UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
U.S. Restaurant Properties, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
U.S. RESTAURANT PROPERTIES, INC.
12240 Inwood Road
Suite 300
Dallas, Texas 75244
(972) 387-1487
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 2001
To the Stockholders of
U.S. Restaurant Properties, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders (the "Meeting")
of U.S. Restaurant Properties, Inc., a Maryland corporation (the "Company"),
will be held at Hotel Inter-Continental, 15201 Dallas Parkway, Dallas, Texas
on June 5, 2001, at 10:00 a.m. local time, for the following purposes:
1.The election of eight directors to hold office for terms expiring at the
next annual meeting of stockholders;
2. To ratify Deloitte & Touche LLP as the Company's independent auditors;
and
3.To transact such other business as may properly come before the Meeting.
It is desirable that as large a proportion as possible of the stockholders'
interests be represented at the Meeting. Whether or not you plan to be present
at the Meeting, you are requested to sign and return the enclosed proxy in the
envelope provided so that your stock will be represented. The giving of such
proxy will not affect your right to vote in person should you later decide to
attend the Meeting. Please date and sign the enclosed proxy and return it
promptly in the enclosed envelope.
Copies of the Proxy Statement relating to the Meeting and the Annual Report
outlining the Company's operations for the year ended December 31, 2000
accompany this Notice of Annual Meeting of Stockholders.
Only holders of record of the Common Stock of the Company at the close of
business on April 2, 2001 are entitled to notice of, and to vote at, the
Meeting or any adjournment thereof, notwithstanding any transfer of the Common
Stock on the books of the Company after such record date.
By Order of the Board of Directors,
/s/ David M. West
DAVID M. WEST
Interim Chief Executive Officer
Dallas, Texas
April 25, 2001
U.S. RESTAURANT PROPERTIES, INC.
12240 Inwood Road
Suite 300
Dallas, Texas 75244
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 5, 2001
This Proxy Statement and the accompanying proxy card, Notice of Annual
Meeting of Stockholders and letter to stockholders are first being mailed to
holders (the "Stockholders") of the common stock, par value $.001 per share
(the "Common Stock"), of U.S. Restaurant Properties, Inc., a Maryland
corporation (the "Company"), on or about April 25, 2001, in connection with
the solicitation of proxies on behalf of the Board of Directors of the Company
(the "Board of Directors" or the "Board") to be exercised at the Annual
Meeting of Stockholders (the "Meeting") to be held at Hotel Inter-Continental,
15201 Dallas Parkway, Dallas, Texas, on Tuesday, June 5, 2001, at 10:00 a.m.
At the Meeting, the Stockholders will be asked to consider and vote on the
following proposals (collectively, the "Proposals"):
(1) The election of eight directors to hold office for one-year terms
expiring at the 2002 annual meeting of stockholders;
(2) The approval and ratification of the selection of Deloitte & Touche LLP
("Deloitte & Touche") by the Board of Directors as independent auditors
for the Company for the fiscal year ending December 31, 2001; and
(3) Such other business as may properly come before the Meeting.
The Board of Directors does not know of any other matter that is to come
before the Meeting. If any other matters are properly presented for
consideration, however, the persons authorized by the enclosed proxy will have
discretion to vote on such matters in accordance with their best judgment.
Only Stockholders of record as of the close of business on April 2, 2001
(the "Record Date") are entitled to notice of and to vote at the Meeting or
any adjournments thereof. As of the close of business on the Record Date,
there were 17,886,156 shares of Common Stock, issued and outstanding and
entitled to vote. The Common Stock constitutes the only class of capital stock
of the Company issued and outstanding entitled to vote at the Meeting. Each
Stockholder of record on the Record Date is entitled to one vote for each
share of Common Stock held. A majority of the outstanding shares of Common
Stock, represented in person or by proxy, will constitute a quorum at the
Meeting; however, if a quorum is not present or represented at the Meeting,
the Stockholders entitled to vote thereat, present in person or represented by
proxy, have the power to adjourn the Meeting from time to time, without
notice, other than by announcement at the Meeting, until a quorum is present
or represented. At any such adjourned Meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the original Meeting.
Each share of Common Stock may be voted to elect up to eight individuals
(the number of directors to be elected) as directors of the Company. To be
elected, each nominee for director must receive a plurality of the votes cast
by the shares of Common Stock entitled to vote at a meeting at which a quorum
is present. It is intended that, unless authorization to vote for one or more
nominees for director is withheld, proxies will be voted FOR the election of
all of the nominees named in this Proxy Statement. Approval of a majority of
the shares of Common Stock represented and voting at the Meeting will be
necessary for the ratification of the Board of Directors' selection of
Deloitte & Touche LLP as independent auditors for the fiscal year ending
December 31, 2001.
Votes cast by proxy or in person will be counted by two persons appointed by
the Company to act as inspectors for the Meeting. The election inspectors will
treat shares represented by proxies that reflect abstentions as shares that
are present and entitled to vote for the purpose of determining the presence
of a quorum. For purposes of the Proposals to elect directors, and ratify
Deloitte & Touche LLP, abstentions will not be counted as votes cast and will
have no effect on the result of the vote on such Proposals.
Broker non-votes occur where a broker holding stock in street name votes the
shares on some matters but not others. Brokers are permitted to vote on
routine, non-controversial proposals in instances where they have not received
voting instructions from the beneficial owner of the stock but are not
permitted to vote on non-routine matters. The missing votes on non-routine
matters are deemed to be "broker non-votes." The election inspectors will
treat broker non-votes as shares that are present and entitled to vote for the
purpose of determining the presence of a quorum.
After reviewing the information contained in this Proxy Statement and in the
Annual Report outlining the Company's operations for the fiscal year ended
December 31, 2000 (included with this Proxy Statement), stockholders are urged
to sign the accompanying form of proxy, solicited on behalf of the Board of
Directors, and return it immediately in the envelope provided for that
purpose. Valid proxies will be voted at the Meeting and any adjournment or
adjournments thereof in the manner specified therein. If no directions are
given but proxies are executed in the manner set forth therein, such proxies
will be voted FOR the election of the nominees for director set forth in this
Proxy Statement and FOR the ratification of the selection of Deloitte & Touche
LLP as the Company's independent auditors for the fiscal year ending December
31, 2001. Any Stockholder returning the accompanying proxy may revoke such
proxy at any time prior to its exercise by providing written notice to the
Secretary of the Company of such revocation, voting in person at the Meeting
or executing and delivering, to the Secretary of the Company, a later-dated
proxy.
Each of the directors and executive officers of the Company has informed the
Company that he will vote all of his shares of Common Stock in favor of all of
the Proposals.
I. ELECTION OF DIRECTORS
The Bylaws of the Company provide that the number of directors of the
Company shall be as set forth in the Company's Articles of Incorporation, as
amended (the "Articles"), or as may be established by the Board of Directors
but may not be fewer than the number required under the Maryland General
Corporation Law nor more than 15 members. The current Board of Directors
consists of eight members. At the Meeting, six of the current directors, David
M. West, Len W. Allen, Jr., G. Steven Dawson, Robert Gidel, Robert J. Stetson,
and Gregory I. Strong and two new directors, John C. Deterding and James H.
Kropp, are to be elected, to hold office until the next annual meeting of
Stockholders or until their successors are elected and qualify. Each of the
nominees has consented to serve as a director if elected. If any of the
nominees shall become unable or unwilling to stand for election as a director
(an event not now anticipated by the Board of Directors), proxies will be
voted for such substitute as shall be designated by the Board of Directors.
The following table sets forth for each nominee for election as a director of
the Company his age, principal occupation, position with the Company, if any,
and certain other information. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
EACH OF THE NOMINEES.
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
David M. West 44 Mr. West was elected Chairman of the Board, a March 2001
Director and Interim Chief Executive Officer in
March 2001 in connection with the closing of a
significant common stock investment by Lone Star
Fund III (U.S.), L.P. and its affiliates ("Lone Star
Funds") in the Company. Lone Star Funds is one of
the largest opportunity funds in the world, with
over $4 billion of equity
2
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
David M. West 44 capital under management. Mr. West is the President March 2001
(continued) of Lone Star U.S. Acquisitions LLC and, in that
capacity, directs all North American origination,
underwriting and asset management efforts for Lone
Star Funds. Prior to joining Lone Star Funds in
1998, Mr. West was a Senior Vice President with L.J.
Melody & Company where he was responsible for
originating real estate debt and equity
transactions. His professional experience also
includes 15 years with General Electric Capital
Commercial Real Estate where, as Senior Vice
President/Territory Manager, he led the real estate
investment group for the Southwest United States.
Len W. Allen, Jr. 36 Mr. Allen is a Director of the Company and a member March 2001
of the Compensation Committee. Since August 2000,
Mr. Allen has served as Executive Vice President of
Lone Star U.S. Acquisitions LLC where he is
responsible for originating investment opportunities
in North America for the affiliated funds. From
February 1997 until he joined Lone Star Funds,
Mr. Allen was Executive Vice President of Hudson
Advisors LLC, an affiliate, where he was responsible
for managing portfolios of assets located in North
America. Mr. Allen's previous experience also
includes Lehndorff USA, a diversified real estate
company with holdings throughout the United States.
G. Steven Dawson 43 Mr. Dawson is a Director of the Company and a member June 2000
of the Audit Committee. Since 1990, Mr. Dawson has
served as Senior Vice President and Chief Financial
Officer of Camden Property Trust, a public real
estate company which specializes in the acquisition,
development, and management of over 159 apartment
communities throughout the United States, with major
concentrations in Dallas, Houston, Las Vegas and the
Tampa/Orlando areas. Prior to 1990, Mr. Dawson
served in various related capacities with companies
involved in commercial real estate including land
and office building development as well as the
construction and management of industrial facilities
located on airports throughout the country. He
currently serves on the board of AMREIT, a non-
listed public real estate investment trust ("REIT").
John C. Deterding 68 Mr. Deterding is nominated for the Board of N/A
Directors. He has been the owner of Deterding
Associates, a real estate consulting company, since
June 1993. From 1975 until June 1993 he served as
Senior Vice President and General Manager of the
Commercial Real Estate division of General Electric
Capital Corporation. From November 1989 to June
1993, Mr. Deterding served as Chairman of the
General Electric Real Estate Investment Company, a
privately held REIT. He served as Director of GECC
Financial Corporation from 1986 to 1993. He
currently serves as a Director of Atrium Companies
and AMRESCO Capital Trust. He was formerly a trustee
for BAI and the Urban Land Institute and was a
Director of Patriot American.
3
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
Robert Gidel 49 Mr. Gidel is a Director of the Company and a member March 2001
of the Audit Committee. Since 1998, Mr. Gidel has
been the Managing Director of Liberty Partners,
L.P., a partnership which makes investments in real
estate operating companies and partnerships. Through
April 1998 (when it merged with EastGroup
Properties), Mr. Gidel was the President, Chief
Executive Officer and a Director of Meridian Point
Realty Trust VIII, a publicly traded REIT
specializing in industrial properties. Through April
1997, Mr. Gidel served as President, COO and
Director of Paragon Group, Inc., a publicly traded
REIT that owned multifamily apartments located in
the southern states, and through 1996, served as
President of Paragon Group Property Services, a
related subsidiary providing property management
services. From 1995 to 1996, Mr. Gidel was the COO
of Brazos Principal GenPar, the general partner of
the Brazos Fund, and served as President, COO and a
Director of Brazos Asset Management, the general
partner of Brazos Partners, from 1993 to 1995. Both
Brazos entities were real estate opportunity funds
sponsored by affiliates of Robert M. Bass and had
assets in excess of $1 and $3 billion, respectively.
Prior to 1993, Mr. Gidel served in several positions
with Alex Brown Kleinwort Benson Realty Advisors and
Heller Financial. Mr. Gidel is currently a member of
the Board of Directors of two publicly traded REITs
-- Developers Diversified Realty Corporation and
American Industrial Properties -- and one private
REIT, Fortress Registered Investment Trust.
James H. Kropp 52 Mr. Kropp is nominated for the Board of Directors. N/A
He has been Director of Investment Management and
Banking of Christopher Weil & Company, Inc. ("CWC"),
a securities broker-dealer and registered investment
advisor, since April 1995. During Mr. Kropp's
tenure, CWC has participated in multiple
transactions with the Company, including the
acquisition of the QSR and Divall portfolios, as
well as the investment in the Company's Common Stock
by Lone Star Funds. Mr. Kropp was a Director of
American Office Park Properties from December 1996
until December 1997. From July 1994 to November
1994, he was Executive Vice President and Chief
Financial Officer of Hospitality Investment Trust, a
REIT. From 1989 to July 1994, he was Managing
Director of MECA Associates USA, a real estate
advisory and asset management company serving
institutional property owners. He currently serves
as a Director of PS Business Parks and Madison Park
Real Estate Investment Trust, a non-public REIT.
Robert J. Stetson 50 Mr. Stetson is a Director of the Company. He served January 1997
as the Chief Executive Officer and President of the
Company from its formation in January 1997 until
October 1999. Since May 1994, Mr. Stetson has also
served as President and a Director of QSV Restaurant
Properties, Inc. ("QSV"), the former general partner
of U.S. Restaurant Properties Master L. P. ("USRP"),
the predecessor to the Company, and, until October
1999, was also
4
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
Robert J. Stetson 50 Chief Executive Officer of QSV. From 1987 until January 1997
(continued) 1992, Mr. Stetson served as the Chief Financial
Officer and later President-Retail Division of
Burger King Corporation and Chief Financial Officer
and later Chief Executive Officer of Pearle Vision.
As Chief Financial Officer of Burger King
Corporation, Mr. Stetson was responsible for
managing more than 950 restaurants that Burger King
Corporation leased to tenants. Prior to 1987, Mr.
Stetson served in several positions with PepsiCo
Inc. and its subsidiaries, including Chief Financial
Officer of Pizza Hut, Inc.
Gregory I. Strong 44 Mr. Strong is a Director of the Company and a member March 2001
of the Compensation Committee. Mr. Strong serves as
Executive Vice President of Hudson Advisors LLC, an
affiliate of Lone Star Funds, where he currently
oversees the management of portfolios in North
America. Mr. Strong began his career at Brazos Asset
Management (the predecessor to Hudson Advisors LLC)
in 1993 as an asset manager and underwriter of real
estate portfolios. In 1995, he was promoted to
Director of Underwriting where he served until his
next promotion to Portfolio Manager of the European
assets under management. Prior to 1993, Mr. Strong
worked for other diversified real estate companies
including American Real Estate Group, American
Residential Properties and the FDIC/FADA.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 2000, the Board of Directors held
seven regular meetings and five special meetings. Each of the directors
attended at least 75% of all meetings held by the Board of Directors and all
meetings of each committee of the Board of Directors on which such director
served during the fiscal year ended December 31, 2000, except for Mr. Taper
who missed one Audit Committee meeting. The Board of Directors has an Audit
Committee, a Compensation Committee, a Corporate Governance Committee and as
needed, establishes a Special Committee to address related party and other
issues.
The Audit Committee is an advisory committee whose members through March 9,
2001, were Mr. Taper and Mr. Darrel Rolph. The current committee consists of
Mr. Taper (who will be resigning effective June 5, 2001), Mr. Gidel and Mr.
Dawson. The Audit Committee met six times during the fiscal year ended
December 31, 2000. The function of the Audit Committee is to make
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
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 nonaudit fees and review the
adequacy of the Company's internal accounting controls. The Audit Committee
has a written charter, a copy of which is attached hereto as Exhibit 1.
The Compensation Committee consisted of Dr. Graham and Mr. David Rolph
through March 9, 2001. The current committee consists of Mr. Allen and Mr.
Strong. The Compensation Committee recommends compensation for the Company's
executive officers to the Board of Directors and administers the Company's
Flexible Incentive Plan. The Compensation Committee met one time during the
fiscal year ended December 31, 2000.
5
The Corporate Governance Committee currently consists of Messrs. Mileusnic,
Graham (until his resignation effective March 9, 2001), and Taper. A new
committee will be established following the Meeting. This committee assists the
Board of Directors in carrying out its responsibilities by reviewing corporate
governance issues. The Corporate Governance Committee met one time during the
fiscal year ended December 31, 2000.
The Board of Directors also established a Special Committee for the purpose
of overseeing and reviewing related party and other special transactions
between the Company and its directors, executive officers or their affiliates.
The Special Committee was comprised of Messrs. Taper, Graham (until his
resignation from the Board on March 9, 2001), and Mileusnic throughout 2000.
Mr. Dawson joined the committee in December 2000. The Special Committee met
seventeen times during the year ended December 31, 2000.
Compensation of Directors
Directors who are not employees of the Company are paid a $14,000 annual
retainer and each committee chairman receives an additional $1,000 per annum.
Directors who are employees of the Company are not paid any director's fees.
The Company may reimburse all directors for their travel expenses incurred in
connection with attending meetings and their activities on behalf of the
Company. Directors serving on the Special Committee were compensated at a rate
of $1,000 or $1,500 per meeting, dependent on the length of the meeting in
which they participated.
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers of the Company serve at the discretion of the Board of
Directors and are chosen annually by the Board of Directors at its first
meeting following the annual meeting of Stockholders. The following table sets
forth the names and ages of the executive officers and directors of the Company
and the positions held with the Company by each individual.
Name Age Title
---- --- -----
Executive Officers
David M. West 44 Chairman of the Board, Interim Chief Executive Officer
Barbara A. Erhart 45 Chief Financial Officer
Arthur E. Nienhueser II 56 Senior Credit Officer
J. Scott Ballard 34 Manager, Development Division
Outside Directors
Len W. Allen, Jr. 36 Director
G. Steven Dawson 43 Director
John C. Deterding 68 Director
Robert Gidel 49 Director
James H. Kropp 52 Director
Robert J. Stetson 49 Director
Gregory I. Strong 44 Director
6
Executive Officers
For a description of the business experience of Mr. West, see "Election of
Directors" above.
Ms. Erhart joined the Company as Chief Financial Officer in March 2000. From
1995 to February 2000, Ms. Erhart served as Chief Financial Officer of
Billingsley Company, a real estate development company focused in the
acquisition of raw land and development of industrial warehouses, suburban
office parks, and master-planned commercial and multifamily communities as well
as the management of design centers located in Dallas, Houston and Boston and a
multi-service travel company operating on a national basis. From 1989 to 1994,
Ms. Erhart was a Senior Manager with PriceWaterhouseCoopers and specialized in
acquisitions, banking, restaurants and retail clients as well as providing
support to the bankruptcy and corporate reorganization team. Prior to 1989, Ms.
Erhart served as a senior financial officer with a $4.6 billion thrift and as a
manager with Arthur Andersen in the Regulated Industry department.
Mr. Nienhueser joined the Company in August 1998 as Senior Credit Officer of
the Lending Groups, subsidiaries formed to initiate conduit loans to
franchisees in the quick service and retail gas/convenience store industries.
In January 2000, these two companies ceased operations and Mr. Nienhueser
assumed responsibility for certain tenant workouts and the disposition of
distressed properties. Prior to joining the Company, he was a Senior Credit
Officer/Manager at AMRESCO Capital L.P. where he was responsible for the
underwriting and due diligence of commercial real estate loans originated for
securitization and private placement. Prior to 1985, Mr. Nienhueser served six
years as an Asset Manager at AMRESCO Holding Inc. (originally a subsidiary of
the former NationsBank Corporation) where he managed and coordinated the
liquidation of problem real estate loans and supervised all aspects of property
management. Mr. Nienhueser's experience also includes over a combined eighteen
years of lending experience in various industries at FirstRepublicBank (which
was acquired by NationsBank in 1988) and Bankers Trust Company.
Mr. Ballard joined the Company in 1998 as a Manager of Development with
direct responsibility for site review, budgeting, lease negotiations and
construction management on development projects. Prior to joining the Company,
Mr. Ballard worked at ExxonMobil from 1990 to 1998. He began his career at
ExxonMobil as a construction project engineer developing retail facilities in a
four-state area. He was then promoted to team lead and was responsible for all
entitlement and permitting activities throughout the country. Mr. Ballard later
moved to the Corporate Design Group where he worked on numerous U.S. and global
retail development issues as well as the EPA mandated compliance upgrade
program. At the time he left, he directed all retail development in the Mid-
Atlantic region. Mr. Ballard's experience also includes commercial construction
experience with both a general contractor and subcontractor.
Outside Directors
For a description of the business experience of Messrs. Allen, Dawson,
Deterding, Gidel, Kropp, Stetson, and Strong, see "Election of Directors"
above.
7
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
On December 29, 2000, in connection with the merger of QSV into U.S.
Restaurant Properties, Inc., Messrs. Stetson, Darrel Rolph, David Rolph and
Fred Margolin were distributed stock options to purchase a total of 85,077
shares of Common Stock at $10.33 per share in exchange for cancelled stock
options to purchase shares totaling 85,077 held by QSV.
The following table sets forth certain information with respect to annual
and long-term compensation for the period ended December 31, 2000, paid, or
accrued with respect to, each of the Company's executive officers (the
"Executive Officers").
Summary Compensation Table
Long-Term
Annual Compensation
Compensation Awards
----------------------------- ------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
--------------------------- ---- -------- ------- ------------ ------------ ------------
Fred H. Margolin (1) 2000 $250,000 $50,000 $ -- 24,000 $ --
Chairman of the Board, 1999 $250,000 $50,000 $ -- 200,000 $ --
President, Chief Executive 1998 $250,000 $50,000 $ -- -- $ --
Officer, Secretary, & Treasurer
Barbara A. Erhart (2) 2000 $117,082 $16,100 $ -- 10,000 $ --
Chief Financial Officer
Arthur E. Nienhueser II (3) 2000 $100,500 $10,000 $ -- -- $ --
Senior Credit Officer 1999 $100,000 $ -- $ -- -- $ --
1998 $ 37,500 $ -- $ -- -- $ --
J. Scott Ballard (3) 2000 $ 88,587 $12,000 $ -- -- $ --
Manager, 1999 $ 81,333 $29,000 $ -- 2,500 $ --
Development Division 1998 $ 67,312 $ 5,000 $ -- 2,000 $ --
David S. Pettijohn (4) 2000 $139,821 $19,000 $ -- -- $ --
Director, Real Estate 1999 $ 53,968 $ 5,975 $ -- 60,000 $343,255
Operations 1998 -- $ -- $ -- 10,000 $345,222
--------
(1) Mr. Margolin was elected the President and Chief Executive Officer of the
Company in October 1999. He resigned as Chairman of the Board, President,
Chief Executive Officer, Secretary and Treasurer effective March 9, 2001.
These options were issued to Mr. Margolin, individually, on December 29,
2000, pursuant to the Agreement and Plan of Merger by and among QSV, U.S.
Restaurant Properties, Inc., Fred H. Margolin, Darrel L. Rolph, David K.
Rolph and Robert J. Stetson dated December 29, 2000. In connection with
the reissuance of these options to purchase stock to Mr. Margolin, 24,000
options to purchase stock held by QSV were cancelled.
(2) Ms. Erhart was elected Chief Financial Officer in March 2000.
(3) Mr. Nienhueser and Mr. Ballard joined the Company in 1998. Neither are
officers of the Company, but both have significant managerial
responsibilities for the Company.
(4) Mr. Pettijohn worked as an independent broker for the Company during 1998
and 1999 to originate acquisitions. In October 1999, he joined the Company
as Director of Real Estate Operations and assumed management
responsibility for the acquisition, development and asset management
divisions. He resigned effective August 31, 2000.
8
Option Grants
The following table sets forth certain information with respect to the
issuance of options granted to Executive Officers during the fiscal year ended
December 31, 2000, including options granted under the Company's Flexible
Incentive Plan that the Stockholders approved in 1997 and amended in 1998:
Option/SAR Grants in Last Fiscal Year
Individual Grants
-----------------------------------------
Potential Realizable Value
Number of Percent of at Assumed Annual Rates
Securities Total Exercise of Stock Price Appreciation
Underlying Options Price for Option Term (3)
Options Granted to Per Expiration ----------------------------
Name Granted(1) Employees Share Date 5% 10%
---- ---------- ---------- -------- ---------- ------------- --------------
Fred H. Margolin (1).... 24,000 70.59% $10.3300 3/24/06 $ 72,093 $ 160,437
Barbara A. Erhart (2)... 10,000 29.41% $11.4375 3/24/06 $ 38,898 $ 88,247
--------
(1) The options were reissued on December 29, 2000, pursuant to the Agreement
and Plan of Merger by and among QSV, U.S. Restaurant Properties, Inc.,
Fred H. Margolin, Darrel L. Rolph, David K. Rolph and Robert J. Stetson
dated December 29, 2000.
(2) The options were granted effective March 22, 2000, and vest in equal
increments on each of the second and third anniversary of their date of
grant.
(3) "Potential Realizable Value" is disclosed in response to Securities and
Exchange Commission rules, which require such disclosure for illustrative
purposes only, and is based on the difference between the potential market
value of shares issuable (based upon assumed appreciation rates) upon
exercise of such Options and the exercise price of such Options. The
values disclosed are not intended to be, and should not be interpreted by
investors as, representations or projections of future value of the
Company's stock or of the stock price.
Option Exercises and Year-End Option Values
The following table sets forth certain information concerning the value of
the unexercised options as of December 31, 2000 held by the Executive
Officers. No options were exercised by the Executive Officers during the
fiscal year ended December 31, 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities
Underlying Value of Unexercised
Unexercised in-the-Money
Option/SARs at Fiscal Options/SARs at Fiscal
Year-End Year-End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Fred H. Margolin........... 224,000 245,000 -0- -0-
Barbara A. Erhart.......... -- 10,000 N/A -0-
J. Scott Ballard........... 1,000 3,500 -0- -0-
--------
(1) The fair market value on December 31, 2000 of the Common Stock underlying
the options was $9.8125 per share.
Employment Agreements
On October 15, 1997, Mr. Margolin entered into a four year employment
agreement (the "Employment Agreement") with the Company for which the
aggregate base compensation was $250,000 per year. Under such agreement, the
Company was liable for the compensation benefits for three years if Mr.
Margolin was terminated without cause, as defined. Effective March 9, 2001,
Mr. Margolin resigned as Chairman of the Board, President, Chief Executive
Officer, Secretary and Treasurer of the Company and was paid severance
compensation of $800,000.
Effective March 22, 2000, the Company entered into a four-year employment
agreement with its Chief Financial Officer Barbara Erhart for which the
aggregate base compensation is currently $161,200 per year.
9
Under such agreement, the Company is liable for termination pay in an amount
equal to two times the highest annualized rate of Ms. Erhart's salary prior to
the date of termination (except after the occurrence of a change in control,
as defined, in which case the amount due is equal to 2.99 times the highest
annualized rate of pay) if Ms. Erhart is terminated without cause, as defined.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE OFFICER COMPENSATION
The following report of the Compensation Committee of the Company's Board of
Directors (the "Compensation Committee") and the performance graph that
appears immediately after such report shall not be deemed to be soliciting
material or filed with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or incorporated by reference in any
document so filed.
General
The Compensation Committee recommends to the Board of Directors the
compensation of the executive officers of the Company and administers the Plan
and any other employee benefit plans established by the Company. The
Compensation Committee reviews the overall compensation program of the Company
to assure that it is reasonable and, in consideration of all of the facts
including practices of comparably sized real estate investment trusts,
adequately recognizes performance tied to creating stockholder value and meets
overall Company compensation and business objectives. The Compensation
Committee's philosophy for compensating executive officers is that an
incentive-based compensation system tied to the Company's financial
performance and stockholder return will best align the interest of its
executive officers with the objectives of the Company and its stockholders.
The Compensation Committee attempts to promote financial and operational
success by attracting, motivating and assisting in the retention of key
employees who demonstrate the highest levels of ability and talent. The
Compensation Committee has determined that the Company's compensation program
should reward performance measured by the creation of value for stockholders.
In accordance with this philosophy, the Compensation Committee oversees the
implementation of the compensation system designed to meet the Company's
financial objectives by making a significant portion of an executive officer's
compensation dependent upon both the Company's and such executive's
performance. The Company's executive compensation program consists of the
following elements: (i) a base salary, which results from an assessment of
each executive's level of responsibility and experience, individual
performance and contributions to the Company; (ii) annual incentives that are
directly related to the performance of the executive's department and the
financial performance of the Company as a whole; and (iii) subject to the
provisions of the Flexible Incentive Plan previously approved by the
Stockholders, grants of stock options designed to motivate individuals to
enhance long-term profitability of the Company and the value of the Common
Stock. The Compensation Committee does not allocate a fixed percentage to each
of these three elements, but works with management to design compensation
structures which will best serve its goals.
Base Salary
Mr. Margolin, the Company's former Chief Executive Officer, entered into an
employment agreement with the Company, which employment agreement is described
under the caption "Employment Agreements" contained in this Proxy Statement.
Pursuant to the terms of his employment agreement, Mr. Margolin's base salary
was set for the term of the agreement. Recommendations for compensation of the
executive officers, other than Mr. Margolin, are provided by the Chief
Executive Officer after annual evaluations of individual contributions to the
business of the Company are held with each such executive officer. Factors
considered by the Compensation Committee in setting base salaries include the
performance of the Company, measured by both financial and non-financial
objectives, individual accomplishments, any planned change of responsibility
for the forthcoming year, salaries paid for similar positions within the real
estate and REIT industry as published in industry statistical surveys and
proposed base salary relative to that of other executive officers. The
10
predominating factor is the performance of the Company. The application of the
remaining factors is subjective, with no particular factor being given more
weight than any other.
Annual Incentives
Executives are also eligible for annual incentive awards, which awards are
designed to place a significant part of an executive's annual compensation at
risk. The Executive Officers will participate in a bonus incentive program
under which the individual executives are eligible for annual cash bonuses.
Bonuses were paid by the Company to each of the Executive Officers for the
year ended December 31, 2000. The Compensation Committee anticipates that
future bonuses will be determined on the basis of a comparison of actual
performance against pre-established performance goals, for the Company and
will be, in part, based on the discretion of the Compensation Committee.
Long-term Incentives
In keeping with the Compensation Committee's philosophy to provide long-term
incentives to executive officers and other key employees, subject to
Stockholder approval of the Plan, stock options are anticipated to be granted
to executive officers and other key employees on a periodic basis. The
Committee establishes the number of options granted based upon REIT industry
data and upon each individual's base salary.
CEO Performance Evaluation
The Compensation Committee recommends to the Board of Directors for its
approval the compensation for all executives, including the Chief Executive
Officer. Mr. Margolin had an employment agreement with the Company that
provided for his base salary to be set at $250,000, subject to annual review
by the Compensation Committee. In 2000, the Company paid Mr. Margolin $250,000
in base compensation. Also, he was paid a bonus of $50,000 for achievement of
performance goals pre-established by the Compensation Committee.
Tax Considerations
The Compensation Committee is aware of the tax law which makes certain "non-
performance based" compensation to certain executive officers in excess of
$1,000,000 non-deductible to the Company. While none of the Executive Officers
of the Company currently receives performance-based compensation at or near
the $1,000,000 maximum, the Compensation Committee has carefully considered
the impact of these tax provisions and has taken steps which are designed to
minimize its future effect, if any.
THE COMPENSATION COMMITTEE
Len W. Allen, Jr.
Gregory I. Strong
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of members of the Board of Directors who
are neither former or current officers or employees of the Company or any of
its subsidiaries. No executive officer of the Company serves as an officer,
director or member of any entity, an executive officer or director of which is
a member of the Compensation Committee.
11
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Common Stock (and the common
units of beneficial interest of U.S. Restaurant Properties Master L.P., the
Company's predecessor, see "Certain Relationship and Related Transactions"),
with the cumulative total return of the S&P 500 Index and the National
Association of Real Estate Investment Trusts ("NAREIT") All Equity REIT Index,
assuming the investment of $100 on December 31, 1994 and the reinvestment of
dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, S&P 500 INDEX
AND NAREIT EQUITY REIT INDEX
[PERFORMANCE GRAPH]
Period Ending
-----------------------------------------------------------------
Index 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
---------------------- ---------- ---------- ---------- ---------- ---------- ----------
U.S. Restaurant
Properties, Inc. 100.00 151.86 209.84 226.47 146.37 116.60
S&P 500 100.00 122.86 163.86 210.64 254.97 231.74
NAREIT All Equity REIT
Index 100.00 135.27 162.67 134.20 128.00 161.76
12
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has reviewed and discussed with management the audited
financial statements of the Company for the year ended December 31, 2000.
Management has the primary responsibility for the financial statements and the
reporting process. The Company's independent auditors, Deloitte & Touche LLP
are responsible for expressing an opinion on the conformity of our audited
financial statements to accounting principles generally accepted in the United
States of America.
We have discussed with Deloitte & Touche LLP the matters required by
Statement on Auditing Standards No. 61, Communication with Audit Committees,
as amended. The committee has also received the written disclosures and the
letter from Deloitte & Touche LLP required by Independence Standards Board
Standard No. 1, and we have discussed with the firm its independence from the
Company. We also have discussed with management of the Company and the
auditing firm such other matters and received assurances from them as we
deemed appropriate.
Principal Accounting Firm Fees
Aggregate fees billed to the Company for the year ended December 31, 2000 by
the Company's principal accounting firm, Deloitte & Touche LLP, were as
follows:
Audit fees $230,000
Financial Information Systems
Design and Implementation Fees 73,432
All Other Fees 21,500
--------
Total Fees $324,932
========
The Audit Committee has determined the provision of the services included in
"Financial Information Systems Design and Implementation Fees" and "All Other
Fees" to be compatible with maintaining the principal accountant's
independence.
Based on the foregoing review and discussions and relying thereon, we have
recommended to the Company's Board of Directors that the audited financial
statements for the year ended December 31, 2000, be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000 for filing
with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
G. Steven Dawson
Robert Gidel
Eugene G. Taper
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the conversion of the Company from a master limited
partnership to a REIT, QSV withdrew as general partner of each of USRP and US
Restaurant Properties Operating L.P. (the "Operating Partnership") effective
as of October 15, 1997, and USRP Managing was substituted as general partner
of each of USRP and the Operating Partnership. In conjunction with such
withdrawal, QSV (i) converted its interests in (a) its allocable share of
income, profits, losses and distributions of the Operating Partnership as
general partner thereof and (b) fees and disbursements for the acquisition and
management of the Operating Partnership's properties (together, the "Operating
Partnership General Partner Interest") payable to it pursuant to the terms of
the partnership agreement of the Operating Partnership and (ii) converted its
general partner interest in USRP (the "USRP Interest") (together with the
conversion of its interests in the Operating Partnership described above,
13
the "Termination") for 1,148,418 Operating Partnership Units and 126,582
shares of Common Stock, respectively, and as a result of such conversion was
eligible to receive additional consideration in the year 2000 (together, the
"Acquisition Price").
The Acquisition Price consists of two components: (i) the initial share
consideration (the "Initial Share Consideration") and (ii) the contingent
share consideration (the "Contingent Share Consideration"). The Initial Share
Consideration was paid in the form of 1,148,418 Operating Partnership Units in
exchange for the Operating Partnership General Partner Interest and 126,582
shares of Common Stock (1% of all shares of Common Stock outstanding
immediately following the Merger) issued by the Company at the effective time
of the Merger in exchange for the USRP Interest. The Contingent Share
Consideration is equal to the value of up to 825,000 shares of Common Stock
(subject to adjustment in the event of certain dilutive events), and will
consist of Operating Partnership Units (the "Contingent Shares"). The exact
number of Contingent Shares to be issued was determined in accordance with the
agreement by dividing the amount by which MGP Net Income exceeds $3,612,500 by
$2.83. MGP Net Income is defined as the fees and distributions in excess of
$3,612,500 which would otherwise have been payable to QSV for fiscal year
ended December 31, 2000 pursuant to the Operating Partnership General Partner
Interest and the USRP Interest less $775,000. QSV did not receive any
distributions with respect to the Contingent Shares, or otherwise have any
rights with respect thereto, until they were issued. Pursuant to an amendment
to the Withdrawal Agreement by the Special Committee (as defined below) of the
Board of Directors, the Contingent Shares were required to be issued by the
Company effective December 29, 2000. As the Company anticipated that all of
the Contingent Shares would be issued, the Company has recorded as of December
31, 1998, 1999 and 2000, an expense of $12,047,000, income of $239,000, and
income of $3,713,000, respectively, as the cost of issuance of Contingent
Shares accruable as of that date.
The Acquisition Price was determined through negotiations between management
of QSV, the then managing general partner of USRP, the Company's predecessor,
and a special committee (the "Special Committee") of the Board of Directors of
the managing general partner, consisting solely of directors who were neither
officers nor stockholders of QSV. The structure of the Acquisition Price was
adopted as a result of the Special Committee's desire to protect the
stockholders of the Company from being diluted by the issuance of the share
consideration. This structure also enabled the Special Committee to establish
a price to be paid for (i) the management contract which was to be terminated
and (ii) QSV's interest in USRP. The Special Committee was appointed to
address any potential conflicts of interest.
The Special Committee engaged Morgan Keegan & Company, Inc. ("Morgan
Keegan"), an investment banking firm that regularly renders valuations of
businesses and securities in connection with business combinations, as its
financial advisor. The Special Committee and management of QSV conducted
negotiations, with Morgan Keegan's input, from December 30, 1996 to February
5, 1997, when the Special Committee determined to accept the Acquisition
Price. The Special Committee based its determination on the following factors:
1. The Morgan Keegan fairness opinion received at the February 5, 1997
meeting of the Special Committee.
2. The structure of the Acquisition Price, as QSV would receive all or a
portion of the contingent shares if and only if the MGP Net Income for
the year ending December 31, 2000 reached or exceeded certain levels. As
a result, the contingent share portion of the Acquisition Price provided
for a mechanism for the consideration to be paid by the Company to
correlate to the obligations of which the Company was being relieved.
3. The maximum number of contingent shares that could be issued was capped.
On December 29, 2000, the Company entered into a merger agreement with QSV,
which was owned by Messrs. Margolin, David Rolph, Darrel Rolph and Stetson
(the "Merger"). Pursuant to the merger agreement, QSV merged into the Company
and the stockholders of QSV were issued 2,554,998 shares of the Company's
common stock, par value $.001 per share (the "Common Stock"). At the time of
the merger, the principal assets
14
of QSV were 1,148,418 units of securities convertible on a one-for-one basis
into Common Stock, and 1,406,582 shares of Common Stock of the Company.
In addition, as of December 29, 2000, QSV held options (the "Options") to
purchase 85,077 shares of Common Stock pursuant to an Option Agreement dated
March 24, 1995, by and between USRP and QSV, which Options were assumed by the
Company pursuant to the Merger. All of the Options are fully vested and
exercisable. The Options are exercisable at an exercise price of $10.33 per
share. The Options are not transferable except by operation of law pursuant to
a consolidation, merger, recapitalization or reorganization of QSV. As
disclosed previously, the QSV options were cancelled and reissued to the
individual shareholders of QSV in connection with the merger of QSV into the
Company effective December 29, 2000.
Robert J. Stetson owned a 30% interest in QSV and is a Director of the
Company. Fred H. Margolin owned a 30% interest in QSV and was the Chairman of
the Board of Directors, Chief Executive Officer, President, Secretary and a
Director of the Company through March 9, 2001, David K. Rolph and Darrel L.
Rolph, each owned a 20% interest in QSV and were Directors of the Company
through March 9, 2001.
In connection with Mr. Stetson's resignation as Chief Executive Officer and
President of the Company, the Company entered into a Settlement Agreement and
Consulting Agreement with Mr. Stetson as of October 6, 1999. Pursuant to the
Consulting Agreement, Mr. Stetson was employed as a consultant to the Company
for a period of one (1) year, ending on October 6, 2000. Pursuant to the terms
of the Settlement Agreement, the Company paid to Mr. Stetson severance
compensation in the amount of $750,000, terminated all of the options
previously granted to Mr. Stetson pursuant to the Company's 1997 Flexible
Incentive Plan and agreed to provide Mr. Stetson one or more loans, up to the
aggregate of $800,000, for the sole purpose of acquiring shares of the
Company's Common Stock from time to time in the open market.
In March 2000, the Company advanced $400,000 to Mr. Stetson for the purchase
of Common Stock of the Company. The promissory note provides for an interest
rate of 7.0% per annum and quarterly payments of interest only through
December 2005, with a final payment of principal and interest due in March,
2006. Pursuant to the note agreement, Mr. Stetson has pledged the Common Stock
purchased with the note proceeds as collateral for the loans.
Effective September 22, 2000, the Company and Mr. Stetson entered into an
Amendment to the Settlement Agreement providing for two changes to the
original Settlement Agreement. First, Mr. Stetson executed a second promissory
note in the amount of $300,000 in exchange for which he received 35,037
restricted shares of USRP Common Stock (calculated based on a value of $8.5625
per share). Second, the Company advanced Mr. Stetson $75,000 under a third
promissory note to be used for the purpose of acquiring shares of the
Company's Common Stock in the open market. Both notes bear interest at 7.0%
per annum and provide for quarterly payments of interest only through July
2006, with a final payment of principal and interest due in October 2006, and
are secured by the restricted Common Stock and the Common Stock purchased in
the open market with the note proceeds.
15
On January 17, 2001, the Company entered into an agreement with Lone Star
Funds providing for the sale of 1,877,935 shares of Common Stock at a price of
$10.65 per share, for aggregate consideration of $20,000,000 (the "Lone Star
Transaction"). The Lone Star Transaction will involve two or more closings: an
initial closing, on March 9, 2001, at which Lone Star Funds paid $5,000,000 in
exchange for 469,484 shares; and one or more subsequent closings, to occur on
or before September 5, 2001, at which up to an additional 1,408,451 shares
will be purchased. Also, on January 17, 2001, three directors of the Company,
Messrs. Margolin, Darrel Rolph and David Rolph, and their affiliates entered
into an agreement with Lone Star Funds for the sale of 1,851,830 shares of
Common Stock at a price of $11.35 per share (the "Lone Star Stockholders
Transaction"). In the Lone Star Stockholders Transaction, Messrs. Margolin,
Darrel Rolph and David Rolph sold 813,830, 527,000 and 511,000 shares,
respectively. At the closing on March 9, 2001, Lone Star Funds delivered cash
equal to $11.00 per share and two promissory notes to each stockholder for the
balance of $0.35 per share, due and payable on September 9, 2001.
After completion of the entire Lone Star Transaction and the Lone Star
Stockholders Transaction, Lone Star Funds will be a beneficial holder of
approximately 19.33% of the Company's then outstanding common stock.
Concurrently with the initial closing of the Lone Star Transaction, four
members of the Company's Board of Directors, Fred H. Margolin, Darrel L.
Rolph, David K. Rolph and Dr. Gerald H. Graham, resigned. Mr. Margolin also
resigned as the Chairman of the Board and Chief Executive Officer of the
Company and from any other positions he held with the Company or any of its
subsidiaries. The Board appointed four individuals designated by Lone Star
Funds, David W. West, Robert Gidel, Len W. Allen, Jr. and Gregory I. Strong to
fill the vacancies created by these resignations. The new Board of Directors
appointed Mr. West to serve as interim Chief Executive Officer of the Company
while it identifies a permanent replacement for Mr. Margolin.
In connection with their resignations, Messrs. Margolin, Rolph and Rolph
entered into Noncompetition and Release Agreements with the Company pursuant
to which each of them agreed not to (a) submit or cause the submission of any
proposals or nominations of candidates for election as directors of the
Company or (b) solicit proxies from any of the Company's stockholders, in each
case prior to December 31, 2003. Additionally, Mr. Margolin agreed not to
directly or indirectly own manage, control, participate in, invest in or
provide consulting services to any entity or business organization that
engages in or owns, invests in, manages or controls any venture engaged in the
ownership, management, acquisition or development of restaurant, gasoline and
convenience store properties similar to those of the Company and its
affiliates for a one-year period ending March 9, 2002. As consideration under
such agreement and in connection with the termination of Mr. Margolin's
Employment Agreement with the Company, the Company paid Mr. Margolin $800,000
in severance compensation. Similarly, each of the Rolphs agreed not to
directly or indirectly compete with the Company, other than through the
restaurant operations of the Rolphs in existence as of the initial closing of
the Lone Star Transaction.
The Company and each of Messrs. Margolin, Rolph and Rolph entered into a
Registration Rights Agreement, dated March 9, 2001, permitting the holders
thereto to request a shelf registration on Form S-3 to be filed with the
Securities and Exchange Commission ("SEC") by the Company, which was filed on
April 6, 2001. Additionally, as a component of the Lone Star Transaction, the
Company and Lone Star Funds entered into a Registration Rights Agreement,
dated March 9, 2001, granting Lone Star Funds the ability to request a shelf
registration on Form S-3 with respect to shares acquired in the Lone Star
Transaction and the Lone Star Stockholders Transaction.
16
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table and the notes thereto set forth certain information with
respect to the beneficial ownership of shares of Common Stock, as of March 31,
2001, by each person or group within the meaning of Section 13(d)(3) of the
Exchange Act who is known to the management of the Company to be the
beneficial owner of more than five percent of the outstanding Common Stock of
the Company:
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Class
------------------- ------------------ --------
Pacific Life Insurance Company 1,561,779 8.73%
& affiliate, Pacific Life & Annuity
Company
700 Newport Center Drive
Newport Beach, CA 92660
Lone Star Fund III (U.S.), L.P. and 3,729,765 19.33%
Entities affiliated with Lone Star
Fund III (U.S.), L.P. (1)
--------
(1) Includes 2,312,753 shares of Common Stock owned or available for purchase
pursuant to agreement with the Company held by LSF3 Capital Investments I,
LLC, a Delaware limited liability company ("Investments I") and 1,417,012
shares of Common Stock owned or available for purchase pursuant to
agreement with the Company held by LSF3 Capital Investments II, LLC, a
Delaware limited liability company ("Investments II"). The sole member of
Investments I is LSF3 REOC I, L.P., a Delaware limited partnership
("REOC"). The general partner of REOC is LSF3 GenPar I, LLC, a Delaware
limited liability company ("GenPar"). The sole member of GenPar is Lone
Star Funds III (U.S.), L.P., a Delaware limited partnership ("Lone Star
Funds"). The general partner of Lone Star Funds is Lone Star Partners III,
L.P., a Bermuda limited partnership ("Partners III"). The general partner
of Partners III is Lone Star Management Co. III, Ltd., a Bermuda exempted
limited liability company ("Management III"). John P. Grayken ("Grayken"),
a citizen of Ireland, is the sole stockholder, a director and President of
Management III. Grayken is also sole shareholder and director of Advisors
GenPar, Inc., a Texas corporation ("Advisors GenPar"). The managing member
of Investments II is Partners III. Hudson Advisors, LLC, a Texas limited
liability company ("Hudson"), is an asset manager, and, pursuant to a
proxy granted by Investments I and Investments II, has certain voting
rights with respect to the shares of Common Stock owned by Investments I
and II, pursuant to an agreement among Investments I, Investments II and
Hudson (the "Asset Management Agreement"). The managing member of Hudson
is Hudson Advisors Association, L.P., a Texas limited partnership
("Advisors"). The general partner of Advisors is Advisors GenPar. The
Percent of Class is computed assuming that Investments I and Investments
II are issued the maximum number of shares of Common Stock which they are
contractually due (3,729,765 shares), which will increase the Company's
issued and outstanding Common Stock to a total of 19,294,607 shares
(without giving effect to any other transaction that might occur).
The address of the principal offices and business address of Investments I,
Investments II, REOC, GenPar and Lone Star Funds is 600 North Pearl Street,
Suite 1550, Dallas, Texas 75201. The address of the principal offices and
business address of Hudson, Advisors and Advisors GenPar is 600 North Pearl
Street, Suite 1500, Dallas, Texas 75201. The address of the principal
offices and business address of Partners III and Management III is Claredon
House, Two Church Street, Hamilton, HM 11, Bermuda. The business address of
Grayken is 50 Welbeck Street, London, United Kingdom, W1M7HE.
17
Security Ownership of Management
The following table and the notes thereto set forth certain information with
respect to the beneficial ownership of shares of Common Stock of the Company,
as of March 31, 2001 (except as noted in the footnotes to such table), by each
Director, each Executive Officer and by all Executive Officers and Directors as
a group:
Name and Address of Number of Shares Percent
Beneficial owner Beneficially Owned of Class
------------------- ------------------ --------
David M. West -0- N/A
600 N. Pearl Street, Suite 1550
Dallas, TX 75201
Fred H. Margolin 7,265 *
10515 Lennox Lane
Dallas, TX 75229
Barbara Erhart -0- N/A
6833 Sedgwick Drive
Dallas, TX 75231
Arthur E. Nienhueser II -0- N/A
7739 Southwestern Blvd.
Dallas, TX 75225
J. Scott Ballard -0- N/A
1406 Lighthouse Lane
Allen, TX 75013
David S. Pettijohn -0- N/A
6427 Axton Lane
Dallas, TX 75214
Len W. Allen, Jr. -0- N/A
600 N. Pearl Street, Suite 1550
Dallas, TX 75201
G. Steven Dawson -0- N/A
Three Greenway Plaza, Suite 1300
Houston, TX 77046
John C. Deterding -0- N/A
600 N. Pearl Street, Suite 1500
Dallas, Texas 75201
Robert Gidel -0- N/A
677 N. Washington Blvd.
Sarasota, FL 34236
Gerald H. Graham (1) 2,100 *
9626 SW River Valley Road
Augusta, KS 67010
James H. Kropp -0- N/A
600 N. Pearl Street, Suite 1550
Dallas, TX 75201
George Mileusnic (1) 5,600 *
9422 Crosscreek
Wichita, KS 67206
Darrel L. Rolph 51,000 *
1877 N. Rock Road
Wichita, KS 67206
David K. Rolph 4,500 *
1877 N. Rock Road
Wichita, KS 67206
Robert J. Stetson 737,000 4.12%
6800 Del Norte, Unit 238
Dallas, TX 75225
18
Name and Address of Number of Shares Percent
Beneficial owner Beneficially Owned of Class
------------------- ------------------ --------
Gregory I. Strong -0- N/A
600 N. Pearl Street, Suite 1500
Dallas, TX 75201
Eugene G. Taper (1) 2,194 *
6427 Redpine Road
Dallas, TX 75248
All Directors and Executive
Officers (18 persons) 809,659 4.53%
--------
* Less than 1%
(1) The share amounts reflected in the table are as of December 31, 2000, the
last date information has been reported to the Company.
(2) Except as otherwise indicated, (i) the persons named in this table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, and (ii) none of the shares
shown in this table or referred to in the footnotes hereto are shares of
which the persons named in this table have the right to acquire beneficial
ownership as specified in Rule 13d-3(d)(1) promulgated under the Exchange
Act.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires that Company directors, executive
officers and persons who own more than 10% of the Common Stock file initial
reports of ownership and reports of changes in ownership of Common Stock with
the SEC. Officers, directors and stockholders who own more than 10% of the
Common Stock are required by the SEC to furnish the Company with copies of all
Section 16(a) reports they file.
To the Company's knowledge, based solely on the review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 2000, the
Company's officers, directors and 10% stockholders complied with all Section
16(a) filing requirements applicable to them, except for the following
individuals and entities who filed the reports listed adjacent to their
respective names on a delinquent basis:
J. Scott Ballard Form 3, Form 4, Form 5
Barbara A. Erhart Form 3
Arthur E. Nienhueser II Form 3
David S. Pettijohn Form 3, Form 4, Form 5
Pacific Life Insurance Company &
Pacific Life & Annuity Company Form 3
II. RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has selected, upon the recommendation of the Audit
Committee, Deloitte & Touche LLP as the Company's independent auditors for the
year ending December 31, 2001. Deloitte & Touche LLP has been serving as the
independent auditors of the Company (including its predecessors) since 1985.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION
OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE YEAR ENDING DECEMBER 31, 2001.
19
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP served as the Company's independent accountants for
the fiscal year ended December 31, 2000. Deloitte & Touche LLP has audited the
Company's financial statements and those of its predecessors for each of the
fiscal years ended December 31, 1985 through December 31, 2000. Deloitte &
Touche LLP's representative is expected to be present at the Meeting, will
have the opportunity to make a statement if they desire to do so, and will be
available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the annual meeting of
stockholders of the Company in 2002 must be received by the Secretary of the
Company at the Company's principal executive office no later than January 1,
2002, in order to be included in the proxy statement and form of proxy for
such meeting.
EXPENSES OF SOLICITATION
The expense of the solicitation of proxies will be borne by the Company. In
addition to the solicitation of proxies by mail, solicitation may be made by
the directors, officers and employees of the Company by other means, including
telephone, telecopy or in person. No special compensation will be paid to
directors, officers or employees for the solicitation of proxies. To solicit
proxies, the Company also will request the assistance of banks, brokerage
houses and other custodians, nominees or fiduciaries, and, upon request, will
reimburse such organizations or individuals for their reasonable expenses in
forwarding soliciting materials to their principals and in obtaining
authorization for the execution of proxies. ADP Financial Information
Services, Inc. ("ADP") has been retained to assist in the solicitation of
proxies for an administration fee of $3,000, plus reimbursement of out-of-
pocket expenses. No officer or director of the Company has an interest in, or
is related to any principal of, ADP.
OTHER MATTERS
The management of the Company is not aware of any other matters to be
presented for action at the Meeting; however, if any such matters are properly
presented for action, it is the intention of the persons named in the enclosed
form of proxy to vote in accordance with their best judgment on such matters.
By Order of the Board of Directors,
/s/ DAVID M. WEST
DAVID M. WEST
Chairman of the Board
April 25, 2001
Dallas, Texas
STOCKHOLDERS ARE URGED, REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK
OF THE COMPANY OWNED, TO DATE, SIGN AND RETURN THE ENCLOSED PROXY. YOUR
COOPERATION IN GIVING THESE MATTERS YOUR IMMEDIATE ATTENTION AND IN RETURNING
YOUR PROXY PROMPTLY IS APPRECIATED.
20
EXHIBITS
Exhibit
Number
-------
1 Audit Committee Charter
2 Form of Proxy
21
EXHIBIT 1
U.S. RESTAURANT PROPERTIES, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing the
financial reports and other financial information provided by the Company to
any governmental body or the public; the Company's systems of internal
controls regarding finance, accounting, legal compliance and ethics that
management and the Board have established; and the Company's auditing,
accounting and financial reporting processes generally. Consistent with this
function, the Audit Committee should encourage continuous improvement of, and
should foster adherence to, the Company's policies, procedures and practices
at all levels. The Audit Committee's primary duties and responsibilities are to:
. Serve as an independent and objective party to monitor the
Company's financial reporting process and internal control system.
. Review and appraise the audit efforts of the Company's independent
accountants and internal auditing department.
. Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal auditing
department and the Board.
The Audit Committee will primarily fulfill these responsibilities by carrying
out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his or her independent judgment as a member of the Committee.
All members of the Committee shall have a working familiarity with basic finance
and accounting practices and at least one member of the Committee shall have
accounting or related financial management expertise. Committee members may
enhance their familiarity with finance and accounting in participating in
educational programs conducted by the Company or an outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a chair is elected by the full Board, the members
of the Committee may designate a chair by majority vote of the full Committee
membership.
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with management, the director of the
internal auditing department and the independent accountants in separate
executive sessions to discuss any matters that the Committee or each of these
groups believe should be discussed privately. In addition, the Committee or at
least its chair should meet with the independent accountants and management
quarterly to review the Corporation's financials consistent with IV.4 below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill responsibilities and duties the Audit Committee shall:
Documents/Reports Review
------------------------
1. Review and update this Charter periodically, at least annually, as
conditions dictate.
2. Review the Company's annual financial statements and any reports or
other financial information submitted to any governmental body, or the
public, including any certification, report, opinion or review rendered by
the independent accountants.
3. Review the regular internal reports to management prepared by the internal
auditing department and management's response. These reports should
include, among other things, financial reporting issues and judgments made
in connection with the preparation of the Company's financial statements.
4. Review with financial management and the independent accountants the
Company's quarterly financial statements and each Form 10-Q prior to
its filing or prior to the release of earnings, as applicable.
5. Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement.
Independent Accountants
-----------------------
1. Recommend to the Board the selection of the independent accountants,
considering independence and effectiveness, and approve the fees and other
compensation to be paid to the independent accountants. On an annual basis,
the Committee should review and discuss with the independent accountants
all significant relationships the independent accountants have with the
Company to determine the accountants' independence. Additionally, in
determining the independence of the accountants, the Committee shall
consider, among other factors, the amount of non-audit services performed
by the independent accountants during the fiscal year. The independent
accountants shall be ultimately accountable to the Committee and the Board.
2
2. Review, together with the Board, the performance of the independent
accountants and recommend any proposed discharge of the independent
accountants when circumstances warrant.
3. Periodically consult with the independent accountants out of the presence
of management about internal controls and the fullness and accuracy of the
Corporation's financial statements.
4. Meet with the independent accountants prior to the annual audit to review
the planning and staffing of such audit.
5. Obtain from the independent accountants assurance that Section 10A of the
Private Securities Litigation Reform Act of 1995 has not been implicated.
6. Discuss with the independent accountants those discussion matters specified
by Statement on Auditing Standards No. 61 relating to the conduct of the
audit.
Financial Reporting Processes
-----------------------------
1. In consultation with the independent accountants and the internal auditors,
review the integrity of the Company's financial reporting processes, both
internal and external.
2. Consider the independent accountants' judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
3. Consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested by the
independent accountants, management or the internal auditing department.
4. Meet periodically with management to review the Company's major financial
risks and the steps taken by management to monitor and control such risks.
5. Review the appointment and replacement of the senior internal auditor.
6. Review the significant reports to management prepared by the internal
auditing department and management's responses.
Process Improvement
-------------------
1. Establish regular and separate systems of reporting to the Audit Committee
by each of management, the independent accountants and the internal
auditors regarding any significant judgments made in management's
preparation of the financial statements and the view of each as to
appropriateness of such judgments.
2. Following completion of the annual audit, review separately with each of
management, the independent accountants and the internal auditing
department any significant difficulties encountered during the course of
the audit, including any restrictions on the
3
scope of work or access to required information and any changes required in
the planned scope of the audit.
3. Review any significant disagreement among management and the independent
accountants or the internal auditing department in connection with the
preparation of the financial statements, including any management letter
provided by the independent accountants and the Company's response.
4. Review with the independent accountants, the internal auditing department
and management the extent to which changes or improvements in financial or
accounting practices, as approved by the Audit Committee, have been
implemented. (This review should be conducted at an appropriate time
subsequent to implementation of changes or improvements, as decided by the
Committee.)
Ethical and Legal Compliance
----------------------------
1. Establish, review and update periodically a Code of Ethical Conduct and
ensure that management has established a system to enforce this Code.
2. Review management's monitoring of the Company's compliance with the
Company's Ethical Code, and ensure that management has the proper review
system in place to ensure that Company's financial statements, reports and
other financial information disseminated to governmental organizations and
the public satisfy legal requirements.
3. Review activities, organizational structure and qualifications of the
internal audit department.
4. Review, with the Company's counsel, legal compliance matters including
corporate securities trading policies, any material reports or inquiries
received from regulators or governmental agencies and any matters that
might have a material impact on the financial statements.
5. Perform any other activities consistent with this Charter, the Company's
Bylaws and governing laws, as the Committee or the Board deems necessary or
appropriate.
While the Committee has the responsibilities and the powers set forth in
this Charter, it is not the Committee's duty to plan or conduct audits or to
determine whether the Company's financial statements are complete and accurate
and have been prepared in accordance with generally accepted accounting
principles. These are the responsibilities of management and the independent
accountants. The Committee is also not required to conduct investigations, to
resolve disagreements, if any, between management and the independent
accountants or to assure the Company's compliance with laws and regulations
applicable to it and to the Company's Ethical Code.
4
EXHIBIT 2
U.S. RESTAURANT PROPERTIES, INC. VOTE BY MAIL -
C/O PROXY SERVICES Mark, sign, and date your proxy card
P.O. BOX 9141 and return it in the postage-paid
FARMINGDALE, NY 11735 envelope we have provided or return it
to U.S. Restaurant Properties, Inc.
c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717.
CONTROL NUMBER
ACCOUNT NUMBER
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X PAGE 1 OF 2
USRP11
KEEP THIS PORTION FOR YOUR RECORDS
-------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
U.S. RESTAURANT PROPERTIES, INC.
DIRECTORS RECOMMEND: A VOTE FOR
ELECTION OF THE FOLLOWING NOMINEES
1. 01 - David M. West
02 - Len W. Allen, Jr. For Withhold For All
03 - G. Steven Dawson All All Except:
04 - Robert Gidel
05 - Robert J. Stetson [ ] [ ] [ ]
06 - Gregory I. Strong
07 - John C. Deterding To withhold authority to vote, mark
08 - James H. Kropp "For All Except" and write the
nominee's number on the line below.
-----------------------------------
Vote On Proposal For Against Abstain
2. TO RATIFY DELOITTE & TOUCHE LLP AS THE COMPANY'S [ ] [ ] [ ]
INDEPENDENT AUDITORS FOR THE YEAR ENDING
DECEMBER 31, 2001.
"NOTE" SUCH OTHER BUSINESS AS MAY COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF
------------------------------------ -----------------------------------
Signature Date Signature (Joint Owners) Date
U.S. RESTAURANT PROPERTIES, INC.
ANNUAL MEETING TO BE HELD ON 6/5/01 AT 10:00 A.M. CDT
FOR HOLDERS AS OF 4/2/01
This Proxy is Solicited By the Board of Directors
The undersigned shareholder(s) of U.S. Restaurant Properties, Inc.,
hereby constitute and appoint David M. West and G. Steven Dawson, as proxies of
the undersigned at the Annual Meeting of Shareholders of said corporation to be
held on June 5, 2001, at 10:00 a.m., and at any adjournment thereof, and to
vote all the shares of said corporation standing in the name of the undersigned,
or which the undersigned may be entitled to vote, as fully as the undersigned
might or could do if personally present, as set forth herein.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder(s). If no direction is made, this proxy
will be voted FOR the election of directors and FOR proposal 2.
(Continued and to be signed on the reverse side)