each such amendment, may amend any provision of this Agreement and,
exercising the power of attorney granted pursuant to Section l.4(a)(i)(E), may
execute, swear to, acknowledge, deliver, file and record such documents as the
General Partner may in its sole discretion determine to be necessary or
appropriate in connection therewith in order to reflect the authorization and
issuance of each such other type of security. The General Partner shall do all
things it deems to be appropriate or necessary to comply with the Delaware Act
and is authorized and directed to do all things it deems to be necessary or
advisable in connection with any such future issuance, including compliance with
any statute, rule, regulation or guideline of any federal, state or other
governmental agency or any securities exchange on which the Units or other such
security or securities are listed for trading.
(b) The General Partner or any Affiliate thereof may, but is not obligated
to, make Capital Contributions to the Partnership in the form of cash or other
property in exchange for Units; provided, however, that during the Subordination
Period (or, if later, during any fiscal year for which any Deficiency remains
unpaid) the Partnership shall not issue to any Person Units of any class to
which the Class A Units are expressly subordinated as to distributions. The
foregoing shall not prohibit a pro rata distribution to all holders of Class A
Units of Units to which the Class A Units are expressly subordinated as to
distributions. The number of Units issued to any such General Partner or
Affiliate in exchange for any Capital Contribution shall not exceed the Net
Agreed Value of the Contributed Property or the amount of cash, as the case may
be, divided by (i) the Unit Price of a Unit of such class as of the date of such
issuance, or (ii) in the event the Capital Contribution is being made pursuant
to an exchange offer to other Persons of Units for properties, by the value
assigned to a Unit in such exchange offer for purposes of determining the number
of Units to be issued in such exchange offer. The Net Agreed Value of any
obligation of the Partnership held by the General Partner or an Affiliate which
is contributed pursuant to this Section 4.3(b) in exchange for Units shall be
the unpaid principal amount thereof plus accrued interest to the date of
contribution. Any issuance of Units to the General Partner or any Affiliate
thereof on terms that do not satisfy the standards set forth in this Section
4.3(b) shall be made only if such issuance is approved by the affirmative vote
or approval of more than
<PAGE>
50% of the Percentage Interests of the Limited Partners, exclusive of any such
Percentage Interests held by the General Partner or any Affiliate thereof.
(c) There shall be no limitation on the total number of Units, or total
number of Units of any class or series, that may be issued by the Partnership.
4.4 No Preemptive Rights. Except as may be provided pursuant to Section
4.3 and Article XVII hereof, no Partner shall have any preemptive or
preferential right, including any such right with respect to (a) additional
Capital Contributions; (b) issuance or sale of Units of any class or series,
whether unissued, held in the treasury or thereafter created; (c) issuance of
any obligations, evidences of indebtedness or other securities of the
Partnership convertible into or exchangeable for, or carrying or accompanied by
any rights to receive, purchase or subscribe to, any such unissued Units or
Units held in treasury; (d) issuance of any right of, subscription to or right
to receive, or any warrant or option for the purchase of any of the foregoing
securities; or (e) issuance or sale of any other securities that may be issued
or sold by the Partnership.
4.5 Capital Accounts.
(a) The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Treasury Regulation Section l.704-
l(b)(2)(iv). Such Capital Account shall be increased by (i) the cash amount or
Net Agreed Value of all Capital Contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 4.5(b) and allocated to such Partner pursuant to Section 5.1 and
decreased by (iii) the cash amount or Net Agreed Value of all actual and deemed
distributions of cash or property made to such Partner pursuant to this
Agreement and (iv) all items of Partnership deduction and loss computed in
accordance with Section 4.5(b) and allocated to such Partner pursuant to Section
5.1.
(b) For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of any such item shall be the same
as its determination, recognition and classification for federal income tax
purposes (including any method of depreciation, cost recovery or amortization
used for this purpose); provided that:
(i) Solely for purposes of the application of the provisions hereof,
the Partnership shall be treated as owning directly its proportionate share (as
determined by the General Partner based upon the provisions of the Affiliated
Partnership Agreements) of all property owned by all Affiliated Partnerships.
(ii) In accordance with the requirements of and consistent with
Treasury Regulation Section 1.704-(b)(2)(iv)(g), any deductions for
depreciation, cost recovery or amortization attributable to a Contributed
Property shall be determined as if the adjusted basis of such property on the
date it was acquired by the Partnership was equal to the Agreed Value of such
property. Upon an adjustment pursuant to Section 4.5(d)(i) to the Carrying Value
of any
<PAGE>
Partnership property subject to depreciation, cost recovery or amortization, any
further deductions for such depreciation, cost recovery or amortization
attributable to such property shall be determined as if the adjusted basis of
such property was equal to the Carrying Value of such property immediately
following such adjustment, subject to the requirements of Treasury Regulation
Section 1.704-1 (b)(2)(iv)(g).
(iii) Any income, gain or loss attributable to the taxable disposition
of any property shall be determined by the Partnership as if the adjusted basis
of such property as of such date of disposition was equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(iv) If the Partnership's adjusted basis in a depreciable or cost
recovery property is reduced for federal income tax purposes pursuant to Section
48(q)(l) or 48(q)(3) of the Code, the amount of such reduction shall, solely for
purposes hereof, be deemed to be an additional depreciation or cost recovery
deduction in the year such property is placed in service and shall be allocated
among the Partners pursuant to Section 5.1. Any restoration of such basis
pursuant to Section 48(q)(2) of the Code shall be allocated in the same manner
to the Partners to whom such deemed deduction was allocated.
(v) All fees and other expenses incurred by the Partnership to
promote the sale of (or to sell) a Partnership Interest that can neither be
deducted nor amortized under Section 709 of the Code shall, for purposes or
Capital Account maintenance, be treated as an item of deduction and shall be
allocated among the Partners pursuant to Section 5.1.
(vi) The computation of all items of income, gain, loss and deduction
shall be made without regard to any election under Section 754 of the Code by
the Partnership and, as to those items described in Section 705(a)(l)(B) or
Section 705(a)(2)(B) of the Code, without regard to the fact that such items are
not includable in gross income or are neither currently deductible nor
capitalizable for federal income tax purposes.
(vii) Any reference in this Agreement requiring the determination of
Capital Account balances as of the last day of a fiscal year shall be such
balance as determined after allocating all items of income, gain, loss and
deduction for that year.
(c) Generally, a transferee of a Partnership Interest will succeed to the
Capital Account relating to the Partnership Interest transferred. However, if
the transfer causes a termination of the Partnership under Section 708(b)(l)(B)
of the Code, the Partnership properties shall be deemed to have been distributed
in liquidation of the Partnership to the Partners (including the transferee of a
Partnership Interest) and deemed recontributed by such Partners and transferees
in reconstitution of the Partnership. In such event, the Carrying Values of the
Partnership properties shall be adjusted immediately prior to such deemed
distribution pursuant to Section 4.5(d)(ii) (and such adjusted Carrying Values
shall constitute the Agreed Values of such properties upon such deemed
contribution to the reconstituted Partnership). The Capital Accounts of such
reconstituted Partnership shall be maintained in accordance with the principles
of this Section 4.5.
<PAGE>
(d) (i) Consistent with the provisions of Treasury Regulation Section
l.704-l(b)(2)(iv)(f), upon an issuance of additional Units for cash or
Contributed Property pursuant to Section 4.3, the Capital Accounts of all
Partners and the Carrying Values of all Partnership properties shall,
immediately prior to such issuance, be adjusted (consistent with the provisions
hereof) upwards or downwards to reflect any Unrealized Gain or Unrealized Loss
attributable to each Partnership property (as if such Unrealized Gain or
Unrealized Loss had been recognized in an actual Terminating Capital
Transaction, immediately prior to such issuance, and had been allocated to the
Partners, at such time, pursuant to Section 5.1). In determining such Unrealized
Gain or Unrealized Loss, the aggregate fair market value of Partnership
properties as of any date of determination shall be equal to the Prescribed
Asset Value of all classes of Units Outstanding as of such date. The Carrying
Values of the respective Partnership properties shall be adjusted according to
their relative fair market values, as determined by the General Partner using
such method as it deems appropriate.
(ii) In addition, in accordance with Treasury Regulation Section l.704-
l(b)(2)(iv)(e), immediately prior to the actual or deemed distribution of any
Partnership property in those situations listed in the immediately following
sentence, the Capital Accounts of all Partners and the Carrying Values of all
Partnership properties shall be adjusted (consistent with the provisions hereof)
upwards or downwards to reflect any Unrealized Gain or Unrealized Loss
attributable to each Partnership property (as if such Unrealized Gain or
Unrealized Loss had been recognized in an actual Terminating Capital
Transaction, immediately prior to such distribution, and had been allocated to
the Partners, at such time, pursuant to Section 5.1). In determining such
Unrealized Gain or Unrealized Loss, the aggregate fair market value of
Partnership properties as of any date of determination shall (A) in the case of
a deemed distribution occurring as a result of a termination of the Partnership
pursuant to Section 708 of the Code, be determined in the same manner provided
in Section 4.5(d)(i), or (B) in the case of a liquidating distribution pursuant
to Section 14.3 or 14.4, be determined by the General Partner using such
reasonable methods of valuation as it may adopt.
4.6 Interest. No interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
4.7 No Withdrawal. A Partner shall not be entitled to withdraw any part of
his Capital Contribution or his Capital Account or to receive any distribution
from the Partnership, except as provided in Section 5.3 and Articles XIII and
XIV.
4.8 Loans From Partners. Loans by a Partner to the Partnership shall not
be considered Capital Contributions. If any Partner or Assignee shall advances
funds to the Partnership in excess of the amounts required hereunder to be
contributed by it to the capital of the Partnership, the making of such advances
shall not result in any increase in the amount of the Capital Account of such
Partner or Assignee. The amounts of any such advances shall be a debt of the
Partnership to such Partner or Assignee and shall be payable or collectible only
out of the Partnership assets in accordance with the terms and conditions upon
which such advances are made.
<PAGE>
4.9 No Fractional Units. No fractional Units shall be issued by the
Partnership.
4.10 Splits and Combinations.
(a) The General Partner may make a distribution in Units to all Record
Holders of Class A Units or Class B Units or may effect a subdivision or
combination of Class A Units or Class B Units, but in each case only on a pro
rata basis so that, after such distribution, subdivision or combination, each
Class A Limited Partner and Class B Limited Partner and each Assignee of a Class
A Unit or Class B Unit shall, subject to Section 4.10(d), have the same
Percentage Interest in the Partnership as before such distribution, subdivision
or combination.
(b) Whenever such a distribution, subdivision or combination is declared,
the General Partner shall select a Record Date as of which the distribution,
subdivision or combination shall be effective and shall send notice of the
distribution, subdivision or combination at least 20 days prior to such Record
Date to each Record Holder as of that date which is ten days prior to the date
of such notice. The General Partner also may cause a firm of independent public
accountants selected by it to calculate the number of Units of the class to be
held by each Record Holder after giving effect to such distribution, subdivision
or combination. The General Partner shall be entitled to rely on any certificate
provided by such firm as conclusive evidence of the correctness of such a
calculation.
(c) Promptly following any such distribution, subdivision or combination,
the General Partner may cause Certificates to be issued to the Record Holders of
Units as of the applicable Record Date representing the new number of Units held
by such Record Holder, or the General Partner may adopt such other procedures as
it may deem appropriate to reflect such distribution, subdivision or
combination; provided, however, that in the event any such distribution,
subdivision or combination results in a smaller total number of Units
Outstanding, the General Partner shall require, as a condition to the delivery
to a Record Holder or such new Certificate, the surrender of any Certificate
held by such Record Holder immediately prior to such Record Date.
(d) The Partnership shall not be required to issue fractional Units upon
any distribution, subdivision or combination of Units. In the event any
distribution, subdivision, or combination of Units would result in the issuance
of fractional Units but for the provisions of Section 4.9 and this Section
4.10(d), each fractional Unit shall be rounded to the nearest whole Unit.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocations for Capital Account Purposes.
(a) For purposes of maintaining the Capital Accounts and in determining
the rights of the Partners among themselves, except as otherwise provided in
this Section 5.1, each item of
<PAGE>
income, gain, loss and deduction (computed in accordance with Section 4.5(b))
shall be allocated among the Partners as follows:
(i) Operating Income for a fiscal year within the Subordination
Period or for a fiscal year in which a Deficiency exists shall be allocated
among the Partners in the following amounts and proportions:
(A) First, Operating Income in an amount up to the aggregate
amount of cash distributed pursuant to Sections 5.3(c)(i) and (ii) and
5.3(d)(i)(A) to the Partners with respect to the quarterly periods within such
fiscal year shall be allocated among the General Partner and holders of Class A
Units and Class B Units in the same proportion that the General Partner and
holders of such classes shared in such cash distributions, with the Operating
Income allocated among the Limited Partners of a particular class in accordance
with their respective Class Percentage Interests; and
(B) Any remaining Operating Income shall be allocated among the
Partners in accordance with their respective Percentage Interests.
(ii) Operating Loss and all items of income, gain, loss and deduction
from a Terminating Capital Transaction recognized during a fiscal year of the
Partnership within the Subordination Period (or, if later, within a fiscal year
in which a Deficiency exists) shall be allocated among the Partners in
accordance with their respective Percentage Interests.
(iii) All items of income, gain, loss and deduction from operations or
from a Terminating Capital Transaction with respect to a fiscal year beginning
after the Subordination Period (or, if later, after the fiscal year in which the
Deficiency, if any, is eliminated) shall be allocated among the Partners in
accordance with their respective Percentage Interests.
(b) Notwithstanding any other provision herein, no Partner shall be
allocated any loss or deduction which will cause a deficit balance in such
Partner's Capital Account (in excess of any dollar amount of such deficit
balance that such Partner is obligated to restore within the meaning of Treasury
Regulation Section l.704-l(b)(2)(ii)(c) as of the end of the Partnership's
taxable year to which such allocation relates) to exceed such Partner's share of
the Partnership's Minimum Gain. Any items of loss and deduction not allocable to
a Partner by reason of this provision shall be allocated in accordance with the
Partners' respective interests determined pursuant to Treasury Regulation
Section 1.704-l(b)(3). In the event such allocations of loss or deductions are
made to the General Partner under this Section 5.1(b), then the General Partner
shall receive a priority allocation of the Partnership's income or gain in the
current or succeeding year in an amount equal to the total of such deductions or
loss. For purposes of this Section 5.1(b), the Capital Account of each Partner
shall be deemed to be reduced (i) for any distributions that, as of the end of
such year, reasonably are expected to be made to such Partner to the extent they
exceed offsetting increases to such Partner's Capital Account that reasonably
are expected to occur during (or prior to) the Partnership taxable years in
which such distributions reasonably are expected to be made and (ii) for the
adjustments and allocations of loss and deduction described in Treasury
Regulation Section 1.704-l(b)(2)(ii)(d). A Partner who
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unexpectedly receives an adjustment, allocation or distribution described in
Treasury Regulation l.704-1(b)(2)(ii)(d), which causes or increases a deficit
balance in such Partner's Capital Account (in excess of any dollar amount of
such deficit balance that such Partner is obligated to restore within the
meaning of Treasury Regulation Section l.704-l(b)(2)(ii)(c) as of the end of the
Partnership's taxable year to which such allocation relates) to exceed such
Partner's share of the Partnership's Minimum Gain, shall be allocated items of
income and gain in any amount and manner sufficient to eliminate such excess
deficit balance as rapidly as possible. Furthermore, if there is a net decrease
in the Partnership's Minimum Gain during a Partnership taxable year, each
Partner with a deficit Capital Account balance at the end of such year
(excluding from such Partner's deficit Capital Account balance any amount that
such Partner is obligated to restore within the meaning of Treasury Regulation
Section 1.704-1(b)(2)(ii)(c)), in excess of such Partner's share of the
Partnership's Minimum Gain at the end of such year, shall be allocated, before
any other allocation is made of Partnership items for such year, items of income
and gain for such year (and, if necessary, subsequent years) in an amount and in
the proportions needed to eliminate such deficits as quickly as possible.
(c) If, and to the extent that, any Partner is deemed to recognize income
as a result of any transaction between such Partner and the Partnership pursuant
to Sections 1272-1274, Section 7872, Section 483 or Section 482 of the Code, or
any similar provision now or hereafter in effect, any corresponding resulting
loss or deduction of the Partnership shall be allocated to the Partner who was
charged with such income.
(d) To preserve uniformity of Units, the General Partner shall have sole
discretion in conjunction with Section 5.2(h)(ii) to make special allocations of
income or deduction. The General Partner may make such allocations only if such
allocations would not have a material adverse effect on the Limited Partners and
if they are consistent with, and supportable under, the principles of Section
704 of the Code.
(e) An allocation to a Partner of Operating Income or Operating Loss shall
be treated as an allocation to such Partner of the same share of each item of
income, gain, loss and deduction that is taken into account in computing such
Operating Income or Operating Loss.
5.2 Allocations for Tax Purposes.
(a) For federal income tax purposes, except as otherwise provided in this
Section 5.2, each item of income, gain, loss, deduction and credit of the
Partnership shall be allocated among the Partners in the same manner as provided
in Section 5.1(a). An allocation to a Partner of Operating Income or Operating
Loss shall be treated as an allocation to such Partner of the same share of each
item of income, gain, loss and deduction that is taken into account in computing
such Operating Income or Operating Loss.
(b) In the case of a Contributed Property or Adjusted Property, items of
income, gain, loss, depreciation and cost recovery deductions attributable
thereto shall be allocated for federal income tax purposes among the Partners as
follows:
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(i) In the case of a Contributed Property, such items shall be
allocated among the Partners in a manner that takes into account the variation
between the Agreed Value of such property and its adjusted basis at the time of
contribution in attempting to eliminate Book-Tax Disparities. Except as
otherwise provided in Section 5.2(c) and 5.2(e) below, any item of Residual Gain
or Residual Loss attributable to a Contributed Property shall be allocated among
the Partners in accordance with Section 5.2(a).
(ii) In the case of an Adjusted Property, such items shall (A) first,
be allocated among the Partners in a manner consistent with the principles of
Section 704(c) of the Code to take into account the Unrealized Gain or
Unrealized Loss attributable to such property and the allocations thereof
pursuant to Section 4.5(d)(i) in attempting to eliminate Book-Tax Disparities,
and (B) second, in the event such property was originally a Contributed
Property, be allocated among the Partners in a manner consistent with the first
sentence of paragraph (b)(i) above. Except as otherwise provided in Sections
5.2(c) and 5.2(e) below, any items of Residual Gain or Residual Loss
attributable to an Adjusted Property shall be allocated among the Partners in
accordance with Section 5.2(a).
(iii) In the case of all other properties, gain, loss, depreciation
and cost recovery deductions attributable to such property shall be allocated
among the Partners in accordance with Section 5.2(a).
(iv) Any items of income, gain, loss or deduction otherwise allocable
under the first sentence of Section 5.2(b)(i) or 5.2(b)(ii) shall be subject to
allocation by the General Partner in a manner designed to eliminate, to the
maximum extent possible, Book-Tax Disparities in a Contributed Property or
Adjusted Property otherwise resulting from the application of the ceiling
limitation (under Section 704(c) of the Code or Section 704(c) principles) to
the allocations provided under Sections 5.2(b)(i) or 5.2(b)(ii).
(c) If any Partner unexpectedly receives any adjustments, allocations or
distributions described in Treasury Regulation Section l.704-l(b)(2)(ii)(d),
items of Partnership income and gain shall be specially allocated to such
Partner in an amount and manner consistent with the allocations of income and
gain pursuant to Section 5.1(b).
(d) If, and to the extent that, any Partner is deemed to recognize income
as a result of any transaction between such Partner and the Partnership pursuant
to Sections 1272-1274, Section 7872, Section 483 or Section 482 of the Code, or
any similar provision now or hereafter in effect, corresponding items of
Partnership deduction shall be allocated to such Partner in an amount and manner
consistent with the allocation of loss or deduction pursuant to Section 5.1(c).
(e) If any Partner's Capital Account has a deficit balance as described in
Section 5.1(b), items of income and gain of the Partnership shall be allocated
to such Partner in an amount and manner consistent with the allocation of income
and gain pursuant to Section 5.1(b).
(f) To the extent of any Recapture Income resulting from the sale or other
taxable disposition of Partnership assets, the amount of any gain from such
disposition allocated to (or
<PAGE>
recognized by) a Partner (or its successor in interest) for federal income tax
purposes pursuant to the above provisions shall be deemed to be Recapture Income
to the extent such Partner has been allocated or has claimed any deduction
directly or indirectly giving rise to the treatment of such gain as Recapture
Income.
(g) All items of income, gain, loss, deduction, credit and basis
allocation recognized by the Partnership for federal income tax purposes and
allocated to the Partners in accordance with the provisions hereof shall be
determined without regard to any election under Section 754 of the Code made by
the Partnership; provided, however, such allocations, once made, shall be
adjusted as necessary or appropriate to take into account those adjustments
permitted by Sections 734 and 743 of the Code and, where appropriate, to provide
only Partners recognizing gain on Partnership distributions covered by Section
734 of the Code with the federal income tax benefits attributable to the
increased basis in Partnership property resulting from such election under
Section 754 of the Code.
(h) It is intended that the allocations prescribed in Sections 5.2(b)(i),
(b)(ii) and (b)(iv) constitute allocations for federal income tax purposes that
are consistent with Section 704 of the Code and comply with any limitations or
restrictions therein, to the extent reasonably possible without causing Units to
lack uniform characteristics for federal income tax purposes. If uniformity of
the Units cannot be preserved by application of Sections 5.2(b)(i), 5.2(b)(ii)
and 5.2(b)(iv), then the General Partner shall have sole discretion to (i) adopt
such conventions as it deems appropriate in determining the amount of
depreciation and cost recovery deductions; (ii) make special allocations of
income or deduction; and (iii) amend the provisions of this Agreement as
appropriate (a) to reflect the proposal or promulgation of Treasury Regulations
under Section 704(c) of the Code, or (b) otherwise to preserve the uniformity of
Units issued or sold from time to time; provided, however, that the General
Partner may adopt such conventions, make such allocations and amend this
Agreement as provided in this Section 5.2(h) only if they would not have a
material adverse effect on the Limited Partners and if such allocations are
consistent with, and supportable under, the principles of Section 704 of the
Code. If the General Partner determines, based on advice of counsel, that no
reasonable convention or other method is available to preserve uniformity of
Units pursuant to this Section 5.2(h) or the General Partner in its sole
discretion so elects, the Units will be separately identified as distinct
classes to reflect differences in tax consequences.
(i) Each item of Partnership income, gain, loss, deduction and credit
attributable to a transferred Partnership Interest shall, for federal income tax
purposes, be determined on an annual basis (or other basis, as required or
permitted by Section 706 of the Code) and shall be allocated to the Partners who
own Partnership Interests as of the close of business on the last day of the
fiscal month in which the transfer is recognized by the Partnership (the last
day of each fiscal month being determined by reference to the fiscal year of the
Partnership as described in Section 8.2); provided, however, that gain or loss
on a Capital Transaction shall be allocated to the Record Holders of the
Partnership Interests as of the close of business on the day of the fiscal month
upon which such Capital Transaction occurs. The General Partner may revise,
alter or otherwise modify such methods of determination and allocation as it
determines necessary, to the extent permitted by Section 706 of the Code and
Treasury Regulations or rulings promulgated
<PAGE>
thereunder, and no such revision, alteration or modification shall be deemed to
effect an amendment to this Agreement that will require the consent of any
holder of a Partnership Interest.
(j) Solely for purposes of the interpretation and application of this
Article V, the Partnership shall be treated as owning its proportionate share of
all properties owned by the Operating Partnership.
5.3 Distributions.
(a) The General Partner may from time to time in its sole discretion cause
the Partnership to distribute cash, Units and other property to the Partners in
accordance with their Percentage Interests, subject to Sections 5.3(c), 5.3(d)
and 5.3(e); provided, however, that the proceeds from a Terminating Capital
Transaction shall be distributed solely in accordance with Article XIV, after
the allocation of any item of income, gain, loss or deduction with respect
thereto and concomitant adjustment in the Partners' Capital Accounts as a result
thereof. For all purposes of this Agreement except distributions with respect to
a Terminating Capital Transaction, any distributions made within 75 days after
the end of any fiscal year shall be deemed to have been distributed as of the
last day of such fiscal year.
(b) Any amounts paid pursuant to Section 6.5 shall not be deemed to be
distributions for purposes of this Agreement.
(c) For fiscal quarters during the Subordination Period, the Partnership
shall distribute cash in the following order of priority:
(i) First, all distributions of cash shall be made 1% to the General
Partner and 99% to the Record Holders of Class A Units in accordance with their
Class Percentage Interests until such distributions have been made with respect
to Class A Units in a cumulative amount equal to an average annual rate of $1.50
per Class A Unit from the Commencement Date;
(ii) Second, any remaining cash shall next be distributed 1% to the
General Partner and 99% to the Record Holders of Class B Units in accordance
with their Class Percentage Interest until such distributions have been made
with respect to Class B Units in a cumulative amount equal to an average annual
rate of $1.50 per Class B Unit; and
(iii) Third, any remaining cash shall be distributed among the
Partners in accordance with their Percentage Interests.
(d) After the Subordination Period, cash shall be distributed in the
following order of priority.
(i) If, during the Subordination Period, distributions with respect
to the Class A Units were less than a cumulative amount equal to the sum of the
following: (i) $3.00 per Class A Unit, plus (ii) $1.50 per Class A Unit divided
by a fraction, (A) the numerator of which is the
<PAGE>
difference between 365 and the number of days between the Commencement Date and
December 29, 1987, and (B) the denominator of which is 365 (the amount by which
such distributions are less than such cumulative amount is referred to herein as
the "Deficiency"), distributions of cash shall be made (A) 1% to the General
Partner and 99% to the Record Holders of Class A Units in accordance with their
Class Percentage Interests until there has been distributed with respect to
Class A Units for quarters beginning after the Subordination Period an amount
equal to such Deficiency and (B) thereafter all distributions of cash shall be
allocated among the Partners in accordance with their respective Percentage
Interests.
(ii) If no Deficiency exists with respect to the Subordination
Period, cash shall be distributed among the Partners in accordance with their
respective Percentage Interests.
(e) Notwithstanding anything in Section 5.3(c) and (d) to the
contrary, if cash distributed with respect to Class A Units for any fiscal year
is less than the aggregate Maximum Tax Liability for Class A Units for that year
(the amount by which such aggregate distributions are less than the aggregate
Maximum Tax Liability is referred to herein as the "Deficit"), the Partnership
shall distribute cash (from any available source other than assets of or
borrowings by the General Partner) 1% to the General Partner and 99% to the
Record Holders of the Class A Units as of the close of business on the last
business day of the last fiscal quarter of the year for which the Deficit was
determined in accordance with their Class Percentage Interests in an amount at
least equal to the Deficit with respect to such fiscal year.
(f) Upon a contribution of capital by the General Partner pursuant to
Section 4.1 (b)(ii), the Partnership shall distribute the amount of such
contribution to the Class B Limited Partners pro rata and the Capital Accounts
of the Class B Limited Partners shall be adjusted accordingly.
(g) Upon a contribution of capital by the holders of Class B Units
pursuant to Section 4.2(c), the Partnership may, but shall not be obligated to,
distribute the amount of such cash contribution to the General Partner and the
Capital Account of the General Partner shall be adjusted accordingly.
ARTICLE VI
MANAGEMENT AND OPERATION OF BUSINESS
6.1. Management.
(a) The General Partner shall conduct, direct and exercise full control
over all activities of the Partnership. Except as otherwise expressly provided
in this Agreement, all management powers over the business and affairs of the
Partnership shall be exclusively vested in the General Partner, and no Limited
Partner shall have any right of control or management power over the business
and affairs of the Partnership. In addition to the powers now or hereafter
granted a general partner of a limited partnership under applicable law or which
are granted to
<PAGE>
the General Partner under any other provisions of this Agreement, the General
Partner shall have full power and authority to do all things deemed necessary or
desirable by it to conduct the business of the Partnership, including, without
limitation, (i) the making of any expenditures, the borrowing of money, the
guaranteeing of indebtedness and other liabilities, the issuance of evidences of
indebtedness, and the incurring of any obligations it deems necessary for the
conduct of the activities of the Partnership, subject to Section 6.1(c); (ii)
the acquisition, disposition (subject to any prior approval which maybe required
by Section 16.1), mortgage, pledge, encumbrance, hypothecation or exchange of
any or all of the assets of the Partnership, the merger of the Partnership with
or into another entity (subject to any prior approval which may be required by
Section 16.1), and, in addition to the general powers granted herein, the
acquisition and disposition of shares, units or interests in any privately-held
or publicly-held entity, whether in the same or similar business as the
Partnership or, otherwise; (iii) the use of the assets of the Partnership
(including, without limitation, cash on hand) for any purpose and on any terms
it sees fit, including, without limitation, the financing of the conduct of the
operations of the Partnership, the lending of funds to other Persons and the
repayment of obligations of the Partnership; (iv) the negotiation and execution
on any terms deemed desirable in its sole discretion and the delivery and
performance of any contracts, conveyances or other instruments that it considers
useful or necessary to the conduct of the Partnership's operations or the
implementation of its powers under this Agreement; (v) the distribution of
Partnership cash; (vi) the selection and dismissal of employees and outside
attorneys, accountants, consultants and contractors and the determination of
their compensation and other terms of employment or hiring; (vii) the
maintenance of such insurance for the benefit of the Partnership and the
Partners as it deems necessary; (viii) the formation of any further limited or
general partnerships, joint ventures or other relationships that it deems
desirable (including, without limitation, the Operating Partnership); (ix) the
control of any matters affecting the rights and obligations of the Partnership,
including the conduct of litigation and the incurring of legal expense and the
settlement of claims and litigation; and (x) the purchase, sale or other
acquisition or disposition of Units, and cancellation of acquired Units, at such
times and on such terms as it deems to be in the best interests of the
Partnership and the Partners; (xi) the taking of any and all actions and the
exercise of all authority in connection with the Partnership's participation in
the Operating Partnership as limited partner therein (including, without
limitation, the contribution to the Operating Partnership of the Partnership's
assets and properties and the loan of Partnership funds to the Operating
Partnership and any Affiliate thereof); and (xii) the entering into of leases
for real or personal property or agreements, whether in connection with sale and
lease-back transactions, or otherwise.
(b) Each of the Partners hereby approves, ratifies and confirms the
execution, delivery and performance of the Underwriting Agreement, the
Conveyance Agreement and the Operating Partnership Agreement and agrees that the
General Partner is authorized to execute, deliver and perform the other
agreements, acts, transactions and matters described in the Registration
Statement on behalf of the Partnership without any further act, approval or vote
of the Partners of the Partnership, notwithstanding any other provision of this
Agreement or the Operating Partnership Agreement, the Delaware Act or any
applicable law, rule or regulation. The participation by the General Partner in
any agreement authorized or permitted under this Agreement shall not constitute
a breach by the General Partner of any duty that the General
<PAGE>
Partner may owe the Partnership or the Limited Partners under this Agreement or
under applicable law.
(c) Distributions pursuant to Section 5.3 may be funded from any source
except that the Partnership shall not, for the purpose of making distributions
pursuant to Sections 5.3(c) or 5.3 (d)(i)(A), (i) sell any properties otherwise
than in the ordinary course of business (ii) incur indebtedness for borrowed
money or (iii) issue additional Units. The restrictions on borrowing under this
Section 6.1(c) shall not prevent borrowings for any other purposes permitted by
the terms of this Agreement, regardless of whether such borrowings occur on or
about the same time as any declaration or payment of distributions. As a result
of any seasonal fluctuations of the Partnership's revenues, income and cash
flow, the General Partner is expressly empowered and authorized to borrow monies
and incur indebtedness on behalf of the Partnership for the express purpose of
making, to the degree practicable, equal quarterly cash distributions pursuant
to Sections 5.3(c) and 5.3(d)(i)(A). Furthermore, the General Partner will not
reduce distributions under Sections 5.3(c) and 5.3(d)(i)(A) with respect to a
fiscal quarter for the purpose of providing funds to make distributions with
respect to subsequent quarters under Sections 5.3(c)(iii), 5.3(d)(i)(B), or
5.3(d)(ii).
6.2 Certificate of Limited Partnership. The General Partner has filed a
Certificate of Limited Partnership of the Partnership with the Secretary of
State of the State of Delaware as required by the Delaware Act and shall cause
to be filed such other certificates or documents as may be determined by the
General Partner to be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the Limited Partners have limited liability) in the State
of Delaware or any other state in which the Partnership may elect to do
business. To the extent that the General Partner in its sole discretion
determines such action to be reasonable and necessary or appropriate, the
General Partner shall file amendments to the Certificate of Limited Partnership
and do all things to maintain the Partnership as a limited partnership (or a
partnership in which the Limited Partners have limited liability) under the laws
of the State of Delaware or any other state in which the Partnership may elect
to do business. Subject to applicable law, the General Partner may omit from the
Certificate of Limited Partnership of the Partnership filed with the Secretary
of State of the State of Delaware and from any other certificates or documents
filed in any other state in order to qualify the Partnership to do business
therein, and from all amendments thereto, the names and addresses of the Limited
Partners and information relating to the Capital Contributions and shares of
profits and compensation of the Partners, or state such information in the
aggregate rather than with respect to each individual Partner. Subject to the
terms of Section 7.5(a), the General Partner shall not be required to deliver or
mail a copy of the Certificate of Limited Partnership or any amendment thereto
to any Limited Partner.
6.3 Reliance by Third Parties. Notwithstanding any other provision of this
Agreement to the contrary, no lender or purchaser, including any purchaser of
property from the Partnership or any other Person dealing with the Partnership,
shall be required to look to the application of proceeds hereunder or to verify
any representation by the General Partner as to the extent of the interest in
the assets of the Partnership that the General Partner is entitled to encumber,
sell or otherwise use, and any such lender or purchaser shall be entitled to
rely exclusively on the
<PAGE>
representations of the General Partner as to its authority to enter into such
financing or sale arrangements and shall be entitled to deal with the General
Partner as if it were the sole party in interest therein, both legally and
beneficially. Each Limited Partner and Assignee hereby waives any and all
defenses or other remedies that may be available against such lender, purchaser
or other Person to contest, negate or disaffirm any action of the General
Partner in connection with any sale or financing. In no event shall any Person
dealing with the General Partner or the General Partner's representative with
respect to any business or property of the Partnership be obligated to ascertain
that the terms of this Agreement have been complied with, or be obligated to
inquire into the necessity or expedience of any act or action of the General
Partner or the General Partner's representative; and every contract, agreement,
deed, mortgage, security agreement, promissory note or other instrument or
document executed by the General Partner or the General Partner's representative
with respect to any business or property of the Partnership shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (a) at the time of the execution and/or delivery thereof this Agreement was
in full force and effect, (b) such instrument or document was duly executed in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership, and (c) the General Partner or the General Partner's
representative was duly authorized and empowered to execute and deliver any and
every such instrument or document for and on behalf of the Partnership.
6.4 Purchase or Sale of Units.
(a) The General Partner may cause the Partnership to purchase or otherwise
acquire Units (or may purchase or otherwise acquire Units on behalf of the
Partnership). As long as such Units are held by the Partnership or the Operating
Partnership, such Units shall not be considered Outstanding for any purpose,
except as otherwise provided herein. The General Partner may also purchase or
otherwise acquire and sell or otherwise dispose of Units for its own account,
and may acquire Units pursuant to Section 4.3(b). The General Partner shall be
entitled to exercise all the rights of a Limited Partner or Assignee, as the
case may be, with respect to such Units.
(b) At any time and from time to time, the General Partner (including in
its capacity as a Departing Partner pursuant to Section 13.2(b)), or any
Affiliate thereof (provided the General Partner so consents), shall have (i) the
right to cause the Partnership, upon the request of such Person, to file with
the Securities and Exchange Commission as promptly as practicable after
receiving such request, and use all reasonable efforts to cause to become
effective, a registration statement under the Securities Act registering all or
a portion of the Class A Units then owned by such Person and included in such
request for offer and sale and (ii) the right to cause the Partnership, upon
request of such Person and in the event that the Partnership has previously
determined to issue and publicly sell additional limited partnership interests
in the Partnership, to register the Class A Units owned by it together with the
limited partnership interests or other securities being registered by the
Partnership, to file with the Securities and Exchange Commission a registration
statement under the Securities Act, registering all or a portion of the Class A
Units then owned by such Person and included in such request. In connection with
any registration pursuant to the preceding sentence, the Partnership shall
promptly prepare and file such documents as may be necessary to register or
qualify the Class A Units subject to such registration under the securities laws
of such states as such Person shall
<PAGE>
reasonably request and do any and all other acts and things which may reasonably
be necessary or advisable to enable such Person to consummate a public sale of
such Class A Units in such states. Registrations effected under clause (i) above
of this Section 6.4(b) shall be effected at the expense of the General Partner
and any such Affiliates so desiring to dispose of their Units, except that any
usual and ordinary accounting fees and expenses incurred in connection with the
annual audit of the Partnership's financial statements as of, and for the
periods ending on, the end of its fiscal year shall be borne by the Partnership.
Registrations effected under clause (ii) above of this Section 6.4(b) shall be
effected at the expense of the Partnership (except for underwriting discounts
and commissions and "blue sky" fees and expenses directly attributable to the
General Partner and any such Affiliates). Any registration statement filed
pursuant hereto shall be continued in effect for a period of not more than six
months following its effective date. If offered in an underwriting, the
Partnership, the General Partner and such Affiliates shall, as deemed
appropriate by the underwriters, provide indemnification, opinions and other
assurances to the underwriters in form and substance reasonably satisfactory to
such underwriters.
6.5 Compensation and Reimbursement of General Partner.
(a) Except as provided in this Section 6.5 and elsewhere in this Agreement
or in the Operating Partnership Agreement, the General Partner shall not be
compensated for its services as General Partner to the Partnership.
(b) The General Partner shall be reimbursed for all expenses, disbursements
and advances incurred or made in connection with the organization of the
Partnership and the Operating Partnership, the Initial Offering, the
qualification of the Partnership, the Operating Partnership and the General
Partner to do business, and any subsequent offerings of Units or other
securities by the Partnership.
(c) The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its sole discretion, for all
direct expenses it incurs or makes on behalf of the Partnership (including
amounts paid to any Person to perform services to the Partnership) and, for that
portion of such General Partner's and its Affiliates' legal and accounting costs
and expenses, telephone, secretarial, aircraft, travel and entertainment
expenses, office rent and other office expenses, salaries and other compensation
expenses of employees, officers and directors, other administrative expenses and
other expenses necessary or appropriate to the conduct of the Partnership's
business and allocable to the Partnership. The General Partner shall determine
the expenses which are allocable to the Partnership in any reasonable manner.
Such reimbursements shall be in addition to any reimbursement to the General
Partner as a result of indemnification pursuant to Section 6.9.
(d) The General Partner in its sole discretion and without the approval of
the Limited Partners may propose and adopt benefit plans, including plans
involving the issuance of Units, for the benefit of employees of the General
Partner, the Partnership, the Operating Partnership or any Affiliate of any of
them in respect of services performed, directly or indirectly, for the benefit
of the Partnership or the Operating Partnership.
<PAGE>
6.6 Outside Activities.
(a) The General Partner shall not enter into or conduct any business
except in connection with its performance of the terms of the Operating
Partnership Agreement or this Agreement or incidental to the acquisition,
ownership or disposition of Units. Additionally, other than by means of the
Partnership and through the Partnership's interest in other Persons, including
the Operating Partnership, no executive officer of the General Partner, nor any
Person in which such executive officer directly or indirectly holds a
controlling interest, may own, operate or manage, or have any equity interest in
any Person owning, operating or managing, convenience stores or retail gasoline
facilities, unless such ownership or operation is first approved by a majority
of the disinterested directors of the General Partner. The foregoing shall not
be deemed to apply to (i) the ownership by any executive officer or any member
of his family of equity securities of any publicly held entity in the same or
similar business as the Partnership or the Operating Partnership, provided such
equity ownership by any such Person does not exceed 10% of the total outstanding
voting securities of such entity and (ii) the ownership of all of the capital
and voting stock of Roadside Stations, Inc., a Texas corporation, by an
irrevocable family trust created by the President of the General Partner for the
benefit of his children, and all properties and operations (with all rights and
benefits in connection therewith) owned and conducted by such corporation and
its successors and assigns.
(b) Except as set forth in Section 6.6(a), any Affiliate of the General
Partner, and any director, officer, partner or employee of the General Partner
or of any Affiliate of the General Partner, shall be entitled to and may have
business interests and engage in business activities in addition to those
relating to the Partnership and may engage in any other business and activities,
including business interests and activities which conflict with or are in direct
competition with the Partnership and the Operating Partnership for their own
account and for the account of others, and may own interests in the same
properties as those in which the Partnership or the Operating Partnership owns
an interest, without having or incurring any obligation to offer any interest in
such properties, business or activities to the Partnership, the Operating
Partnership or any Partner, and, except as so specified in Section 6.6(a) above,
no other provision of this Agreement shall be deemed to prohibit any such Person
from conducting such other businesses and other activities. Neither the
Partnership, the Operating Partnership, the Partners nor any other Person shall
have any rights by virtue of this Agreement or the partnership relationship
created hereby in any business ventures of any Affiliate of the General Partner
or any director, officer, partner or employee of either the General Partner or
an Affiliate of the General Partner. The General Partner and any other Persons
affiliated with the General Partner may acquire Units, in addition to those
acquired by any of such Persons on the Commencement Date, and shall be entitled
to exercise all rights of an Assignee or Limited Partner, as applicable,
relating to such Units.
6.7 Partnership Funds. The funds of the Partnership shall be deposited in
such account or accounts as are designated by the General Partner. The General
Partner may, in its sole discretion, deposit funds of the Partnership in a
central disbursing account maintained by or in the name of the General Partner
or the Operating Partnership in which funds of the Operating Partnership and
other Persons are also deposited, provided that at all times books of account
are maintained which show the amount of funds of the Partnership on deposit in
such account. The
<PAGE>
General Partner may use the funds of the Partnership as compensating balances
for its benefit, provided that such funds do not directly or indirectly secure,
and are not otherwise at risk on account of, any indebtedness or other
obligation of the General Partner or any director, officer, partner, employee or
Affiliate thereof, and that such use of funds does not, in the opinion of the
General Partner, adversely affect the financial condition of the Partnership.
Nothing effected in compliance with this Section 6.7 shall be deemed to violate
the prohibition against the Partnership lending funds to the General Partner or
any Affiliate thereof pursuant to Section 6.8(b). All withdrawals from or
charges against such accounts shall be made by the General Partner or by its
officers or agents. Funds of the Partnership may be invested as determined by
the General Partner, except in connection with acts otherwise prohibited by this
Agreement.
6.8 Loans to or from the General Partner; Contracts with Affiliates.
(a) The General Partner or any Affiliate thereof may lend to the
Partnership funds needed by the Partnership for such periods of time as the
General Partner may determine; provided, however, that such General Partner or
such Affiliate may not charge the Partnership interest at a rate greater than
the rate (including points or other financing charges or fees) that would be
charged the Partnership by unrelated tenders on comparable loans. The
Partnership shall reimburse the General Partner or any Affiliate, as the case
may be, for any costs incurred by it in connection with the borrowing of funds
obtained by such General Partner or such Affiliate and loaned to the
Partnership.
(b) The Partnership may lend or contribute funds to the Operating
Partnership on terms and conditions established in the sole discretion of the
General Partner. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of the Operating Partnership or any other Person. The Partnership may not
lend funds to the General Partner or any Affiliate thereof.
(c) Notwithstanding the provisions of Section 6.8(a), the assumption of
certain liabilities and related obligations by the Partnership pursuant to the
Conveyance Agreement is hereby ratified by all Partners.
(d) The General Partner may itself, or may enter into an agreement with an
Affiliate of the General Partner to, render services for the Partnership. Any
service rendered to the Partnership by the General Partner or any such Affiliate
shall be on terms that are fair and reasonable to the Partnership. The
provisions of Section 6.5 shall apply to the rendering of services described in
this Section 6.8(d).
(e) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with applicable law as the General Partner deems appropriate.
(f) Neither the General Partner nor any Affiliate thereof shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except
<PAGE>
pursuant to transactions the terms of which are at least as favorable to the
Partnership as the terms the Partnership could obtain from an unaffiliated third
party; provided that the conditions of this Section 6.8(f) expressly shall be
deemed to be satisfied as to the transactions effected pursuant to Sections 4.1
and 4.2, and the sale by the Transferors to the Partnership of the Transferors'
Other Properties.
6.9 Indemnification of the General Partner.
(a) To the fullest extent permitted by law, the General Partner, its
Affiliates and the General Partner's and its Affiliates' directors, officers,
partners, employees and agents (individually, an "Indemnitee") shall each be
indemnified and held harmless by the Partnership from and against any and all
losses, claims, damages, liabilities, joint and several, expenses (including
legal fees and expenses), judgments, fines, settlements and other amounts
arising from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, in which the Indemnitee may be
involved, or threatened to be involved, as a party or otherwise by reason of its
status as (x) a General Partner or an Affiliate thereof or (y) a director
officer, partner, employee or agent of the General Partner or an Affiliate or
(z) a Person serving at the request of the Partnership in another entity in a
similar capacity, which relate to or arise out of the Partnership, its property,
business or affairs, including, without limitation, the Initial Offering,
regardless of whether the Indemnitee continues to be the General Partner or an
Affiliate thereof or a director, officer, partner, employee or agent of the
General Partner or an Affiliate thereof at the time any such liability or
expense is paid or incurred, if (i) the Indemnitee acted in good faith and in a
manner it in good faith believed to be in, or not opposed to, the best interests
of the Partnership, and, with respect to any criminal proceeding, had no
reasonable cause to believe its conduct was unlawful, and (ii) the Indemnitee's
conduct did not constitute gross negligence or willful or wanton misconduct. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere, or its equivalent, shall not, of
itself, create a presumption that the Indemnitee acted in a manner contrary to
that specified in (i) or (ii) above. Any indemnification pursuant to this
Section 6.9 shall be made only out of the assets of the Partnership.
(b) To the fullest extent permitted by law, expenses (including legal fees)
incurred by an Indemnitee in defending any claim, demand, action, suit or
proceeding shall, from time to time, be advanced by the Partnership prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Partnership of an undertaking by or on behalf of the Indemnitee to repay
such amount if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section 6.9.
(c) The indemnification provided by this Section 6.9 shall be in addition
to any other rights to which an Indemnitee may be entitled under any agreement,
vote of the Partners, as a matter of law or otherwise, both as to action in the
Indemnitee's capacity as the General Partner or an Affiliate thereof or as a
director, officer, partner, employee, or agent of the General Partner or an
Affiliate thereof and to action in any other capacity (including, without
limitation, any capacity under the Underwriting Agreement and the Conveyance
Agreement), and shall continue
<PAGE>
as to an Indemnitee who has ceased to serve in such capacity and shall inure to
the benefit of the heirs, successors, assigns and administrators of the
Indemnitee.
(d) The Partnership may purchase and maintain insurance on behalf of the
General Partner and such other Persons as the General Partner shall determine
against any liability that may be asserted against, or expense that may be
incurred by, such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For the purposes of this Section 6.9, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall be deemed "fines" within the meaning of Section 6.9(a); and action taken
or omitted by it with respect to an employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interest of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners or Assignees
to personal liability by reason of these indemnification provisions.
(g) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 6.9 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.9 are for the benefit of the
Indemnitees and shall not be deemed to create any rights for the benefit of any
other Persons.
6.10 Liability of the General Partner.
(a) Neither the General Partner nor any of the partners, stockholders,
directors, officers, employees or agents of the General Partner nor any
Affiliate of the General Partner or any partner, stockholder, director, officer,
employee or agent of any such Affiliate, shall be liable to the Partnership,
Limited Partners, Assignees or to any Persons who have acquired interests in the
Units, whether as Limited Partners, Assignees or otherwise, for errors in
judgment or for any acts or omissions taken in good faith.
(b) The General Partner may exercise any of the powers granted to it by
this Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through its agents, and the General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
6.11 Resolution of Conflicts of Interest.
<PAGE>
(a) Unless otherwise expressly provided in this Agreement or in the
Operating Partnership Agreement, (i) whenever a conflict of interest exists or
arises between the General Partner or any of its Affiliates, on the one hand,
and the Partnership, the Operating Partnership, any Limited Partner or any
Assignee, on the other hand, or (ii) whenever this Agreement, the Operating
Partnership Agreement or any other agreement contemplated herein or otherwise
provides that the General Partner shall act in a manner which is, or provide
terms which are, fair and/or reasonable to the Partnership, the Operating
Partnership, any Limited Partner or Assignee, the General Partner shall resolve
such conflict of interest, take such action or provide such terms considering,
in each case, the relative interests of each party to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the General Partner, the resolution, action or terms so made, taken or
provided by the General Partner shall not constitute a breach of this Agreement,
the Operating Partnership Agreement, or any other agreement contemplated herein
or otherwise.
(b) Whenever in this Agreement or the Operating Partnership Agreement the
General Partner is permitted or required to make a decision (i) in its "sole
discretion" or "discretion," with "complete discretion" or under a grant of
similar authority or latitude, the General Partner shall be entitled to consider
only such interests and factors as it desires and shall have no duty or
obligation to give any consideration to any interest of or factors affecting the
Partnership, the Operating Partnership, the Limited Partners or the Assignees,
or (ii) in its "good faith" or under another express standard, the General
Partner shall act under such express standard and shall not be subject to any
other or different standards imposed by this Agreement, the Operating
Partnership Agreement or any other agreement contemplated herein or therein.
Each Limited Partner and Assignee hereby agrees that any standard of care or
duty imposed in this Agreement, the Operating Partnership Agreement or any other
agreement contemplated herein or under the Delaware Act or any other applicable
law, rule or regulation shall be modified, waived or limited in each case as
required to permit the General Partner to act under this Agreement, the
Operating Partnership Agreement or any other agreement contemplated herein and
to make any decision pursuant to the authority prescribed in this Section
6.11(b) so long as such action or decision does not constitute gross negligence
or willful or wanton misconduct and is not reasonable believed by the General
Partner to be inconsistent with the overall purposes of the Partnership.
(c) The Limited Partners hereby authorize the General Partner, on behalf of
the Partnership as the limited partner of the Operating Partnership, to consent
to similar actions by the general partner of the Operating Partnership.
(d) Notwithstanding any provision to the contrary in this Agreement, the
General Partner and its Affiliates shall have the right to contract or otherwise
deal with the Partnership provided that the terms of any such transaction are at
least as favorable to the Partnership as the terms the Partnership could obtain
from an unaffiliated third party, and that any such transaction invoking an
amount in excess of $25,000 is approved by a majority of the disinterested
directors of the General Partner.
<PAGE>
6.12 Other Matters Concerning the General Partner.
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any opinion of such Person as to matters which the
General Partner believes to be within such Person's professional or expert
competence shall be full and complete authorization and protection in respect of
any action taken or suffered or omitted by the General Partner hereunder in good
faith and in accordance with such opinion.
6.13 Title to Partnership Assets. Title to Partnership assets, whether
real, personal or mixed, tangible or intangible, shall be deemed to be owned by
the Partnership as an entity, and no Partner or Assignee, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees,
whether pursuant to a lease, sub-lease or management agreement, or otherwise, as
the General Partner may determine. The General Partner hereby declares and
warrants that any Partnership assets for which legal title is held in the name
of the General Partner or any of the Transferors (or any nominee thereof) shall
be held in trust by the General Partner or such Transferor (or such nominee), as
the case may be, for the use and benefit of the Partnership in accordance with
the terms or provisions of this Agreement. All Partnership assets shall be
recorded as the property of the Partnership on its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
6.14 Maintenance of Net Worth. The General Partner represents that it will
maintain at all times an aggregate net worth (computed without regard to the
General Partner's interest in any limited partnership and accounts and notes
receivable from and payable to any limited partnership) equal to at least seven
percent of the total contributions to the Partnership and that such net worth
will be available to meet the claims of the creditors of the Partnership and the
Operating Partnership. For purposes or computing the net worth of the General
Partner, current fair market value of the General Partner's assets will be used.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
7.1 Limitation of Liability. The Limited Partners shall have no liability
under this Agreement except as provided in this Agreement or in the Delaware
Act.
7.2 Management of Business. No Limited Partner (other than the General
Partner, any Affiliate thereof or their directors, officers, general partners,
employees or agents in their capacity as such) shall take part in the operation,
management or control (within the meaning of
<PAGE>
the Delaware Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. The transaction of any such business by a director, officer,
general partner, employee or agent of the General Partner or Affiliate in its
capacity as such shall not affect, impair or eliminate the limitations on the
liability of any Limited Partner under this Agreement.
7.3 Outside Activities. Except as provided in Section 6.6 with respect to
the General Partner and the executive officers thereof, a Limited Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities in direct competition with the Partnership or the Operating
Partnership. Neither the Partnership nor any of the other Partners nor any other
Person shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner.
7.4 Return of Capital. No Limited Partner shall be entitled to the
withdrawal or return of his Capital Contribution, except to the extent, if any,
that distributions made pursuant to this Agreement or upon termination of the
Partnership may be considered as such by law and then only to the extent
provided for in this Agreement. Except to the extent provided in Article IV and
Article V hereof, no Limited Partner shall have priority over any other Limited
Partner either as to the return of Capital Contributions or as to profits,
losses or distributions.
7.5 Rights of Limited Partners Relating to the Partnership.
(a) In addition to other rights provided by this Agreement or by
applicable law, and except as limited by Section 7.5(b), each Limited Partner
shall have the right for a proper purpose reasonably related to such Limited
Partner's interest as a limited partner in the Partnership, upon reasonable
demand, during normal Partnership business hours and at such Limited Partner's
own expense:
(i) to obtain true and full information regarding the status of the
business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of the
Partnership's federal, state and local income tax returns for each year;
(iii) to have furnished to him, upon notification to the General
Partner, a current list of the name and last known business, residence or
mailing address of each Partner;
(iv) to have furnished to him, upon notification to the General
Partner, a copy of this Agreement and the Certificate of Limited Partnership and
all amendments thereto, together with executed copies of any powers of attorney
pursuant to which this Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed; and
(v) to inspect and copy any of the Partnership's books and records
and obtain such other information regarding the affairs of the Partnership as is
just and reasonable.
<PAGE>
(b) Notwithstanding the other provisions hereof, the General Partner may
keep confidential from the Limited Partners for such period of time as the
General Partner deems reasonable, any information which the General Partner
reasonably believes to be in the nature of trade secrets or other information
the disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership or could damage the Partnership or its
business or which the Partnership is required red by law or by agreements with
third parties to keep confidential.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting. The General Partner shall keep or cause to be
kept at the principal office of the Partnership appropriate books and records
with respect to the Partnership's business including, without limitation, all
books and records necessary to provide to the Limited Partners any information,
lists and copies of documents required to be provided pursuant to Section
7.5(a). Any records maintained by the Partnership in the regular course of its
business, including the record of the holders of Units, books of account and
records of Partnership proceedings, may be kept on or be in the form of punch
cards, magnetic tape, photographs, micrographics or any other information
storage device, provided that the records so kept are convertible into clearly
legible written form within a reasonable period of time. The books of the
Partnership shall be maintained, for financial reporting purposes, on an accrual
basis in accordance with generally accepted accounting principles. All decisions
as to accounting matters, except as specifically provided to the contrary
herein, shall be made by the General Partner.
8.2 Fiscal Year. The fiscal year of the Partnership shall be a 52-53 week
year ending the last Tuesday in December, or such other year as the General
Partner shall select.
8.3 Reports.
(a) As soon as practicable, but in no event later than 120 days after the
close of each fiscal year, the General Partner shall cause to be mailed to each
Record Holder as of the close of business on the last day of that fiscal year,
reports containing financial statements of the Partnership for the fiscal year,
presented in accordance with generally accepted accounting principles, including
a balance sheet, a statement of income, a statement of Partners' capital and a
statement of changes in financial position, such statements to be audited by a
firm of independent public accountants selected by the General Partner.
(b) As soon as practicable, but in no event later than 75 days after the
close of each fiscal quarter, except the last fiscal quarter of each fiscal
year, the General Partner shall cause to be mailed to each Record Holder of a
Unit as of the close of business on the last day of that fiscal quarter, a
report containing such financial information for that fiscal quarter as the
General Partner deems appropriate.
<PAGE>
8.4 Other Information. The General Partner may release such information
concerning the operations of the Partnership to such sources as is customary in
the industry or required by law or regulation of any regulatory body.
ARTICLE IX
TAX MATTERS
9.1 Preparation of Tax Returns. The General Partner shall arrange for the
preparation and timely filing of all returns of Partnership income, gains,
deductions, losses and other items necessary for federal and state income tax
purposes and shall use all reasonable efforts to furnish to Partners within 90
days of the close of the taxable year the summary tax information reasonably
required for federal and state income tax reporting purposes. The
classification, realization and recognition of income, gain, losses and
deductions and other items shall be on the accrual method of accounting for
federal income tax purposes, as the General Partner shall determine in its sole
discretion. The taxable year of the Partnership shall be a 52-53 week year
ending the last Tuesday in December, unless the General Partner shall determine
otherwise in its sole discretion.
9.2 Tax Elections. Except as otherwise provided herein, the General
Partner shall, in its sole discretion, determine whether to make any available
election pursuant to the Code. The General Partner, on behalf of the
Partnership, shall make the election pursuant to Section 754 of the Code in
accordance with applicable regulations thereunder, subject to the reservation of
the right to seek to revoke any such election in the General Partner's sole and
complete discretion that such revocation is in the best interests of the Limited
Partners and Assignees.
9.3 Tax Controversies. Subject to the provisions hereof, the General
Partner is designated the Tax Matters Partner (as defined in Section 6231 of the
Code), shall have all the powers and duties assigned to a Tax Matters Partner
under Sections 6221-6232 of the Code and Treasury Regulations thereunder and
further is authorized and required to represent the Partnership (at the
Partnership's expense) in connection with all examinations of the Partnership's
affairs by tax authorities, including resulting administrative and judicial
proceedings, and to expend Partnership funds for professional services and costs
associated therewith. Each Partner agrees to cooperate with the General Partner
and to do or refrain from doing any or all things reasonably required by the
General Partner to conduct such proceedings.
9.4 Organizational Expenses. The Partnership shall elect to deduct
expenses incurred in organizing the Partnership ratably over a 60-month period
as provided in Section 709 of the Code.
9.5 Taxation as a Partnership. No election shall be made by the
Partnership or any Partner for the Partnership to be excluded from the
application of any of the provisions of Subchapter K, Chapter 1 of Subtitle A of
the Code or from any similar provisions of any state tax laws.
<PAGE>
9.6 Opinions Regarding Taxation as a Partnership. Notwithstanding any
other provisions of this Agreement, the requirement, as a condition to any
action proposed to be taken under this Agreement, that the Partnership be
furnished an Opinion of Counsel to the effect that the proposed transaction
would not result in the Partnership being treated as an association taxable as a
corporation for federal income tax purposes, shall not be applicable if the
Partnership is at such time treated in all material respects as an association
taxable as a corporation for federal income tax purposes.
9.7 FIRPTA Withholding.
(a) Notwithstanding any other provision of this Agreement, the General
Partner is authorized to take any action that it determines to be necessary or
appropriate to cause the Partnership to comply with any withholding requirements
established under Section 1445 of the Code with regard to (i) the sale of
"United States real property interests" (as defined in the Code), (ii) the
distribution of cash or property to any Partner who is a "foreign person" (as
defined in Treasury Regulation Section l.1445-2T(b)(2)(i)(c)), or (iii) the
transfer of Units.
(b) In its sole and absolute discretion and as provided for in Treasury
Regulations under Section 1445 of the Code, the General Partner may elect to
withhold a portion of any distribution made to Partners and Assignees who are
"foreign persons" or who fail to provide to the Partnership an appropriate
certificate in accordance with the applicable provisions of such Treasury
Regulations. For purposes of Section 5.3, any amount so withheld shall be deemed
to have been distributed to the Partner or Assignee with respect to whom such
distribution is withheld.
9.8 Compliance with the Tax Reform Act of 1986. In its sole and absolute
discretion, the General Partner is authorized to take any action that it
determines to be necessary to cause the Partnership to comply with any provision
of the Tax Reform Act of 1986 and any Treasury Regulations promulgated pursuant
thereto, including, without limitation, complying with provisions relating to
withholding on distributions to "foreign persons" and relating to reporting
requirements to the Treasury Department.
ARTICLE X
ISSUANCE OF CERTIFICATES
10.1 Issuance of Certificates. Upon each issuance of Units, the General
Partner shall cause the Partnership to issue one or more Certificates for and in
the name of each Limited Partner which shall evidence the number and class or
series of Units owned by such Limited Partner. Unless the Limited Partner or
Assignee otherwise elects, he shall receive one Certificate in denomination
equal to the number of all of his Units of the same class or series. A Limited
Partner or Assignee may elect to receive Certificates in such smaller
denominations as he may designate.
<PAGE>
The Certificates shall be in such form as shall be approved by the General
Partner in conformity with law and any applicable rule, regulation, guideline or
requirement of any National Securities Exchange on which the Units are or will
he listed for trading. The Certificates shall be consecutively numbered, shall
be entered as they are issued in the transfer records and shall state the
Limited Partner's or Assignee's name, the number of Units and such other matters
as may be required by law and any applicable rule, regulation, guideline or
requirement of any National Securities Exchange on which the Units are or will
be us listed for trading. The Certificates shall be signed by the General
Partner by its chairman of the board, president or any vice presidents and also
by its secretaries, assistant secretaries or any other officers. If any
Certificate is countersigned by the Transfer Agent, the signatures or the
foregoing officers thereon may be a facsimile,
10.2 Lost, Stolen or Destroyed Certificates. The Partnership shall issue
a new Certificate in place of any Certificate previously issued if the
registered owner of the Certificate:
(a) makes proof by affidavit, in form and substance satisfactory to the
General Partner, that a previously issued Certificate has been lost, destroyed
or stolen;
(b) requests the issuance of a new Certificate before the Partnership has
notice that the Certificate has been acquired by a purchaser for value in good
faith and without notice of an adverse claim;
(c) if requested by the General Partner or Transfer Agent, delivers to
the Partnership a bond, in form and substance satisfactory to the General
Partner or Transfer Agent, with such surety or sureties and with fixed or open
penalty as the General Partner or Transfer Agent may direct, in its sole
discretion, to indemnify the Partnership and the Transfer Agent against any
claim that may be made on account of the alleged loss, destruction or theft of
the Certificate; and
(d) satisfies any other reasonable requirements imposed by the General
Partner or Transfer Agent.
If a Limited Partner or Assignee of record fails to notify the Partnership
or the Transfer Agent within a reasonable time after he has notice of the loss,
destruction or theft of a Certificate, and a transfer of the Units represented
by the Certificate is registered before receiving such notification, the Limited
Partner or Assignee of record shall be precluded from making any claim against
the Partnership or any Transfer Agent for such transfer or for a new
Certificate.
10.3 Registered Owner. The Partnership shall be entitled to treat the
Record Holder as the Limited Partner or Assignee in fact of any Units and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such Units on the part of any other Person, whether or not the
Partnership shall have actual or other notice thereof, except as otherwise
provided by law or any applicable rule, regulation, guideline or requirement of
any stock exchange on which the Units are listed for trading. Without limiting
the foregoing, when a Person (such as a broker, dealer, bank, trust company or
clearing corporation, or an agent of any of the foregoing) is acting as a
nominee, agent or in some other representative capacity for
<PAGE>
another Person in acquiring and/or holding Units, as between the Partnership on
the one hand and such other Persons on the other hand, such representative
Person (a) shall be the Limited Partner or Assignee (as the case may be) of
record and beneficially, (b) must execute and deliver a Transfer Application and
(c) shall be bound by the Partnership Agreement and shall have the obligations
of a Limited Partner or Assignee (as the case may be) hereunder and as provided
for herein.
ARTICLE XI
TRANSFER OF INTERESTS
11.1 Transfer. The term "transfer," when used in this Article XI with
respect to a Partnership Interest, shall be deemed to refer to a transaction by
which the General Partner assigns all or part of its Partnership Interest as the
General Partner to another Person or by which the holder of a Unit assigns the
Partnership Interest evidenced thereby to another Person, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition.
11.2 Transfer of Interests of the General Partner.
(a) The General Partner may not transfer all or any part of its
Partnership Interest as the General Partner unless (i) a Majority Interest
consents to such transfer, (ii) the transferee agrees to assume and be bound by
the applicable terms and provisions of this Agreement and agrees to be admitted
as a general partner of the Partnership and (iii) the Partnership receives an
Opinion of Counsel that such transfer would not cause the Partnership or the
Operating Partnership to be treated as an association taxable as a corporation
for federal income tax purposes; provided, however, that any transfer by the
General Partner of all of its Partnership Interest as general partner shall
constitute a withdrawal for purposes of and shall be effected by the General
Partner if not prohibited by Section 13.1(a).
(b) Subject to compliance with Sections 11.2(a)(ii) and 11.2(a)(iii),
neither Section 11.2(a)(i) nor any other provision of this Agreement shall be
construed to prevent (and all Partners hereby expressly consent to) (i) the
transfer by the General Partner of all or any part of its Partnership Interest
to an Affiliate of the General Partner; (ii) the transfer by the General Partner
of its Partnership Interest upon its merger, consolidation or liquidation with
or into any other Person or the transfer, upon liquidation or otherwise by it of
all or substantially all of its assets to another Person, and, in the case of
either clause (i) or (ii), the assumption of the rights and duties of the
General Partner by such Person; provided, in the ease of either clause (i) or
(ii), such Person furnishes to the Partnership an Opinion of Counsel that such
transfer, merger, consolidation or assumption will not result in a loss of
limited liability of any Limited Partner or of the limited partner in the
Operating Partnership or result in the Partnership or the Operating Partnership
being treated as an association taxable as a corporation for federal income tax
purposes; (iii) the transfer by the General Partner of any part (but not all) of
its interest in items of Partnership income, gain, losses,
<PAGE>
deductions, credits, distributions or surplus; (iv) the transfer by the General
Partner of all of its interest in items of Partnership income, gain, losses,
deductions, credits, distributions or surplus if the General Partner agrees,
notwithstanding Section 17-702(a)(4) of the Delaware Act, to continue as the
General Partner, and if it so agrees, all Partners hereby agree that it shall
continue as the General Partner; or (v) a General Partner's mortgaging,
pledging, hypothecating or granting a security interest in all or any part of
its Partnership Interest (in which case the General Partner shall continue to be
the General Partner). In the case of a transfer pursuant to clause (i) or (ii)
of this Section 11.2(b), the transferee or Affiliate shall be admitted to the
Partnership as a General Partner immediately prior to the transfer of the
General Partner's Partnership Interest, and the transferee or Affiliate shall
continue the business and operations of the Partnership without dissolution.
11.3 Prohibition Against Transfer. No Unit or Partnership Interest shall
be transferred in whole or in part, except in accordance with the terms and
conditions set forth in this Article XI. Any transfer or purported transfer of
any Unit or Partnership Interest not made in accordance with this Article XI
shall be null and void.
11.4 Transfer of Class A Units.
(a) Class A Units may be transferred by assignment, satisfactory in form
and substance to the Transfer Agent, of the Certificate evidencing such Class A
Units, and by execution and delivery of a Transfer Application in accordance
with subsection (b) below. Upon such an assignment, the transferor shall be
empowered, by this Agreement and the Certificate of Limited Partnership, to give
the transferee the right to become a Substituted Limited Partner and shall be
deemed to have given that right by the assignment. No transfer of Units or of
the Certificate evidencing such Units may be made and no new Certificate will be
registered in the name of or issued to the proposed transferee unless the
transferee has signed and delivered a Transfer Application to the Transfer
Agent.
(b) A transferee who has completed and delivered a Transfer Application
shall be deemed (i) to have requested admission as a Substituted Limited
Partner, (ii) to have agreed to comply with and be bound by the terms of, and to
have executed and delivered, this Agreement, (iii) to have represented and
warranted that such transferee has authority to enter into this Agreement, (iv)
to have appointed the General Partner and the Liquidator attorney-in-fact to
execute any document that either of them may deem necessary or appropriate to be
executed in connection with the transfer and such transferee's admission as a
Substituted Limited Partner pursuant to Article XII and as a party to this
Agreement, (v) to have made the power of attorney set forth in Section 1.4 and
(vi) to have made the consents and waivers contained herein. At such time as
such transferee becomes a Record Holder of a Certificate evidencing Units, such
transferee shall thereupon be deemed to be an Assignee respecting such Units.
Until admitted as a Substituted Limited Partner pursuant to Article XII, such
Record Holder shall continue to be an Assignee in respect of such Units.
(c) Each distribution in respect of Units shall be paid by the
Partnership, directly or through the Transfer Agent or through any other Person
or agent, only to the Record Holders thereof as of the Record Date set for the
distribution. Such payment shall constitute full payment and satisfaction of the
Partnership's liability in respect of such payment, regardless of any claim
<PAGE>
of any Person who may have an interest in such payment by reason of an
assignment or otherwise.
11.5 Restrictions on Transfer. Notwithstanding the other provisions of
this Article XI, no transfer of any Unit shall be made if such transfer (a)
would violate the then applicable federal and state securities laws or rules and
regulations of the Securities and Exchange Commission, any state securities
commission or any other governmental authorities with jurisdiction over such
transfer, (b) would result in the Partnership being treated as an association
taxable as a corporation for federal income tax purposes or (c) would affect the
Partnership's existence or qualification as a limited partnership under the
Delaware Act.
11.6 Restrictions on Transfer of Class B Units. Notwithstanding the other
provisions of this Article XI, no transfer of any Class B Unit shall be made
except (i) the transfer by any of the Transferors of any or all of its Class B
Units to another one of the Transferors or to an Affiliate of any of the
Transferors; (ii) the transfer by any of the Transferors of its Class B Units
upon its liquidation or dissolution or upon merger, consolidation or liquidation
with or into any other Person; or (iii) the transfer (whether by execution,
levying, foreclosure, or otherwise) by any of the Transferors of any or all of
its Class B Units to any bona fide pledgee of the Class B Units upon the default
by any of the Transferors or any of its Affiliates in its or their obligations
to the pledgee; and in any such case, upon the assumption of the rights and
duties of the Class B Limited Partner by any such Affiliate or transferee;
provided, in any such case, such Affiliate or such transferee furnishes to the
Partnership an Opinion of Counsel that such transfer, liquidation, dissolution,
merger, consolidation or assumption will not result in the Partnership or the
Operating Partnership being treated as an association taxable as a corporation
for federal income tax purposes. In the event of any transfer of Class B Units
in accordance with the provisions of this Section 11.6, the transferee shall
become a Substituted Limited Partner when the transfer of the Class B Units is
shown on the books and records of the Partnership. Following conversion of all
Class B Units into Class A Units the restrictions contained in this Section 11.6
shall no longer be deemed to apply.
11.7 Conversion of Class B Units.
(a) Provided that a Deficiency (as defined in Section 5.3(d)) does not
exist and capital account adjustments pursuant to either Section 4.1(b)(ii) or
Section 4.2(c) have been made such that the Capital Account for each Class A
Unit and Class B Unit are equal, the holder of any Class B Units shall have the
right at any time after the Subordination Period (or, if later, at any time
after the fiscal year with respect to which any Deficiency is eliminated), at
its option, to convert, subject to the terms and provisions of this Section
11.7, such Class B Units into Class A Units upon surrender of the Certificates
evidencing the Class B Units that are to be so converted to the Partnership at
any time during usual business hours at the principal offices of the Partnership
in Fort Worth, Texas (or at such other place as the Partnership shall hereafter
designate in writing to the Record Holders of the Class B Units), accompanied by
a written instrument of transfer in form satisfactory to the Partnership duly
executed by the Record Holder or his duly authorized legal representative.
<PAGE>
(b) As promptly as practicable after the surrender, as herein provided,
of any Class B Units for conversion, the Partnership shall issue the number of
Class A Units into which such Class B Units may be converted in accordance with
the provisions of this Section 11.7 and shall deliver or cause to be delivered,
at the offices set forth above to or upon the written order of the holder of
such Class B Units so surrendered, duly issued Certificates evidencing such
Class A Units. Prior to delivery of such Certificates, the Partnership shall
require a written notice from the Record Holder of the Class B Units so
surrendered indicating its election to convert such Class B Units and specifying
the name or names (with address) in which such Certificates are to be issued. If
the Certificates are to be issued to a Person who is other than the Record
Holder of the Class B Units to be converted, the surrender of such Units shall
be accompanied by such duly executed instruments of transfer (including a
Transfer Application duly executed by the transferee) as shall be required by
this Agreement or as determined by the General Partner at its sole discretion.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date that such Class B Units shall have been surrendered for
conversion, so that the rights of the holder of such Class B Units shall cease
with respect to such Class B Units at such time, and the Person or Persons
entitled to receive the Class A Units upon conversion of such Class B Units
shall be treated for all purposes as having become the Record Holders of such
Class A Units at such time. Distributions declared but unpaid on the Class B
Units shall be made upon the conversion of such Class B Units; provided,
however, that distributions declared prior to such conveyance on the Class A
Units but unpaid at the time of conversion shall not be payable on Class A
Units that are issued upon such conversion.
(c) The rate at which Class A Units shall be delivered upon conversion
(herein called the "conversion rate") shall initially be one Class A Unit for
one Class B Unit. The conversion rate shall be subject to adjustment as follows:
if the Partnership shall (i) make a distribution to all holders of Class A Units
payable in any class of Units or securities convertible into any class of Units,
(ii) subdivide outstanding Class A Units into a greater number of Class A Units,
(iii) combine outstanding Class A Units into a smaller number of Class A Units,
or (iv) issue by reclassification of Class A Units any Units of the Partnership
of any class or classes, then the conversion rate in effect immediately prior to
such action shall be adjusted so that the holder of any Class B Units hereafter
surrendered for conversion shall be entitled to receive the number and class or
classes of securities that he would have owned or have been entitled to receive
immediately after the happening of any of the events described above had such
Class B Units been converted on or immediately prior to the Record Date for such
distribution or the effective date of such subdivision, combination or
reclassification, as the case may be. An adjustment made pursuant to this
Section 11.7 shall become effective retroactively immediately after the Record
Date in the case of a distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this Section
11.7, the holder of any Class B Units thereafter surrendered for conversion
shall become entitled to receive Units of two or more classes, the General
Partner (whose determination shall be conclusive and shall be described in a
statement provided to each Record Holder or Class B Units) shall determine the
allocation of the conversion rate between and among such classes of Units.
<PAGE>
(d) In case of any consolidation or merger of the Partnership with or
into another entity or in case of any sale or transfer to another entity of all
or substantially all of the Partnership assets, then the holders of the Class B
Units then Outstanding shall have the right thereafter to convert such Class B
Units into the kind and amount of securities and property receivable upon or
deemed to be held following such consolidation, merger, sale or transfer by a
holder of a number of Class A Units into which such Class B Units might have
been converted immediately prior to such consolidation, merger, sale or
transfer. This provision shall similarly apply to successive consolidations,
mergers, sales or transfers.
(c) The issuance of Certificates evidencing Class A Units upon the
conversion of Class B Units shall be made without charge to the converting
Partner for such Certificates or for any tax in respect of the issuance of such
Certificates; provided, however, that the Partnership shall not be required to
pay any charge or tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such Certificate in a name other than that
of the Record Holder of the Class B Units converted, and the Partnership shall
not be required to issue or deliver any such Certificates unless and until the
Person or Persons requesting the issuance thereof shall have paid to the
Partnership or the Transfer Agent the amount of such charge or tax or shall have
established to the satisfaction of the Partnership or the Transfer Agent that
such charge or tax has been paid; and provided further, however, that the
Partnership shall not be required to pay or reimburse the holder for any income
tax payable by such holder as a result of such issuance. The Partnership shall
further comply with any and all applicable federal and state securities laws and
regulations, and the listing requirements of any and all securities exchanges
upon which its Units are listed, or have been approved for listing, with respect
to the conversion of the Class B Units as provided herein.
(f) The "net agreed value" for purposes of the Delaware Act of any Class
A Units issued by the Partnership upon conversion of the Class B Units pursuant
to this Section 11.7 shall be the "net agreed value" determined to be applicable
to such Class B Units at the time of their issuance.
11.8 Restriction on Transfer of Class A Units Converted from Class B
Units.
(a) Subject to the terms of Section 11.8(b), no transfer of any Class A
Units issued pursuant to any conversion of Class B Units as described in Section
11.7 may be made unless and until any one of the following conditions is met.
(i) The election under Section 754 of the Code has previously been
made by the General Partner on behalf of the Partnership and has not been
revoked;
(ii) If the election under Section 754 of the Code has been revoked,
the General Partner prepares, signs and delivers to the independent public
accountants then serving the Partnership a Section 754 election which is in form
sufficient to make that election effective for the Partnership during the first
year that any of the above-referenced Class A Units received upon conversion of
Class B Units are transferred and the General Partner instructs such accountants
to
<PAGE>
file the Section 754 election in accordance with the requirements of the
appropriate Treasury Regulations; or
(iii) The Code is amended, a regulation is promulgated by the
Treasury Department, a published revenue ruling is issued by the Internal
Revenue Service, or a private ruling is issued by the Internal Revenue Service
to the Partnership which expressly permits tax attributes to be so allocated
among publicly traded interests in partnerships that those interests may be
traded in the public market as substantially identical, notwithstanding the
historic differences among those interests of certain tax attributes.
(b) Section 11.8(a) is intended only to create a temporary restriction on
the transfer of Class A Units received upon conversion of Class B Units so that
those Class A Units will not be commingled in the trading market with Class A
Units which were offered and sold to the public pursuant to the Underwriting
Agreement, or with later issuances under Section 4.3(a). In that regard. Section
11.8(a) shall not be applicable to prohibit any transfer otherwise prohibited by
its provisions if the transfer of such Class A Units will not result in such a
commingling and if the transferee of such Class A Units agrees to be bound by
the restrictions contained in this Section 11.8 as if the transferee were the
original owner of such Class A Units.
ARTICLE XII
ADMISSION OF INITIAL, SUBSTITUTED AND ADDITIONAL LIMITED PARTNERS
12.1 Admission of Initial Limited Partners. On the Commencement Date, the
General Partner shall admit the Initial Limited Partners to the Partnership.
Each such party shall execute a counterpart of this Agreement (either
individually or by its attorney or agent) and thereby agree to be bound by the
terms hereof as a Limited Partner.
12.2 Admission of Substituted Limited Partners.
(a) A Limited Partner or Assignee shall have the power to give the
transferee of such Person's Units the right to seek admission as a Substituted
Limited Partner subject to the conditions of and in the manner permitted under
this Agreement. By transfer of a Unit, the transferor is deemed to have given
the transferee the right to seek admission as a Substituted Limited Partner
subject to the conditions of and manner permitted under this Agreement. A
transferor of a Certificate shall only have the authority to convey to a
purchaser or other transferee who does not execute and deliver the Transfer
Application, however, (i) the right to negotiate such Unit to a purchaser or
other transferee and (ii) the right to transfer the right to request admission
as a Substituted Limited Partner to such purchaser or other transferee in
respect of the transferred Units. Each transferee of a Unit (including any
Person, such as a broker, dealer, bank, trust company, clearing corporation,
other nominee holder or an agent of any of the foregoing, acquiring such Unit
for the account of another Person) shall apply to become a Substituted Limited
Partner with respect to Units transferred to such Person by executing and
delivering a Transfer Application at the time of such transfer. Such transferee
shall become a Substituted Limited Partner at such time as the General Partner
consents thereto, which
<PAGE>
consent may be given or withheld in the General Partner's sole discretion, and
when any such admission is shown on the books and records of the Partnership. If
such consent is withheld, such transferee shall continue to be an Assignee. An
Assignee shall have an interest in the Partnership equivalent to that of a
Limited Partner with respect to allocations and distributions, including
liquidating distributions of the Partnership. With respect to voting rights
attributable to Units that are held by Assignees, the General Partner shall be
deemed to be the Limited Partner with respect thereto and shall, in exercising
the voting rights in respect of such Units on any matter, vote such Units at the
written direction of the Assignee. If no such written direction is received,
such Units will not be voted. An Assignee shall have no other rights of a
Limited Partner. The General Partner shall be deemed to have given its consent
to the admission of a transferee as a Substituted Limited Partner, and such
admission shall be effective, at and from the close of business on the Business
Day on which a properly executed Transfer Application is received by the
Transfer Agent unless the General Partner notifies the Transfer Agent to the
contrary prior to the close of business on the day of the receipt of the
Transfer Application.
(b) The admission of an Assignee as a Substituted Limited Partner shall
be effected without the consent of any of the Partners other than the General
Partner.
12.3 Admission of Additional Limited Partners. A Person (other than an
Initial Limited Partner) who makes a Capital Contribution to the Partnership
shall be admitted to the Partnership as an Additional Limited Partner upon
furnishing to the General Partner (a) acceptance, in form satisfactory to the
General Partner, of all the terms and conditions of this Agreement, including,
without limitation, the power of attorney granted in Section 1.4, and (b) such
other documents or instruments as may be required in order to effect his
admission as a Limited Partner, and such admission shall become effective on the
date that the General Partner determines in its sole discretion that such
conditions have been satisfied and when any such admission is shown on the books
and records of the Partnership. The admission of Additional Limited Partners
shall be effected without the consent of any of the Partners other than the
General Partner.
12.4 Admission of Successor General Partner. A successor General Partner
selected pursuant to Section 13.1 or the transferee of or successor to the all
or any part of the Partnership Interest of the General Partner pursuant to
Section 11.2(a) or (b) who is proposed to be admitted as a General Partner shall
be admitted to the Partnership as a General Partner, effective immediately prior
to the withdrawal or removal of the General Partner pursuant to Section 13.1 or
the transfer pursuant to Section 11.2; provided, however, that no such
withdrawal or removal can occur, and no such successor shall be admitted to the
Partnership, until the successor has complied with Section 1l.2(a)(ii). Any such
successor shall carry on the business of the Partnership.
12.5 Amendment of Agreement and of Certificate of Limited Partnership. For
the admission to the Partnership of any successor General Partner, the General
Partner shall take all steps necessary and appropriate to prepare and file as
soon as practicable an amendment of this Agreement and, if required by law, the
Certificate of Limited Partnership and may for this purpose exercise the power
of attorney granted pursuant to Section 1.4. Each Limited Partner
<PAGE>
consents to the admission of each successor General Partner effected pursuant to
the terms of this Agreement.
ARTICLE XIII
WITHDRAWAL OR REMOVAL OF PARTNERS
13.1 Withdrawal or Removal of General Partner.
(a) The General Partner covenants and agrees that it will not withdraw as
the General Partner of the Partnership before December 31, 1997, subject to its
right to transfer its Partnership Interest as General Partner pursuant to
Sections 11.2(a) or 11.2(b) to an Affiliate of the General Partner or transferee
that assumes the rights and duties of the General Partner under this Agreement.
Except for transfers permitted by Section 11.2(b), any transfer by the General
Partner of all of its Partnership interest as the General Partner pursuant to
Section 11.2(a) shall constitute the withdrawal of the General Partner for
purposes of this Section 13.1(a). The withdrawal of the General Partner shall
also constitute the withdrawal of the general partner of the Operating
Partnership. If the General Partner gives a notice of withdrawal, a Majority
Interest may, prior to the effective date of such withdrawal, elect a successor
General Partner. The Person so elected shall automatically become the successor
general partner of the Operating Partnership. If no successor General Partner is
elected, the Partnership shall be dissolved pursuant to Section 14.1. If a
successor General Partner is elected, it shall be admitted immediately prior to
the withdrawal of the General Partner and shall continue the business and
operations of the Partnership without dissolution.
(b) The General Partner may be removed only upon the affirmative vote or
approval of owners of at least 75% of the Percentage Interests of the Limited
Partners, exclusive of any such Percentage interests held by the General Partner
or any Affiliate thereof. Any such action for removal of the General Partner
must also provide for the election of a new General Partner. Such removal shall
be effective immediately subsequent to the admission of the successor General
Partner pursuant to Article XII. The removal of the General Partner shall also
constitute the removal of the general partner of the Operating Partnership, as
provided in the Operating Partnership Agreement. The Person elected as successor
General Partner shall automatically become the successor general partner of the
Operating Partnership. The right to remove the General Partner shall not exist
or be exercised unless the Partnership has received an Opinion of Counsel that
the removal of the General Partner and the selection of a successor General
Partner will not result in the loss of limited liability of any Limited Partner
or of the limited partner of the Operating Partnership or the treatment of the
Partnership or the Operating Partnership as an association taxable as a
corporation for federal income tax purposes. Any successor General Partner shall
carry on the business of the Partnership.
13.2 Interest of Departing Partner and Successor.
(a) The Departing Partner shall, at the option of its successor
exercisable prior to the effective date of the departure of such Departing
Partner, promptly receive from its successor in
<PAGE>
exchange for its Partnership Interest as the General Partner, an amount in cash
equal to the fair market value of the Departing Partner's Partnership Interest
as the General Partner herein, determined as of the effective date of its
departure. If the successor to a Departing Partner exercises its option to
acquire the Partnership Interest as the General Partner of the Departing
Partner, it must also acquire at such time the partnership interest of the
Departing Partner as the general partner of the Operating Partnership, for an
amount in cash equal to the fair market value of such interest, determined as of
the effective date of its departure. If the option is exercised, the Departing
Partner shall, as of the effective date of its departure, cease to share in any
allocations or distributions with respect to its Partnership Interest as the
General Partner. For purposes of this Section 13.2, the fair market value of the
Departing Partner's Partnership Interest as the General Partner and of its
partnership interest as the general partner of the Operating Partnership shall
be determined by agreement between the Departing Partner and its successor or,
failing agreement within 30 days after the effective date of such Departing
Partner's departure, by an independent investment banking firm or other
independent expert selected by the Departing Partner and its successor, which,
in turn, may rely on other experts and the determination of which shall be
conclusive as to such matter. If such parties cannot agree upon one independent
investment banking firm or other independent expert within 45 days after the
effective date of such departure, then such firm shall be designated by the
independent investment banking firm or other independent expert selected by each
of the Departing Partner and its successor. In making its determination, such
independent investment banking firm or other independent expert shall consider
the Unit Price, the value of the Partnership's assets, the rights and
obligations of such General Partner and any other factor or factors it may deem
relevant.
(b) If the successor to a Departing Partner does not exercise the option
described in Section 13.2(a), the Partnership Interest of the Departing Partner
as the General Partner of the Partnership and the partnership interest of such
Departing Partner as the general partner of the Operating Partnership shall be
converted as follows:
(i) The Departing Partner shall become a Limited Partner, and its
Partnership Interest as the General Partner shall be converted into Units,
without any reduction in such Partnership Interest (subject to proportionate
dilution by reason of the admission of its successor). The number of Units into
which the Partnership Interest of such Departing Partner shall be converted
shall be equal to the number of Units outstanding immediately before the
effective date of its departure multiplied by a fraction, the numerator of which
is such Departing Partner's Percentage Interest as the General Partner
(immediately before such departure) and the denominator of which is the
aggregate Percentage Interest (immediately before such departure) of all Limited
Partners and Assignees (immediately before such departure).
(ii) If the partnership interest not acquired is that of a Departing
Partner as a general partner of the Operating Partnership, the limited
partnership interest into which such interest is converted pursuant to the
Operating Partnership Agreement shall he contributed by such Departing Partner
to the capital of the Partnership, such Departing Partner shall become a Limited
Partner in the Partnership and the Partnership shall issue to such Departing
Partner the number of Units equal to the product of the number of Units
outstanding immediately prior to the effective date of its departure (but after
giving effect to the conversions, if any, described in
<PAGE>
Sections 13.2(b)(i) and (b)(ii)) multiplied by a fraction, the numerator of
which is such Departing Partner's percentage interest under the Operating
Partnership Agreement (immediately before such departure) and the denominator of
which is the aggregate percentage interest of all limited partners of the
Operating Partnership (immediately before such departure) under the Operating
Partnership Agreement.
This Agreement shall be amended to reflect any event described in Sections
13.2(b)(i) or (ii), and any successor General Partner covenants so to amend.
(c) If the successor to a Departing Partner does not exercise the option
described in Section 13.2(a) above, the successor shall at the effective date of
its admission to the Partnership contribute to the capital of the Partnership
cash or property having a Net Agreed Value such that its Capital Account, after
giving effect to such contribution, shall be equal to that percentage of the
Capital Accounts of all Partners that is equal to its Percentage Interest as the
General Partner. In such event, such successor shall be entitled to such
Percentage Interest, as the case may be, of all Partnership allocations and
distributions.
13.3 Withdrawal of Limited Partners. No Limited Partner shall have any
right to withdraw from the Partnership; provided, however, when a transferee of
a Limited Partner's or Assignee's Units becomes a Record Holder, such Limited
Partner or Assignee shall cease to be a Limited Partner or Assignee with respect
to the Units so transferred, but until such transferee becomes a Record Holder,
such transferor shall continue to be the Record Holder with respect to the Units
transferred. No Limited Partner shall be entitled to receive any distribution
from the Partnership for any reason or upon any event except as expressly set
forth in Articles V and XIV.
ARTICLE XIV
DISSOLUTION AND LIQUIDATION
14.1 Dissolution. The Partnership shall not be dissolved by the admission
of Additional Limited Partners or Substituted Limited Partners or by the
admission of additional General Partners or substituted General Partners in
accordance with the terms of this Agreement. The Partnership shall dissolve, and
its affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 1.5;
(b) the withdrawal or removal of the General Partner, or any event that
results in its ceasing to be the General Partner (other than by reason of a
transfer pursuant to Section 11.2 or withdrawal or removal following selection
by a Majority Interest of a successor pursuant to Section 13.1);
(c) an election to dissolve the Partnership by the General Partner that
is approved by the affirmative vote of a Majority Interest;
(d) the bankruptcy or the dissolution of the General Partner;
<PAGE>
(e) a written determination by the General Partner that projected future
revenues of the Partnership will be insufficient to enable payment of projected
costs and expenses. or, if sufficient, will be such that continued operation of
the Partnership is not in the best interests of the Partners; or
(f) a Terminating Capital Transaction;
provided, however, that the Partnership shall not be dissolved upon an event
described in Section 14.1(b), (d) or (e) if within 90 days after such event, all
Partners agree in writing to continue the business of the Partnership and to the
appointment of a successor General Partner.
For purposes of this Section 14.1, bankruptcy of the General Partner shall
be deemed to have occurred when (u) it commences a voluntary proceeding, or
files an answer in any involuntary proceeding seeking liquidation,
reorganization or other relief under any bankruptcy, insolvency or other similar
law now or hereafter in effect, (v) it is adjudged a bankrupt or insolvent, or
has entered against it a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect, (w) it
executes and delivers a general assignment for the benefit of its creditors, (x)
it files an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against it in any proceeding of the
nature described in clause (u) above, (y) it seeks, consents to or acquiesces in
the appointment of a trustee, receiver or liquidator for it or for all or any
substantial part of its properties, or (z)(1) any proceeding of the nature
described in clause (u) above has not been dismissed 120 days after the
commencement thereof, (2) the appointment without its consent or acquiescence of
a trustee, receiver or liquidator appointed pursuant to clause (y) above has not
been vacated or stayed within 90 days after such appointment, or (3) such
appointment is not vacated within 90 days after the expiration of any such stay.
14.2 Continuation of the Business of the Partnership after Dissolution.
Upon dissolution of the Partnership in accordance with Section 14.1(b), (d), or
(e), and a failure of all Partners to agree to continue the business of the
Partnership and appoint a successor General Partner as provided in Section 14.1,
then within an additional 90 days, a Majority Interest may elect to reconstitute
the Partnership and continue its business on the same terms and conditions set
forth in this Agreement by forming a new partnership on terms identical to those
set forth in this Agreement and having as a general partner a Person elected by
a Majority Interest. Upon any such election by a Majority Interest, all Partners
shall be bound thereby and shall be deemed to have consented thereto. Unless
such an election is made within 180 days after dissolution, the Partnership
shall conduct only activities necessary to wind up its affairs. If such an
election is made within 180 days after dissolution, then:
(a) the reconstituted Partnership shall continue until. the end of the
term set forth in Section 1.5 unless earlier dissolved in accordance with this
Article XIV;
<PAGE>
(b) if the successor general partner is not the former General Partner,
then the interest of the former General Partner shall be treated thenceforth as
the interest of a Limited Partner and converted into Units in the manner
provided in Section 13.2(b)(i); and
(c) all necessary steps shall be taken to cancel this Agreement and the
Certificate of Limited Partnership and to enter into a new partnership agreement
and certificate of limited partnership, and the successor general partner may
for this purpose exercise the powers of attorney granted the General Partner
pursuant to Section 1.4;
provided that the right of a Majority Interest to select a successor general
partner and to reconstitute and to continue the business of the Partnership
shall not exist and may not be exercised unless the Partnership has received an
Opinion of Counsel that (x) the exercise of the right would not result in the
loss of limited liability of any Limited Partner and (y) neither the Partnership
nor the reconstituted Partnership would be treated as an association taxable as
a corporation for federal income tax purposes upon the exercise of such right to
continue (unless the Partnership is already treated as a corporation in all
material respects due to changes in federal income tax laws).
14.3 Liquidation. Upon dissolution of the Partnership, unless the
Partnership is continued under an election to reconstitute and continue the
Partnership pursuant to Section 14.2, the General Partner, or, in the event the
General Partner has been dissolved or removed, become bankrupt as defined in
Section 14.1 or withdrawn from the Partnership, a liquidator or liquidating
committee approved by a Majority Interest, shall be the Liquidator. The
Liquidator (if other than the General Partner) shall be entitled to receive such
compensation for its services as may be approved by a Majority Interest. The
Liquidator shall agree not to resign at any time without 15 days' prior written
notice and (if other than the General Partner) may be removed at any time, with
or without cause, by notice of removal approved by a Majority Interest. Upon
dissolution, removal or resignation of the Liquidator, a successor and
substitute Liquidator (who shall have and succeed to all rights, powers and
duties of the original Liquidator) shall within 30 days thereafter be approved
by a Majority Interest. The right to approve a successor or substitute
Liquidator in the manner provided herein shall be recurring and continuing for
so long as the functions and services of the Liquidator are authorized to
continue under the provisions hereof, and every reference herein. to the
Liquidator shall be deemed to refer also to any such successor or substitute
Liquidator approved in the manner herein provided. Except as expressly provided
in this Article XIV, the Liquidator approved in the manner provided herein shall
have and may exercise, without further authorization or approval of any of the
parties hereto, all of the powers conferred upon the General Partner under the
terms of this Agreement (but subject to all of the applicable limitations,
contractual and otherwise, upon the exercise of such powers, other than the
limitation on sale set forth in Section 16.1(a)) to the extent necessary or
desirable in the good faith judgment of the Liquidator to carry out the duties
and functions of the Liquidator hereunder for and during such period of time as
shall be reasonably required in the good faith judgment of the Liquidator to
complete the winding up and liquidation of the Partnership as provided for
herein. The General Partner or the Liquidator shall liquidate the assets of the
Partnership, and apply and distribute the proceeds of such liquidation in the
following order of priority, unless otherwise required by mandatory provisions
of applicable law:
<PAGE>
(a) the payment to creditors of the Partnership, including Partners, in
order of priority provided by law; and the creation of a reserve of cash or
other assets of the Partnership for contingent liabilities in an amount, if any,
determined by the General Partner or the Liquidator to be appropriate for such
purposes;
(b) to the Partners in proportion to and to the extent of the positive
balances in their respective Capital Accounts.
The distribution to the Partners as provided in sub-section (b) above shall
be made by the end of the year of liquidation or, if later, within ninety (90)
days after the date of such liquidation (within the meaning of Treasury
Regulation Section 1.704-1 (b)(2) (ii) (b)(2)).
14.4 Distribution in Kind. Notwithstanding the provisions of Section 14.3
which require the liquidation of the assets of the Partnership, but subject to
the order of priorities set forth therein, if upon dissolution of the
Partnership the General Partner or the Liquidator determines that an immediate
sale of part or all of the Partnership's assets would be impractical or would
cause undue loss to the Partners, the General Partner or the Liquidator may, in
its absolute discretion, defer for a reasonable time the liquidation of any
assets except those necessary to satisfy liabilities of the Partnership (other
than those to Partners) and/or may. in its absolute discretion, distribute to
the Partners, in lieu of cash, as tenants in common and in accordance with the
provisions of Sections 14.3(b), undivided interests in such Partnership assets
as the General Partner or the Liquidator deems not suitable for liquidation. Any
such distributions in kind shall be subject to such conditions relating to the
disposition and management of such properties as the General Partner or the
Liquidator deems reasonable and equitable and to any agreements governing the
management and/or operation of such properties at such time. The General Partner
or the Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
14.5 Cancellation of Certificate of Limited Partnership. Upon the
completion of the distribution of Partnership property as provided in Sections
14.3 and 14.4, the Partnership shall be terminated, and the Liquidator (or the
General Partner or Limited Partners if necessary) shall cause the cancellation
of the Certificate of Limited Partnership and all qualifications of the
Partnership as a foreign limited partnership in jurisdictions other than the
State of Delaware and shall take such other actions as may be necessary to
terminate the Partnership.
14.6 Reasonable Time for Winding Up. A reasonable time shall be allowed
for the orderly winding up of the business and affairs of the Partnership and
the liquidation of its assets pursuant to Section 14.3 in order to minimize any
losses otherwise attendant upon such winding up.
14.7 Return of Capital No General Partner shall be personally liable for
the return of the Capital Contributions of the Limited Partners, or any portion
thereof, it being expressly understood that any such return shall be made solely
from Partnership assets.
<PAGE>
14.8 Capital Account Restoration. No Limited Partner shall have any
obligation to restore any negative balance in its Capital Account upon
liquidation of the Partnership. Upon the dissolution and termination of the
Partnership, the General Partner will contribute to the Partnership an amount
equal to the lesser of: (i) the deficit balance in its capital account, if any,
or (ii) the excess of 1.01% of the total Capital Contributions of all Limited
Partners over the capital previously contributed, if any, by the General Partner
attributable to its interest as General Partner.
14.9 Waiver of Partition. Each Partner hereby waives any right to
partition of the Partnership property.
ARTICLE XV
AMENDMENT OF PARTNERSHIP AGREEMENT: MEETINGS, RECORD DATE
15.1 Amendment to be Adopted Solely by General Partner. The General
Partner (pursuant to its powers of attorney from the Partners), without the
approval of any Limited Partner or Assignee, may amend any provision of this
Agreement, and execute, swear to, acknowledge, deliver, file and record whatever
documents may be required in connection therewith, to reflect:
(a) a change in the name of the Partnership or the location of the
principal place of business of the Partnership (or a change in any trade names,
trademarks, or service marks of the Partnership);
(b) admission, substitution or termination of Partners in accordance with
this Agreement;
(c) a change that the General Partner in its sole discretion has determined
to be reasonable and necessary or appropriate to qualify or continue the
qualification of the Partnership as a limited partnership or a partnership in
which the Limited Partners have limited liability under the laws of any state or
that is necessary or advisable in the opinion of the General Partner to ensure,
to the degree practicable, that the Partnership will not be treated as an
association taxable as a corporation for federal income tax purposes;
(d) a change (i) that in the sole discretion of the General Partner does
not adversely affect the Limited Partners in any material respect, (ii) that is
necessary or desirable to satisfy any requirements, conditions or guidelines
contained in any opinion, directive, order, ruling or regulation of any federal
or state agency or judicial authority or contained in any federal or state
statute or that is necessary or desirable to facilitate the trading of the Units
(including, without limitation, the division of Outstanding Units into different
classes in order to facilitate uniformity of tax consequences within such
classes of Units) or comply with any rule, regulation, guideline or requirement
of any securities exchange on which the Units are or will be listed for trading,
compliance with any of which the General Partner deems to be in the best
interests of the Partnership and the Limited Partners, or (iii) that is required
or contemplated by this Agreement;
<PAGE>
(e) an amendment that is necessary, in the Opinion of Counsel to the
Partnership, to prevent the Partnership or the General Partner or its directors
or officers from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, whether or not substantially similar to
plan asset regulations currently applied or proposed by the United States
Department of Labor;
(f) an amendment that in the sole discretion of the General Partner is
necessary or desirable in connection with the authorization for issuance or
issuance of any class or series of Units pursuant to Section 4.2(a),
(g) the use of depositary units to represent Class A Units or any other
class of Units or securities of the Partnership;
(h) any amendment permitted pursuant to Section 5.2(h) herein; or
(i) any other amendments similar to the foregoing.
15.2 Amendment Procedures. Except as provided in Sections 15.1 and 15.3,
all amendments to this Agreement shall be made in accordance with the following
requirements:
(a) amendments of this Agreement may be proposed:
(i) by the General Partner, by submitting the text of the amendment to
all Limited Partners in writing; or
(ii) by Limited Partners owning at least 10% of the Percentage
Interests owned by Limited Partners, by submitting their proposal in writing to
the General Partner. The General Partner shall, within 60 days after the receipt
of any such proposal or as soon thereafter as is reasonably practicable, submit
the text of the proposed amendment to all Limited Partners. The General Partner
may include in such submission its recommendation as to the proposed amendment.
(b) if an amendment is proposed, the General Partner shall seek the written
approval of the requisite Percentage Interests or call a meeting of the Partners
to consider and vote on the proposed amendment unless, in the Opinion of
Counsel, such proposed amendment would cause the Partnership or the Operating
Partnership to cease being treated as a partnership for federal income tax
purposes. A proposed amendment shall be effective upon its adoption by the
written approval of the requisite Percentage Interests (within a reasonable
period of time as specified in the submission) or the affirmative vote of a
Majority Interest unless a greater percentage is required by this Agreement. The
General Partner shall notify all Partners upon final adoption of any proposed
amendment.
<PAGE>
15.3 Amendment Requirements.
(a) Notwithstanding the provisions of Sections 15.1 and 15.2, no provision
of this Agreement which establishes a Percentage Interest required to take any
action shall be amended, altered, changed, repealed or rescinded in any respect
which would have the effect of reducing such voting requirement, unless such is
approved by written approval or the affirmative vote of Partners whose aggregate
Percentage Interests constitute not less than the voting requirement sought to
be reduced. This Section 15.3(a) shall only be amended with the approval by
written approval or affirmative vote of Partners whose aggregate Percentage
Interests constitute at least 75% of the aggregate Percentage Interests of the
Partners; provided, however, that no duty or obligation of the General Partner
can be increased or right diminished without the consent of the General Partner.
(b) The voting requirements in this Section 15.3 shall be in addition to
voting requirements imposed by other provisions contained herein.
15.4 Meetings. All acts of Limited Partners to be taken hereunder shall be
taken in the manner provided in this Article XV. Except as provided in Section
15.2, meetings of the Partners maybe called by the General Partner or by Limited
Partners owning at least 20% of the aggregate Percentage Interests of the
Partners. Any Limited Partner calling a meeting shall specify the number of
Units as to which the Limited Partner is exercising the right to call a meeting
and only those specified Units shall be counted for the purpose of determining
whether the required 20% standard of the preceding sentence has been met.
Limited Partners shall call a meeting by delivering to the General Partner one
or more calls in writing stating that the signing Limited Partners wish to call
a meeting and indicating the general or specific purposes for which the meeting
is to be called. Within 60 days after receipt of such a call from Limited
Partners or within such greater time as may be reasonably necessary for the
Partnership to comply with any statutes, rules, regulations, listing agreements
or similar requirements governing the holding of a meeting or the solicitation
of proxies for use at such a meeting, the General Partner shall send a notice of
the meeting to the Partners either directly or indirectly through the Transfer
Agent. A meeting shall he held at a time and place determined by the General
Partner on a date not more than 60 days after the mailing of notice of the
meeting. Limited Partners shall not vote on matters that would cause the Limited
Partners to be deemed to be taking part in the management and control of the
business and affairs of the Partnership so as to subject the Limited Partners to
unlimited liability.
15.5 Notice of a Meeting. Notice or a meeting called pursuant to Section
15.4 shall be given to the Partners in writing either personally or by mail or
other means of written communication in accordance with Section 18.1. The notice
shall be deemed to have been given at the time when delivered personally or
deposited in the mail or sent by other means of written communication.
15.6 Record Date. For purposes of determining the Partners entitled to
notice of or to vote at a meeting of the Partners or to give approvals without a
meeting as provided in Section 15.11, the General Partner may set a Record Date,
which shall not be less than 10 days nor more
<PAGE>
than 60 days before the date of the meeting (unless such requirement conflicts
with any rule, regulation, guideline or requirement of any stock exchange on
which the Units are listed for trading, in which case the rule, regulation,
guideline or requirement of such stock exchange shall govern).
15.7 Adjournment. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting and a new Record Date need not
be fixed, if the time and place thereof are announced at the meeting at which
the adjournment is taken, unless such adjournment shall be for more than 60
days. At the adjourned meeting, the Partnership may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 60 days or if a new Record Date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given in accordance with this Article
XV.
15.8 Waiver of Notice; Approval of Meeting; Approval of Minutes. The
transactions of any meeting of Partners, however called and noticed, and
whenever held, are as valid as though had at a meeting duly held after regular
call and notice, if a quorum is present either in person or by proxy, and if,
either before or after the meeting, each of the Limited Partners entitled to
vote, not present in person or by proxy, signs a written waiver of notice or a
approval of the holding of the meeting or an approval of the minutes thereof.
All waivers, consents and approvals shall be filed with the Partnership records
or made a part of the minutes of the meeting. Attendance of a Partner at a
meeting shall constitute a waiver of notice of the meeting, except when the
Partner objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened; and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required to be included in the notice of the meeting,
but not so included, if the objection is expressly made at the meeting.
15.9 Quorum. A Majority Interest represented in person or by proxy shall
constitute a quorum at a meeting of Partners. Notwithstanding anything elsewhere
provided in this Agreement to the contrary, the Limited Partners shall be
entitled to vote on, consent to or approve of matters only as provided in
Sections 4.3, 11.2, 12.4, 13.1, 14.1, 14.2, 14.3, 15.2, 15.3, 15.4, 15.11 and
16.1 and as submitted to them by the General Partner. At any meeting of the
Partners duly called and held in accordance with this Agreement at which a
quorum is present, the act of Limited Partners whose Percentage Interests
constitute a majority of the Percentage Interests represented in person or by
proxy at such meeting and entitled to vote thereat shall be deemed to constitute
the act of all Limited Partners, unless a higher percentage is required with
respect to such action under the provisions of this Agreement, in which ease the
act of the Partners owning such higher percentage shall be required. The
Partners present at a duly called or held meeting at which a quorum is present
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Partners to leave less than a quorum, if any action taken
(other than adjournment) is approved by the requisite percentage of interests of
Partners specified in this Agreement. In the absence of a quorum, any meeting of
Partners may be adjourned from time to time by the affirmative vote of a
majority of the Percentage Interests represented either in person or by proxy,
but no other business may be transacted, except as provided in Section 15.7.
<PAGE>
15.10 Conduct of Meeting. The General Partner shall have full power and
authority concerning the manner of conducting any meeting of the Partners or
solicitation of consents in writing, including, without limitation, the
determination of any Persons entitled to vote, the existence of a quorum, the
satisfaction of the requirements of Section 15.4, the conduct of voting, the
validity and effect of any proxies, and the determination of any controversies,
votes or challenges arising in connection with or during the meeting or voting.
The General Partner shall designate a Person to serve as chairman of any meeting
and shall further designate a Person to take the minutes of any meeting, in
either case including, without limitation, a Partner or a director or officer of
the General Partner. MI minutes shall be kept with the records of the
Partnership maintained by the General Partner. The General Partner may make such
other regulations consistent with applicable law and this Agreement as it may
deem advisable concerning the conduct of any meeting of the Partners or
solicitation of consents in writing, including regulations in regard to the
appointment of proxies, the appointment and duties of inspectors of votes and
consents, the submission and examination of proxies and other evidence of the
right to vote, and the revocation of consents in writing.
15.11 Action Without a Meeting. Any action that may be taken at a meeting
of the Partners maybe taken without a meeting if an approval in writing setting
forth the action so taken is signed by Partners owning not less than the minimum
Percentage Interests that would be necessary to authorize or take such action at
a meeting at which all the Partners were present and voted. Prompt notice of the
taking of action without a meeting shall be given to the Limited Partners who
have not approved in writing. The General Partner may specify that any written
ballot submitted to Partners for the purpose of taking any action without a
meeting shall be returned to the Partnership within the time, not less than 20
days, specified by the General Partner. If a ballot returned to the Partnership
does not vote all of the Units held by the Partner, the Partnership shall be
deemed to have failed to receive a ballot for the Units which were not voted. If
approval to the taking of any action by the Partners is solicited by any Person
other than by or on behalf of the General Partner, the written approval shall
have no force and effect unless and until (a) they are deposited with the
Partnership in care of the General Partner, (b) approvals sufficient to take the
action proposed are dated as of a date not more than 90 days prior to the date
sufficient approvals are deposited with the Partnership, and (c) an Opinion of
Counsel is delivered to the General Partner to the effect that the exercise of
such right and the action proposed to be taken with respect to any particular
matter (i) will not cause the Limited Partners to be deemed to be taking part in
the management and control of the business and affairs of the Partnership so as
to subject the Limited Partners to unlimited liability, (ii) will not jeopardize
the status of the Partnership as a partnership under applicable tax laws and
regulations, and (iii) is otherwise permissible under the state statutes then
governing the rights, duties and liabilities of the Partnership and the
Partners.
15.12 Voting Rights.
(a) Only those Record Holders of Units on the Record Date set pursuant to
Section 15.6 shall be entitled to notice of, and, subject to Section 12.2(a), to
vote at, a meeting of Partners or to act with respect to matters as to which
consents are solicited. With respect to voting rights attributable to Units that
are held by Assignees, the General Partner shall be deemed
<PAGE>
to be the Limited Partner with respect thereto and shall, in exercising the
voting rights in respect of Units on any matter, vote such Units at the
direction of the Assignee.
(b) With respect to Units that are held for a Person's account by
another Person (such as a broker, dealer, bank, trust company or clearing
corporation, or an agent of any of the foregoing), in whose name such Units arc
registered, such broker, dealer or other agent shall, in exercising the voting
rights in respect of such Units on any matter, and unless the arrangement
between such Persons provides otherwise, vote such Units in favor of and at the
direction of the Person on whose behalf such broker, denier or other agent is
holding such Units, and the Partnership shall be entitled to assume it is so
acting without further inquiry. The provisions of this Section 15.12(b) (as well
as all other provisions of this Agreement) are subject to the provisions of
Section 10.3.
(c) A General Partner that is also a Limited Partner may vote its
Percentage Interests, including such Percentage Interests represented by Units,
on any matter submitted to the Partners for consideration in such manner as it
in its sole discretion shall determine.
(d) The Class A Units and Class B Units have equal voting rights and
shall vote as a single class on all matters voted upon by the Limited Partners.
15.13 Reorganization of the Partnership into a Corporation.
Notwithstanding any other provision of this Article XV, if legislation is
passed, or if effective Treasury Department regulations are adopted, which would
have the effect of reclassifying the Partnership as an association taxable as a
corporation for federal income tax purposes, or if for any other reason the
Partnership is treated as an association taxable as a corporation for federal
income tax purposes, the General Partner may, at its sore discretion and without
the consent or approval of any other Partner, take whatever action it deems
necessary, including the reorganization of the Partnership into a newly-
organized corporation or other legal entity formed for such purpose, in whatever
manner and by whatever method the General Partner determines in its sole
discretion; provided, however, that such action shall not result in any material
additional adverse tax consequences directly or indirectly to the Limited
Partners or Assignees other than those resulting from a change in federal law.
ARTICLE XVI
PROHIBITIONS AND LIMITATIONS
16.1 General Prohibitions. Without the prior approval of a Majority
Interest, the General Partner shall not:
(a) sell or exchange all or substantially all of the assets of the
Partnership in a single transaction or a series of related transactions or cause
the Partnership to merge with, or into any entity (other than the Operating
Partnership); or
(b) acting on behalf of the Partnership:
<PAGE>
(i) consent to amendments to the Operating Partnership Agreement that
would adversely affect the Partnership as the limited partner of the Operating
Partnership in any material respect;
(ii) except as expressly permitted in Section 11.2(b), elect a
successor general partner of the Operating Partnership;
(iii) consent to the sale of all or substantially all of the assets
of the Operating Partnership in a single transaction, a series of related
transactions or pursuant to a plan of liquidation (except as expressly provided
otherwise in the Operating Partnership Agreement); or
(iv) except as expressly permitted in Section 6.11(c), take any
action required by the Operating Partnership Agreement to be taken by the
limited partner of the Operating Partnership.
ARTICLE XVII
RIGHT TO PURCHASE UNITS
17.1 Right to Acquire Units.
(a) Notwithstanding the provisions of Section 13.1(a) or any other
provision of this Agreement, in the event less than 10% of the Outstanding Units
are held by Persons other than the General Partner and its Affiliates, the
General Partner shall then have the right, which right it may assign and
transfer to the any Affiliate of the General Partner (other than the
Partnership), exercisable in its sole discretion, to purchase all, but not less
than all, of the Units that remain outstanding and held by Persons other than
the General Partner and its Affiliates, at the Purchase Price.
(b) In the event the General Partner or any Affiliate of the General
Partner elects to exercise such right to purchase Units pursuant to
Section 17.1(a), the General Partner shall mail, or cause the Transfer Agent to
mail, written notice of such election to purchase (hereinafter in this Section
17.1 called the "Notice of Election to Purchase") to the Record Holders of Units
at least 10, but not more than 60, days prior to the Purchase Date. The Notice
of Election to Purchase shall specify the Purchase Date and the Purchase Price
and state that the General Partner or its Affiliate, as the case may be, elects
to purchase such Units, upon surrender thereof in exchange for payment, at such
office or offices of an exchange agent (which may be the Transfer Agent unless
the General Partner is the Transfer Agent) as the General Partner may specify,
or as may be required by any National Securities Exchange on which the Units are
listed or admitted to trading. Any such Notice of Election to Purchase mailed to
a Record Holder of Units at his address as reflected in the records of the
Transfer Agent, shall be conclusively presumed to have been given whether or not
the owner receives such notice. On or prior to the Purchase Date, the General
Partner or its Affiliate, as the case may be, shall deposit with the exchange
agent cash in an amount equal to the Purchase Funds. If the Notice of Election
to
<PAGE>
Purchase shall have been duly given as aforesaid at least ten days prior to
the Purchase Date, and if on or prior to the Purchase Date the Purchase Funds
shall have been deposited with the exchange agent in trust for the benefit of
the holders of Units subject to purchase as provided herein, then from and after
the Purchase Date, notwithstanding that any Units or any Certificate for Units
shall not have been surrendered for purchase, all rights of the holders of such
Units (including, without limitation, any rights pursuant to Articles IV, V and
XIV) shall thereupon cease, except the right to receive the Purchase Price
therefor, without interest, upon surrender to the exchange agent of the
Certificates representing Units, and such Units shall thereupon be deemed to be
transferred to the General Partner or its Affiliate, as the case may be, on the
record books of the Transfer Agent and the Partnership. and the General Partner
or any Affiliate of the General Partner, as the case may be, shall be deemed to
be the owner of all such Units (including, without limitation, all rights as
owner of such Units pursuant to Articles IV, V and XIV).
(c) At any time from and after the Purchase Date, a holder of an Outstanding
Unit subject to purchase as provided in this Section 17.1 may surrender his
Certificate evidencing such Unit to the exchange agent in exchange for
payment of the Purchase Price therefor, without interest thereon.
ARTICLE XVIII
GENERAL PROVISIONS
18.1 Addresses and Notices. Any notice, demand, request or report required
or permitted to be given or made to a Partner under this Agreement shall he in
writing and shall be deemed given or made when delivered in person or when sent
by first class mail or by other means of written communication to the Partner at
the address described below. Any notice, payment or report to be given or sent
to a Partner hereunder shall be deemed conclusively to have been given or sent,
and the obligation to give such notice or report or to make such payment shall
be deemed conclusively to have been fully satisfied, upon mailing of such
notice, payment or report to (a) in the case of a Unit, the Record Holder of
such Unit at his address as shown on the records of the Transfer Agent or the
Partnership or (b) in the case of the General Partner, to such Person at his
address set forth in Section 1.3 or as otherwise shown on the records of the
Partnership, regardless of any claim of any Person who may have an interest in
such Unit or Units or the Partnership Interest of the General Partner by reason
of an assignment or otherwise. An affidavit or certificate of mailing of any
notice, payment or report in accordance with the provisions of this Section 18.1
executed by the General Partner, the Transfer Agent, the registrar of Units or
the mailing organization shall be prima facie evidence of the giving or sending
of such notice, payment or report. If any notice, payment or report addressed to
a Record Holder at the address of such Record Holder appearing on the books of
the Transfer Agent or the Partnership is returned by the United States Postal
Service marked to indicate that the United States Postal Service is unable to
deliver it, such notice, payment or report and any subsequent notices, payment
and reports shall be deemed to have been duly given or sent without further
mailing (until such time as such Record Holder or another Person notifies the
Transfer Agent or the Partnership of a change in his address) if they are
available for the Limited Partner or Assignee at the principal office of the
Partnership for a period of one year from the date of the
<PAGE>
giving or sending of such notice, payment or report to the other Limited
Partners and Assignees. Any notice to the Partnership shall be deemed given if
received by the General Partner at the principal office of the Partnership
designated pursuant to Section 1.3. The Partnership and the General Partner may
rely and shall be protected in relying on any notice or other document from a
Partner or other Person if believed by them to be genuine.
18.2 Titles and Captions. All article or section titles or captions in
this Agreement are for convenience only and in no way define, limit, extend or
describe the scope or intent of any provisions hereof. Except as specifically
provided otherwise, references to "Articles" and "Sections" are to Articles and
Sections of this Agreement.
18.3 Pronouns and Plurals. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.
18.4 Further Action. The parties shall execute and deliver all documents,
provide all information and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this Agreement.
18.5 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
18.6 Integration. This Agreement constitutes the entire agreement among
the parties hereto pertaining to the subject matter hereof and supersedes all
prior agreements and understandings pertaining thereto.
18.7 Creditors. None of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditors of the Partnership.
18.8 Waiver. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
18.9 Counterparts. This agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto or, in the case of a Person acquiring a Unit,
upon executing and delivering a Transfer Application as herein described,
independently of the signature of any other party.
18.10 Applicable Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.
<PAGE>
18.11 Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
18.12 Consent of Limited Partners. Each Limited Partner hereby expressly
consents and agrees that, whenever in this Agreement it is specified that an
action may be taken upon the affirmative vote or approval of less than all of
the Limited Partners, such action may be so taken upon the concurrence of less
than all of the Limited Partners and each Limited Partner shall be bound by the
results of such action.
18.13 Force Majeure. If the General Partner is rendered unable, wholly or
in part, by force majeure to carry out its obligations under this Agreement, the
obligations of the General Partner, so far as they are affected by such force
majeure, shall be suspended during, but no longer than, the continuance of such
force majeure. The General Partner shall use all reasonable diligence to remedy
such force majeure as quickly as possible. The requirement that any force
majeure shall he remedied with all reasonable dispatch shall not require the
settlement of strikes, lockouts or other labor difficulty by the General
Partner, contrary to its wishes, and all such difficulties shall be handled
entirely at the discretion of the General Partner. The term "force majeure" as
used herein shall mean an act of God, strike, lockout or other industrial
disturbance, act of public enemy, war, blockade, public riot, lightning, fire,
storm, flood, explosion. governmental restraint, unavailability of equipment and
any other cause, whether of the kind specifically enumerated above or otherwise,
which is not reasonably within the control of the General Partner.
Dated: May , 1987
GENERAL PARTNER:
FFP PARTNERS MANAGEMENT
COMPANY, INC
2801 Glenda Avenue
Fort Worth, Texas 76117
By:
-----------------------------------
ORGANIZATIONAL LIMITED PARTNER
LIMITED PARTNERS:
All Limited Partners now and hereafter admitted as
limited partners of the Partnership, pursuant to
Powers of Attorney now and hereafter executed in
<PAGE>
favor of, and delivered to, the General Partner
By FFP PARTNERS MANAGEMENT
COMPANY, INC.
By:
--------------------------------
FIRST AMENDMENT
TO
AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
OF
FFP PARTNERS, L.P.
First Amendment, dated as of August 14, 1989 (the "Amendment"), of the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement") of FFP Partners, L.P. (the "Partnership").
The Partnership was formed by the filing of a certificate of limited
partnership with the Secretary of State of Delaware on December 31, 1986. The
Partnership Agreement was amended and restated in its entirety on May 21, 1987.
The general partner, acting on behalf of itself and the limited partners
pursuant to the power of attorney contained in the Partnership Agreement, now
desires to further amend the Partnership Agreement as follows:
1. The definition of "Limited Partner" in Article II is amended to read as
follows:
"Limited Partner" means any Person who is a Limited Partner of the
Partnership, including a Class A Limited Partner, a Class B Limited Partner and
a Rights Unit Limited Partner, but not including the Organizational Limited
Partner (i.e., each Initial Limited Partner, each Substituted Limited Partner,
each Additional Limited Partner and any Departing Partner on the conversion of
its Partnership Interest or its interest in the Operating Partnership into Units
pursuant to Section 3.2), and shown as a Limited Partner on the books and
records of the Partnership; a Limited Partner may be designated as a "Class A
Limited Partner," "Class B Limited Partner" or "Rights Unit Limited Partner"
depending on the class of Units such Limited Partner holds, and for the purposes
of determining allocations and distributions under Articles V and XIV, an
Assignee.
<PAGE>
2. Article II of the Partnership Agreement is further amended by the
addition of the following definitions:
"Rights" mean the Rights issued under and defined in the Rights Agreement.
"Rights Agreement" means that certain Rights Agreement dated as of August
14, 1989 between the Partnership and NCNB Texas National Bank, a national
banking association, as it may be amended, supplemented or restated from time to
time.
"Rights Unit" means the Unit issued upon the exercise of Rights issued
pursuant to the Rights Agreement, and having preferences, powers, rights and
duties identical to the Class A Units except that, for purposes of Section
5.3(a)-(e), during the Subordination Period (or, if later, during the fiscal
year with respect to which any Deficiency is eliminated by cash distributions),
the Rights Units shall have the same rights, be subject to the same restrictions
and be treated as Class B Units, and except, in either case, as provided by this
Agreement.
"Rights Unit Limited Partner" has the meaning specified in the definition
of "Limited Partner" above in this Article II.
3. Section 4.1(c) is amended to read as follows:
(c) Any Capital Contribution required of the General Partner pursuant to
Section 4.1(b) may be accomplished by the redesignation of Capital Contributions
with respect to Units owned by the General Partner as Capital Contributions with
respect to its Partnership Interest as General Partner, whereupon the General
Partner shall be deemed to have surrendered to the Partnership those Units, and
shall deliver to the Transfer Agent for cancellation those Units, the Capital
Contributions with respect to which have thus been redesignated. For purposes of
any such redesignation, the Net Agreed Value of Capital Contributions with
respect to Units shall, for each Unit being surrendered, be (i) the cash
consideration per Unit that is received by the Partnership upon the issuance of
any Units of such class solely in exchange for cash in the transaction that
gives rise to the requirement for the additional Capital Contribution of the
General Partner, or (ii) the Unit Price per Unit of such class as of a date
reasonably related to such redesignation in the event Units are issued at least
partially in exchange for consideration other than cash in the transaction that
gives rise to the requirement for the additional Capital Contribution of the
General Partner.
4. Section 4.1(d) is amended to read as follows:
(d) In connection with making any required general partner's capital
contributions to the Operating Partnership pursuant to Article IV of the
Operating Partnership Agreement, the General Partner may tender to the
Partnership any Units it owns in exchange for a portion of the Partnership's 99%
interest in the Operating Partnership. In such event, the General Partner shall
be deemed to have surrendered any such Units to the Partnership for
cancellation. Upon the tender of such Units, the Partnership shall distribute to
the General Partner 99% of an interest as
<PAGE>
a limited partner in the Operating Partnership that bears the same ratio to the
entire limited partner interest in the Operating Partnership as the aggregate
Unit Price of the tendered Units bears to the aggregate Unit Price of all
classes of Outstanding Units, as determined immediately prior to the date of
tender.
5. Section 4.2 is amended by the addition of paragraph (e) as follows:
(e) Upon exercise of Rights, the holders of such Rights shall contribute
to the Partnership in cash, as provided by the Rights Agreement, the Purchase
Price for each Rights Unit to be purchased multiplied by the number of Rights
Units with respect to which such Rights are then being exercised.
6. Section 4.5(d)(i) is amended to read as follows:
(d) (i) Consistent with the provisions of Treasury Regulation Section
1.704-l(b)(2)(iv)(f), upon an issuance of additional Units for cash or
Contributed Property pursuant to Section 4.3, the Capital Accounts of all
Partners and the Carrying Values of all Partnership properties shall,
immediately prior to such issuance, be adjusted (consistent with the provisions
hereof) upwards or downwards to reflect any Unrealized Gain or Unrealized Loss
attributable to each Partnership property (as if such Unrealized Gain or
Unrealized Loss had been recognized in an actual Terminating Capital
Transaction, immediately prior to such issuance, and had been allocated to the
Partners, at such time, pursuant to Section 5.1). In determining such Unrealized
Gain or Unrealized Loss occasioned by an issuance of an outstanding class of
Units or from a constructive termination of the Partnership pursuant to Section
708 of the Code, the aggregate fair market value of Partnership properties as of
any date of determination shall be equal to the Prescribed Asset Value of all
classes of Units Outstanding as of such date. In determining such Unrealized
Gain or Unrealized Loss occasioned by the issuance of a new class of Units, the
aggregate fair market value of Partnership properties as of any date of
determination shall be determined by the General Partner using such reasonable
method of valuation as it may adopt. The Carrying Values of the respective
Partnership properties shall be adjusted according to their relative fair market
values, as determined by the General Partner using such method as it deems
appropriate.
7. Section 5.l(a)(i)(A) is amended to read as follows:
(A) First, Operating Income in an amount up to the aggregate amount of cash
distributed pursuant to Sections 5.3(c)(i) and (ii) and 5.3(d)(i)(A) to the
Partners with respect to the quarterly periods within such fiscal year shall be
allocated among the General Partner and holders of Class A Units, Class B Units
and Rights Units in the same proportion that the General Partner and holders of
such classes shared in such cash distributions, with the Operating Income
allocated among the holders of Class A Units, Class B Units and Rights Units in
accordance with their respective Class Percentage Interests; and
8. Section 5.1(d) is amended to read as follows:
<PAGE>
(d) To preserve uniformity of Units of a class, the General Partner shall
have sole discretion in conjunction with Section 5.2(h)(ii) to make special
allocations of income or deduction. The General Partner may make such
allocations only if such allocations would not have a material adverse effect on
the Limited Partners and if they are consistent with, and supportable under, the
principles of Section 704 of the Code.
Dated as of the date first above written.
GENERAL PARTNER:
FFP PARTNERS MANAGEMENT
COMPANY, INC.
2801 Glenda Avenue
Fort Worth, Texas 76117
By: /s/ Steven B. Hawkins
Name: Steven B. Hawkins
Title: Vice President
LIMITED PARTNERS:
All Limited Partners now and
hereafter admitted as limited
partners of the Partnership,
pursuant to Powers of Attorney
now and hereafter executed in
favor of, and delivered to, the
General Partner.
By: FFP PARTNERS MANAGEMENT
COMPANY, INC.
By: /s/ Steven B. Hawkins
Name: Steven B. Hawkins
Title: Vice President
SECOND AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
FFP PARTNERS, LP.
<PAGE>
Second Amendment to Amended and Restated Agreement of Limited Partnership
of FFP Partners, L.P. (the "Partnership"), entered into by and among FFP
Partners Management Company, Inc., a Delaware corporation, as the General
Partner, and the Limited Partners of the Partnership as reflected on the records
of the Partnership.
RECITALS
The Partnership was formed by the filing of a certificate of limited
partnership with the Secretary of State of Delaware on December 31, 1986. The
agreement of limited partnership of the Partnership was amended and restated on
May 21, 1987, and further amended by the First Amendment to Amended and Restated
Agreement of Limited Partnership dated August 14, 1989, and as it currently
exists, is referred to in this amendment as the "Partnership Agreement."
Section 6.8(b) of the Partnership Agreement currently prohibits the
Partnership from lending funds to the General Partner or any Affiliate thereof.
To comply with Texas law, the General Partner has determined that the sale
of alcoholic beverages at the stores owned indirectly by the Partnership in
Texas should be made by a corporation owned by an individual Texas resident. The
General Partner has determined that it is in the Partnership's best interest
that these sales be made by Nu-Way Beverage Company, a Texas corporation owned
by John H. Harvison.
The Partnership has been advised by legal counsel that the alcoholic
beverage inventory should be owned and the sales be made solely by Nu-Way
Beverage Company, with the Partnership receiving a benefit from the sales
pursuant to certain agreements between Nu-Way Beverage Company and the
Partnership or an Affiliated Partnership, as defined in the Partnership
Agreement.
Because the sales benefit the Partnership, the General Partner has
determined that it is in the best interest of the Partnership for the
Partnership or an Affiliated Partnership to lend to Nu-Way Beverage Company the
funds necessary to purchase and maintain its inventory of alcoholic beverages to
be sold in the Partnership's stores.
The General Partner, acting on behalf of itself and on behalf of the
Limited Partners pursuant to the power of attorney contained in Section 1.4 of
the Partnership Agreement, therefore desires to amend the Amended and Restated
Agreement of Limited Partnership pursuant to Section 15.1(d) thereof and has
determined that this amendment does not adversely affect the Limited Partners in
any material respect.
NOW, THEREFORE, the Partnership Agreement is amended by replacing the last
sentence of Section 6.8(b) with the following:
The Partnership may not lend funds to the General Partner or any Affiliate
thereof; provided, however, that the Partnership or an Affiliated Partnership
may lend funds to an Affiliate of the General Partner for the purchase of
alcoholic beverages to be
<PAGE>
sold at stores operated by the Partnership or an Affiliated Partnership if the
loan is, in the sole judgment of the General Partner, reasonably secured by a
security interest in the alcoholic beverages purchased by the Affiliate with the
funds loaned, and if, in the sole judgment of the General Partner, the sales
benefit the Partnership or an Affiliated Partnership though agreements with the
Affiliate or otherwise.
EXECUTED as of the 12th day of July, 1991.
GENERAL PARTNER:
FFP PARTNERS MANAGEMENT
COMPANY, INC.
By: /s/Robert J. Byrnes
Robert J. Byrnes, President
LIMITED PARTNERS:
All Limited Partners now and
hereafter admitted as limited
partners of the Partnership,
pursuant to the power of attorney
contained in Section 1.4 of the
Partnership Agreement.
FFP PARTNERS MANAGEMENT
COMPANY, INC.
By: /s/ Robert J. Byrnes
Robert J. Byrnes, President
<PAGE>
EXHIBIT 10.3
FFP PARTNERS, L.P.
NONQUALIFIED UNIT OPTION PLAN
Adopted by the Board of Directors of
FFP PARTNERS MANAGEMENT COMPANY, INC.
General Partner
March 24, 1987
<PAGE>
FFP PARTNERS, L.P.
NONQUALIFIED UNIT OPTION PLAN
Article I
Definitions
For the purpose of this Plan, the following terms shall have the meanings
set forth in this Article I.
1.01. Affiliate. An Affiliate of any person or entity shall mean any
person or entity that, directly or indirectly, controls, is controlled by, or is
under common control with the person or entity in question.
1.02. Board. The term Board shall mean the Board of Directors of the
General Partner.
1.03. Committee. The term Committee means a committee of not less than
three Disinterested Persons appointed by the Board pursuant to Section 3.04 to
administer the Plan.
1.04. Disinterested Person. The term Disinterested Person shall mean any
person who is not eligible at the time the person's discretion as a member of
the Committee is exercised, and has not at any time within one year prior
thereto been eligible, for selection as a person to whom Units may be allocated
or to whom Options may be granted pursuant to this Plan or any other Plan of the
Partnership or any of its Affiliates entitling the participants thereto to
acquire equity interests or options to acquire equity interests of the
Partnership or any of its Affiliates.
1.05. Eligible Persons. The term Eligible Persons shall mean any employee,
director, consultant, or independent contractor of any Participating Company.
1.06. Fair Market Value. The term Fair Market Value when used with respect
to the determination of option price shall mean the closing sales price of Units
on the American Stock Exchange (or such other national securities exchange on
which Units are then principally traded or on a composite index of such
exchanges or in a national market system for securities) on the date of the
grant of the Option. In the event that an Option is granted on a date on which
there are no sales of Units on any such exchange or market, the fair market
value of Units on the date of the grant shall be deemed to be the closing sales
price on the next preceding day on which Units were sold on any such exchange or
market.
1.07. General Partner. The term General Partner shall mean FFP Partners
Management Company, Inc., a Delaware corporation, or any successor thereof.
1.08. Option. The term Option shall mean an option to acquire Units
granted under this Plan.
1.09. Optionee. The term Optionee shall mean an Eligible Person who has
been granted Options.
-1-
<PAGE>
1.10. Participating Companies. The term Participating Companies shall mean
the General Partner, the Partnership, and any Affiliate of either of them.
1.11. Partnership. The term Partnership means FFP Partners, L.P., a
Delaware limited partnership, or any successor thereof.
1.12. Permanent and Total Disability. The term Permanent and Total
Disability shall have the meaning set forth in Section 105(d)(4) of the Internal
Revenue Code of 1954, as amended.
1.13. Plan. The term Plan shall mean this Nonqualified Unit Option Plan.
1.14. Units. The term Units shall mean Units Representing Class A Limited
Partnership Interests in the Partnership.
Article II
Purpose of Plan
The purpose of this Plan is to promote the growth and profitability of the
Partnership by providing, through the ownership of Units, incentives to attract
and retain highly talented persons to provide managerial and administrative
services to the Partnership and to motivate such persons to use their best
efforts on behalf of the Partnership.
Article III
Administrator of Plan
3.01. Administration by Board. The Plan shall be administered by the
Board. The Board shall have full and absolute power and authority in its sole
discretion to (i) determine which Eligible Persons shall receive Options, (ii)
determine the time when Options shall be granted, (iii) determine the terms and
conditions, not inconsistent with the provisions of this Plan, of any Option
granted hereunder, (iv) determine the number of Units which may be issued upon
exercise of the Options, and (v) interpret the provisions of this Plan and of
any Option granted under this Plan.
3.02. Rules and Regulations. The Board may adopt such rules and
regulations as the Board may deem necessary or appropriate to carry out the
purposes of the Plan and shall have authority to do everything necessary or
appropriate to administer the Plan.
3.03. Binding Authority. All decisions, determinations, interpretations,
or other actions by the Board shall be final, conclusive, and binding on all
Eligible Persons, Optionees, and Participating Companies.
3.04. Administration by Committee. The Board in its sole discretion may
from time to time appoint a Committee to administer the Plan and exercise all of
the powers, authority, and discretion of the Board granted to the Board under
this Plan. The Board may from time to time remove members from, or add members
to, the Committee, and vacancies on the Committee shall be filled by the Board,
provided that any additional
-2-
<PAGE>
or replacement members shall be Disinterested Persons. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.
The Committee shall report to the Board the name of Eligible Persons granted
Options, the number of Units covered by each Option, and the terms and
conditions of each such Option.
Article IV
Number of Units Available for Grant
The maximum aggregate number of Units which may be optioned and sold under
this Plan is 450,000. In the event that Options granted under the Plan shall
for any reason terminate, lapse, be forfeited, or expire without being
exercised, the Units subject to such unexercised Options shall again be
available for granting under this Plan.
Article V
Term of Plan
The Plan shall be effective as of the date this Plan is adopted by the
Board (as set forth on the last page of this Plan), and shall terminate on the
tenth anniversary of such date, unless terminated earlier by the Board. No
Option may be granted hereunder after this Plan has terminated.
Article VI
Option Terms
6.01. Form of Option Agreement. Any Option granted under this Plan shall
be evidenced by an agreement ("Option Agreement") in such form as the Board, in
its discretion, may from time to time approve. Any such agreement shall contain
such terms and conditions as the Board may deem necessary or appropriate and
which are not inconsistent with the provisions of this Plan.
6.02. Option Exercise Price. The Option exercise price for Units to be
issued under this Plan shall be determined by the Board in its sole discretion,
but in no event shall the option exercise price be less than the Fair Market
Value of the Units on the date on which the Option covering such Units is
granted.
6.03. Vesting and Exercisability of Option. Subject to the limitations set
forth and/or in any applicable Option Agreement entered into hereunder, Options
granted under the Plan shall vest and be exercisable in accordance with the
rules set forth in this Section 6.03:
(a) General. Subject to the other provisions of this Section 6.03, Options
shall vest and become exercisable at such times and in such installments as the
Board shall provide in each individual Option Agreement. Notwithstanding the
foregoing, the Board may in its sole discretion accelerate the time at which an
Option or installment thereof may be exercised. For purposes of this Plan, any
vested
-3-
<PAGE>
installment of an Option granted hereunder shall be referred to as an "Accrued
Installment." Accrued Installments may be exercised only as of the last day of a
quarter of the Partnership.
(b) Termination of Options. All installments of an Option shall expire and
terminate on such date as the Board shall determine ("Option Termination Date"),
which in no event shall be later than ten (10) years from the date such Option
was granted. Unless otherwise provided in this Section 6.03 or in the Option
Agreement pursuant to which an Option is granted, an Option may be exercised
when Accrued Installments accrue as provided in such Option Agreement and at any
time thereafter until, and including, the day before the Option Termination
Date; provided, however, that exercises may be made only as of the last day of a
quarter of the Partnership.
(c) Termination of Employment Other Than by Death or Disability. In the
event that the employment of an Optionee with a Participating Company is
terminated for any reason (other than death or Permanent and Total Disability),
any installments under the Option which have not accrued as of the employment
termination date shall expire and become unexercisable as of the employment
termination date. All Accrued Installments as of the employment termination
date shall remain exercisable only within such period of time as the Board may
determine, but in no event shall any Accrued Installments remain exercisable for
a period in excess of three (3) months following the employment termination date
or for a period in excess of the original Option Termination Date, whichever is
earlier.
(d) Leave of Absence. In the case of any employee on an approved leave of
absence, the Committee may make such provision respecting continuance of the
Option as the Board deems appropriate, except in no event shall an Option be
exercisable after the original Option Termination Date.
(e) Death or Permanent and Total Disability of Optionee While Employed. In
the event that the employment of an Optionee with a Participating Company is
terminated by reason of death or Permanent and Total Disability, any unexercised
Accrued Installments of Options granted hereunder to such Optionee shall expire
and become unexercisable as of the earlier of:
(i) The applicable Option Termination Date; or
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<PAGE>
(ii) The first anniversary of the date of termination of
employment of such Optionee by reason of his death or
Permanent and Total Disability. Any such Accrued
Installments of a deceased Optionee may be exercised
prior to their expiration only by the person or persons
to whom the Optionee's Option rights pass by will or by
laws of descent and distribution. Any Option
installments under such a deceased or disabled Optionee's
Option that have not accrued as of the date of the
employee's termination of employment due to death or
Permanent and Total Disability shall expire and become
unexercisable as of said employment termination date.
6.04. Method of Exercise. An Option may be exercised in accordance with
this Section 6.04 as to all or any portion of the Units covered by an Accrued
Installment of the Option from time to time during the applicable option period,
except that an Option shall not be exercisable with respect to fractions of a
Unit. Options may be exercised, in whole or in part, by giving written notice
of exercise to the General Partner, which notice shall specify the number of
Units to be purchased. Such notice shall be accompanied by payment in full of
the purchase price in accordance with Section 6.05. No Units shall be issued
until full payment has been made and the Optionee has satisfied such other
conditions as may be required by this Plan; as may be required by applicable
law, rules, or regulations; or as may be adopted by the Committee.
6.05. Payment of Option Exercise Price.
(a) Except as otherwise provided in Section 6.05(b), the entire
option exercise price shall be paid in full at the time the Option is exercised.
(b) In the discretion of the Board, an Optionee may elect to pay for
all or some of the Optionee's Units with Units previously acquired and owned at
the time of exercise by the Optionee, subject to all restrictions and
limitations of applicable law, rules, and regulations. Such payment shall be
made by delivery of certificates representing Units, duly endorsed or with duly
signed stock power attached, such Units to be valued at the last reported sale
price of the Units on the American Stock Exchange on the day immediately
preceding the day of exercise or, if such Units are not then listed on such
stock exchange, on such basis as the Board shall determine.
6.06. Options Not Transferable. Options granted under this Plan may not be
sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise
transferred or alienated in any manner, either voluntarily or involuntarily by
operation of law, other than by will or the laws of descent or distribution, and
may be exercised during the lifetime of an Optionee only by such Optionee.
6.07. Restrictions on Issuance of Units.
(a) No Units shall be issued and delivered upon exercise unless and
until there shall have been full compliance with all applicable listing
requirements of the Securities Act of 1933, all applicable listing requirements
of any national securities
-5-
<PAGE>
exchange on which Units are then listed, and any other requirement of law or of
any regulatory body having jurisdiction over such issuance and delivery. The
inability of the Partnership to obtain any required permits, authorizations, or
approvals necessary for the lawful issuance and sale of any Units hereunder on
terms deemed reasonable by the Board shall relieve the Partnership, the General
Partner, the Board, and any Committee of any liability in respect of the
nonissuance or sale of such Units as to which such requisite permits,
authorizations, or approvals shall not have been obtained.
(b) As a condition to the granting and the exercise of any Option,
the Board may require the person receiving or exercising such Option to make any
representation and/or warranty to the General Partner and the Partnership as may
be required under any applicable law or regulation, including but not limited
to, a representation and warranty that the Option and/or Units are being
acquired only for investment and without any present intention to sell or
distribute such Units if such a representation is required under the Securities
Act of 1933 or any other applicable law, rule, or regulation.
6.08. Adjustments Upon Changes In Capitalization. If the outstanding Units
are increased, decreased, changed into or exchanged for a different number or
kind of interests in the Partnership through reorganization, recapitalization,
reclassification, unit dividend, unit split or reverse unit split, upon proper
authorization of the Board an appropriate and proportionate adjustment shall be
made in the number or kind of Units, and the per-Unit option price thereof,
which may be issued in the aggregate and to individual Optionees under this Plan
upon exercise of Options granted under the Plan; provided, however, that no such
adjustment need be made if, upon the advice of counsel, the Board determines
that such adjustment may result in the receipt of federally taxable income to
holders of Options granted hereunder or the holders of Units or other classes of
the Partnership's securities.
6.09. Taxes. The Options granted hereunder are intended to be nonstatutory
options not qualifying for special tax treatment under Sections 421 through 423
of the Internal Revenue Code of 1954. The Board shall make such provisions and
take such steps as it deems necessary or appropriate for the withholding of any
federal, state, local and other tax required by law to be withheld with respect
to the grant or exercise of an Option under the Plan, including, but without
limitation, the deduction of the amount of any such withholding tax from any
amount payable to an Optionee by any member of the Participating Companies, or
requiring an Optionee (or the Optionee's beneficiary or legal representative) as
a condition of granting an Option to pay to any member of the Participating
Companies any amount required to be withheld, or to execute such other documents
as the Board deems necessary or desirable in connection with the satisfaction of
any applicable withholding obligation.
Article VII
Employment Matters
7.01. No Employment Rights. Nothing in this Plan or in any Option
Agreement shall be construed to create any contract of employment between any of
the
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<PAGE>
Participating Companies and any Eligible Person or confer upon any Eligible
Person any right to continue in the employ of any of the Participating
Companies. The Participating Companies shall have the right to deal with their
respective employees in the same manner as if the Plan or any Option Agreement
did not exist, (including without limitation, the hiring, discharge,
compensation and conditions of employment of employees). Unless otherwise
expressly set forth in a separate employment agreement between a Participating
Company and an Eligible Person, the employment of an Eligible Person by such
Participating Company is at-will, and the Participating Company may terminate
such Eligible Person's employment by such Participating Company at any time for
any reason, with or without cause.
7.02. Determination of Employment Status. Any disputes as to whether and
when there has been termination of an Eligible Person's employment, and the
reason for such termination, shall be determined by the Board in its sole
discretion, and the Board's determination shall be final and binding.
7.03. No Rights as a Limited Partner. No Optionee shall have the rights of
a Unitholder with respect to Units subject to Option until the Optionee is
admitted as a Unitholder of the Partnership upon the exercise, in whole or in
part, of an Option granted hereunder.
Article VIII
Amendment or Termination of Plan
8.01. Board Authority. The Board may amend, alter, and/or terminate the
Plan at any time; provided, however, that the Board shall not amend the Plan in
the following respects without the approval of Unitholders holding a majority in
interest in the Partnership:
(i) To increase the maximum number of Units available for grant
under the Plan;
(ii) To provide for the administration of the Plan other than by
the Board or a Committee;
(iii) To change the manner of determining the option exercise
price;
(iv) To change the classes of Eligible Persons or Participating
Companies; or
(v) To extend the maximum Option period or the term of the Plan.
8.02. Limitation on Board Authority. The Board may amend the terms of any
Option previously granted, prospectively or retroactively, and amend the Plan in
accordance with the provisions of Section 8.01; provided, however, that no
amendment of the Plan or of any Option Agreement shall affect in a material and
adverse manner Options granted prior to the date of any such amendment without
the consent of any Optionee holding any such affected Options.
-7-
<PAGE>
Article IX
General Provisions
9.01. Notice. Any notice or other communication required or permitted to
be given pursuant to the Plan must be in writing and may be given by registered
or certified mail, and if given by registered or certified mail, shall be
determined to have been given and received when a registered or certified letter
containing such notice, properly addressed with postage prepaid, is deposited in
the United States mails; it shall be deemed to have been given when delivered to
and received by the party to whom addressed. Notice shall be given to Eligible
Persons at their most recent addresses shown in the General Partner's records.
Notice to the General Partner shall be addressed to the General Partner at the
address of the General Partner's principal executive offices, to the attention
of the President of the General Partner.
9.02. Governing Law. This Plan shall be governed by, interpreted under,
and construed and enforced in accordance with the internal laws, and not the
laws pertaining to conflicts or choice of laws, of the State of Texas applicable
to agreements made and to be performed wholly within the State of Texas.
In witness whereof, pursuant to the due authorization and adoption of this
Plan by the Board on March 24, 1987, the Partnership has caused this Plan to be
adopted, effective as of the date of such Board action.
FFP PARTNERS, L.P.
By: FFP Partners Management Company, Inc.,
General Partner
By: /s/Billy R. Delp
-----------------------------
Billy R. Delp, President
By: /s/Steven B. Hawkins
-----------------------------
Steven B. Hawkins, Secretary
-8-
<PAGE>
-9-
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into effective
as of the date set forth on the signature page hereof (the "Effective Date"), by
and between FFP Partners Management Company, Inc., a Delaware corporation
(hereinafter referred to as "Employer"), and _____________________________
(hereinafter referred to as "Executive").
WITNESSETH
WHEREAS, Employer desires to employ Executive, and Executive desires to be
employed by Employer, upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, and of the mutual covenants
hereafter set forth, the parties hereto agree as follows:
1. Employment. Employer hereby employs Executive to perform such duties,
functions and responsibilities as are from time to time delegated to Executive
by the Board of Directors of Employer, and as are consistent with Executive's
prior training and experience and with Executive's position with Employer prior
to the Effective Date. Executive agrees that, upon the termination of this
Agreement, for any reason whatsoever, he will, within five (5) days of such
termination, submit to the Board of Directors of Employer his written
resignation from any offices of Employer then held by him.
2. Term. The term (herein so called) of Executive's employment by Employer
hereunder shall begin on the Effective Date and continue until two (2) years
after the Effective Date, with the term of this Agreement to be extended for one
year upon each annual anniversary of the Effective Date unless the employment of
Executive is terminated by voluntary resignation of Executive or in accordance
with Sections 6, 7, 8, or 9 of this Agreement.
3. Compensation. Employer agrees to pay to Executive, as compensation for the
services to be rendered by Executive under or pursuant to this Agreement, an
annual base salary ("Annual Salary") equal to _________________________ dollars
($__________) which Annual Salary may be adjusted from time to time by the Board
of Directors based on the responsibilities and performance
<PAGE>
of Executive, with such adjusted salary becoming the Annual Salary for all
purposes of this Agreement.
4. Benefits. Executive shall be entitled to such holidays, paid vacations and
sick leave as are consistent with Employer's standard policies. Executive shall
also be eligible, from and after the date hereof, for participation in such
group insurance, hospitalization, major medical, dental, disability insurance,
profit sharing, pension and other such benefit programs, as those generally
afforded the senior executives of Employer.
5. Status as Employee. At all times during the term of this Agreement
(including any extensions), Executive shall be deemed to be an employee of
Employer for purposes of determining Executive's coverage under and eligibility
to participate in any employee benefit plans or programs which Employer now has
or may hereafter initiate.
6. Disability. In the event that Executive shall be incapacitated by reason
of mental or physical disability or otherwise during the term hereof (including
any renewal term) so that he is prevented from adequately performing his
principal duties and services hereunder, this Agreement shall automatically
terminate and Employer shall have no further liability hereunder except for
compensation earned and reimbursements for expenses incurred pursuant hereto
prior to such termination. If the parties cannot mutually agree upon whether
Executive is disabled for the purposes of this Agreement, then Employer and
Executive shall each appoint one doctor of medicine of his or its choice
licensed to practice in any state within the United States, and the two doctors
so appointed shall determine if Executive is in fact disabled for the purpose of
this Agreement. If the two doctors so appointed cannot agree upon whether
Executive is disabled, they shall appoint a third licensed doctor of medicine
and the decision of the majority shall be binding on all parties.
7. Death. In the event of the death of Executive during the term hereof
(including any renewal term), this Agreement shall automatically terminate and
no further payments, except those provided by any life insurance policies
provided by Employer and except for compensation earned and reimbursement for
expenses incurred prior to such termination date, shall be made or paid to
Executive hereunder.
<PAGE>
8. Termination by Employer for Cause. Employer shall have the right to
terminate this Agreement and the employment of Executive under this Agreement,as
well as any and all payments to be made hereunder,in the event of (i) the
commission by Executive of any act of fraud or dishonesty with respect to
Employer or any of its affiliates, (ii) Executive's intentional neglect of,
continual inattention to, or nonperformance of his duties hereunder, or (iii)
the violation by Executive of any of the provisions of this Agreement. In the
event Employer elects to terminate this Agreement as set forth above, Employer
shall send written notice to Executive to such effect, describing in reasonable
detail the action or actions of Executive giving rise to such termination. Upon
the termination of this Agreement pursuant to this paragraph 8, no further
payments of any type shall be made or shall be payable to Executive hereunder,
other than for any compensation due through, and reimbursements for expenses
incurred prior to, the date upon which such termination occurs.
9. Payments Upon Termination Without Cause. Unless the employment of Executive
is terminated voluntarily by Executive or is terminated by Employer for any of
the reasons specified in section B above, Employer shall pay to Executive upon
termination an amount equal to his Annual Salary in effect at the time of
termination. Such amount payable upon termination shall be paid to Executive
within two weeks from the date of termination. If such sum is not paid to
Executive as provided in the foregoing provisions, Executive shall continue to
receive his Annual Salary in regular periodic payments until an amount equal to
such Annual Salary is received by Executive after termination.
10. No Conflicting Agreements. Executive represents and warrants that he is
not a party to any agreement, contract or understanding, whether employment or
otherwise, which would in any way restrict or prohibit him from undertaking or
performing his employment in accordance with the terms and conditions of this
Agreement.
11. Permitted Assignees and Successors. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
representatives, successors and permitted assigns. Executive may not assign his
rights or obligations hereunder without the prior written consent of Employer.
12. Notices. Any notice or communication required or permitted hereby shall be
in writing and shall be delivered personally,
<PAGE>
sent by prepaid telegram and followed with a confirming letter, or mailed by
certified or registered mail, postage prepaid,
(a) If to Executive:____________________________
____________________________
____________________________
(b) if to Employer: FFP Management Partners Management
Company, Inc.
2801 Glenda Avenue
Fort Worth, Texas 76117
or in the case of each party hereto, to such other address and to the attention
of such other person as may have theretofore been specified in writing in like
manner by such party to the other party. Each such notice or communication
shall be deemed to have been given as of the date so delivered or at the
expiration of the third day following the date of mailing.
13. Interpretation. This Agreement shall be interpreted, construed and
governed by and under the laws of the State of Texas. If any provision of this
Agreement is deemed or held to be illegal, invalid, or unenforceable, under
present or future laws effective during the term hereof, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable. Further, should any provision contained in
this Agreement ever be reformed or rewritten by any judicial body of competent
jurisdiction, such provision as so reformed or rewritten shall be binding upon
Executive and Employer.
14. Amendments. This Agreement may be amended or renewed in whole or in part
only by an instrument in writing setting forth the particulars of such amendment
or renewal and duly executed by an officer expressly authorized by the Board of
Directors of Employer to do so and by Executive, Executive shall not be
entitled to vote as a director or to act for the Employer in connection with an
amendment or renewal of this Agreement.
<PAGE>
15. Attorney's Fees. If on account of any breach or default by either party
hereunder, it shall become necessary for the other party hereto to employ an
attorney to enforce or defend any of said party's rights or remedies hereunder,
the prevailing party shall be paid by the other party any reasonable attorney's
fees and related costs incurred by the prevailing party by reason of such
proceedings, breach or default.
16. Prior Agreements. All employment agreements heretofore in effect between
Executive and the Employer are hereby terminated at and as of the Effective
Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the day and year set forth below.
Effective Date: April ____, 1989
FFP Partners Management Company, Inc.,
a Delaware corporation
By: ______________________________
______________________________
EMPLOYER
_______________________________________
_______________________________________
EXECUTIVE
<PAGE>
July 22, 1992
_____________________________
_____________________________
_____________________________
Dear ____________________:
Paragraph 9 of your employment agreement, dated April 23, 1989, with FFP
Partners Management Company, Inc. (the "Company") provides that upon termination
by the Company, other than for cause, you will be entitled to receive one year's
Annual Salary as severance pay, and if such amount is not paid upon termination
as provided in that paragraph, you will be entitled to continue to receive your
Annual Salary in regular periodic payments until you receive, following your
termination, an amount equal to your Annual Salary.
In consideration of your continued employment and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged by the
company, the Company amends paragraph 9 of your employment agreement to read in
its entirety as follows:
"9. Payments Upon Termination Without Cause. Unless the employment of Executive
is terminated voluntarily by Executive or is terminated by Employer for any of
the reasons specified in Section 8 above, Employer shall pay to Executive upon
termination an amount equal to two (2) times his Annual Salary in effect at the
time of termination. Such amount payable upon termination shall be paid to
Executive within one week from the date of termination. If such sum is not paid
to Executive as provided in the foregoing provisions, Executive shall continue
to receive his Annual Salary in regular periodic payments until an amount equal
to two (2) times such Annual Salary is received by Executive after termination.
In addition, employer shall provide to Executive for two years after the date of
termination life and medical insurance, and automobile, and other similar
benefits which were provided to Executive prior to his termination, all on the
same terms and conditions as such benefits were provided prior to his
termination."
Except as expressly amended by this letter agreement, your employment agreement
will remain in full effect.
<PAGE>
If this letter correctly reflects our understanding, please sign and return a
copy of the letter, keeping a copy for your files.
FFP PARTNERS MANAGEMENT
COMPANY, INC.
By:
Robert J. Byrnes, President
AGREED:
_____________________________________
____________________________ (Executive)
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Partners of
FFP Partners, L.P.:
We consent to the inclusion of our report dated March 14, 1997, with respect to
the consolidated balance sheets of FFP Partners, L.P. and subsidiaries as of
December 29, 1996 and December 31, 1995, and the related consolidated statements
of operations, partners' capital, cash flows, and the financial statement
schedule for each of the years in the three-year period ended December 29, 1996,
which report appears in the proxy statement of FFP Partners, L.P. dated
December 8, 1997, and to the reference to our firm under the heading "Experts"
in the proxy statement.
KPMG Peat Marwick LLP
Fort Worth, Texas
December 8, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.00
</TABLE>
<PAGE>
Exhibit 99.1
Form of Proxy of FFP Partners, L.P.
<PAGE>
FFP PARTNERS, L.P.
PROXY
2801 GLENDA AVENUE
FORT WORTH, TEXAS 76117
This Proxy is Solicited on Behalf of the Board of Directors
of FFP Partners Management, Inc., as general partner of FFP Partners, L.P.
The undersigned hereby appoints John H. Harvison and Robert J. Byrnes, and
each of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and vote, as designated below, all of the
units of limited partnership of FFP Partners, L.P. ("FFP Partners"), held of
record by the undersigned on December 5, 1997, at the Special Meeting of
Unitholders to be held on December 26, 1997, or any adjournment thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned unitholder. If no direction is given, this proxy will
be voted FOR Proposal 1 and at the discretion of the Proxies with respect to any
other matter that is properly brought before the meeting.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
--------------------
SEE REVERSE SIDE
--------------------
<PAGE>
[X] Please mark
votes as in
this example.
Please mark boxes in blue or black ink.
1. Proposal to approve and adopt the Restructuring Agreement by and among FFP
Partners, FFP Partners Management Company, Inc., and John H. Harvison,
members of Mr. Harvison's family, and corporations, partnerships, trusts
and other business entities affiliated with Mr. Harvison or his family
members, and the related restructuring, including the amendments to FFP
Partners' partnership agreement in connection with the restructuring.
For Against Abstain
[_] [_] [_]
2. In their discretion, the Proxies are authorized to vote upon such other
business as properly may come before the special meeting.
<TABLE>
<S> <C>
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [_]
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign, or if one signs he should attach evidence of his
authority. When signing as attorney, executor, administrator, agent, trustee or
guardian, please give full title as such. If a corporation, please sign full
corporate name by President or other authorized officer. If a partnership,
please sign full partnership name by authorized person.
Signature:______________________________________Date _____, 1997
Signature:______________________________________Date _____, 1997
</TABLE>
COMPLETE, SIGN and DATE the proxy card and return promptly using
the enclosed envelope.
