FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-24097
CNL Hospitality Properties, Inc.
(formally known as CNL American Realty Fund, Inc.)
(Exact name of registrant as specified in its charter)
Maryland 59-3396369
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street
Orlando, Florida 32801
- ---------------------------- -----------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
2,552,444 shares of common stock, $.01 par value, outstanding as of August 3,
1998.
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements
of Earnings 2
Condensed Consolidated Statements
of Stockholders' Equity 3
Condensed Consolidated Statements
of Cash Flows 4-5
Notes to Condensed Consolidated
Financial Statements 6-12
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 13-18
Part II
Other Information 19-20
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 1998 1997
----------- -------
Cash and cash equivalents $17,655,806 $ 8,869,838
Certificates of deposit 1,500,417 -
Due from related party - 7,500
Prepaid expenses 2,046 11,179
Organization costs, less
accumulated amortization of
$2,833 and $833, respectively 17,167 19,167
Other assets 1,157,474 535,792
----------- -----------
$20,332,910 $ 9,443,476
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses $ 7,000 $ 16,305
Due to related parties 85,250 193,254
----------- -----------
Total liabilities 92,250 209,559
----------- -----------
Commitments (Note 7)
Stockholders' equity:
Preferred stock, without par
value. Authorized and unissued
3,000,000 shares - -
Excess shares, $.01 par value per
share. Authorized and unissued
63,000,000 shares - -
Common stock, $.01 par value per
share. Authorized 60,000,000
shares, issued and outstanding
2,377,828 and 1,152,540,
respectively 23,778 11,525
Capital in excess of par value 20,278,919 9,229,316
Accumulated distributions in excess
of net earnings (62,037) (6,924)
----------- -----------
Total stockholders' equity 20,240,660 9,233,917
----------- -----------
$20,332,910 $ 9,443,476
=========== ===========
See accompanying notes to condensed consolidated
financial statements.
1
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- -------
<S> <C>
Revenues:
Interest income $ 232,006 $ - $ 371,159 $ -
---------- ---------- ---------- ---------
Expenses:
General operating and
administrative 61,263 - 146,656 -
Professional services 15,078 - 20,530 -
Amortization 1,000 - 2,000 -
---------- ---------- ---------- ---------
77,341 - 169,186 -
---------- ---------- ---------- ---------
Net Earnings $ 154,665 $ - $ 201,973 $ -
========== ========== ========== =========
Earnings Per Share of
Common Stock (Basic
and Diluted) $ 0.07 $ - $ 0.11 $ -
========== ========== ========== =========
Weighted Average Number
of Shares of Common
Stock Outstanding 2,162,300 - 1,820,362 -
========== ========== ========== =========
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
2
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1998 and
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Accumulated
distributions
Common stock Capital in in excess
Number Par excess of of net
of shares value par value earnings Total
<S> <C>
Balance at
December 31, 1996 20,000 $ 200 $ 199,800 $ - $ 200,000
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment
plan 1,132,540 11,325 11,314,077 - 11,325,402
Stock issuance
costs - - (2,284,561) - (2,284,561)
Net earnings - - - 22,852 22,852
Distributions
declared and
paid ($.05
per share) - - - (29,776) (29,776)
---------- ------- ----------- --------- -----------
Balance at
December 31, 1997 1,152,540 11,525 9,229,316 (6,924) 9,233,917
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment
plan 1,225,288 12,253 12,240,627 - 12,252,880
Stock issuance
costs - - (1,191,024) - (1,191,024)
Net earnings - - - 201,973 201,973
Distributions
declared and
paid ($.15
per share) - - - (257,086) (257,086)
---------- ------- ----------- --------- -----------
Balance at
June 30, 1998 2,377,828 $23,778 $20,278,919 $ (62,037) $20,240,660
========== ======= =========== ========= ===========
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
3
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1998 1997
----------- -----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net cash provided by
operating activities $ 210,452 $ -
----------- -----------
Cash Flows From Investing
Activities:
Investment in certificates
of deposit (1,500,000) -
Increase in other assets (633,866) -
Other - (67)
----------- -----------
Net cash used in
investing activities (2,133,866) (67)
----------- -----------
Cash Flows From Financing
Activities:
Reimbursement of acquisition
and stock issuance costs
paid by related parties on
behalf of the Company (70,150) -
Subscriptions received from
stockholders 12,252,880 -
Distributions to stockholders (257,086) -
Payment of stock issuance
costs (1,213,762) -
Other (2,500) -
----------- ----------
Net cash provided by
financing activities 10,709,382 -
----------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents 8,785,968 (67)
Cash and Cash Equivalents at
Beginning of Period 8,869,838 2,084
----------- -----------
Cash and Cash Equivalents at End
of Period $17,655,806 $ 2,017
=========== ===========
See accompanying notes to condensed consolidated
financial statements.
4
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Six Months Ended
June 30,
1998 1997
----------- ----------
Supplemental Schedule of Non-Cash
Investing and Financing
Activities:
Related parties paid certain acquisition and stock issuance costs on behalf
of the Company as follows:
Acquisition costs $ 20,302 $ -
Stock issuance costs 58,403 87,774
----------- -----------
$ 78,705 $ 87,774
=========== ===========
See accompanying notes to condensed consolidated
financial statements.
5
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
1. Organization and Nature of Business:
CNL Hospitality Properties, Inc., formerly known as CNL American Realty
Fund, Inc., was organized in Maryland on June 12, 1996. CNL Hospitality
GP Corp. and CNL Hospitality LP Corp. are wholly owned subsidiaries of
the Company, organized in Delaware in June 1998. CNL Hospitality
Partners, LP is a Delaware limited partnership formed in June 1998. CNL
Hospitality GP Corp. and CNL Hospitality LP Corp. are the general and
limited partners, respectively, of CNL Hospitality Partners, LP. The
term "Company" includes, unless the context otherwise requires, CNL
Hospitality Properties, Inc., CNL Hospitality Partners LP, CNL
Hospitality GP Corp. and CNL Hospitality LP Corp.
The Company was formed primarily to acquire properties ("Properties")
located across the United States to be leased on a long-term,
triple-net basis. The Company intends to invest the proceeds from its
public offering, after deducting offering expenses, in hotel Properties
to be leased to operators of national and regional limited service,
extended stay and full service hotel chains (the "Hotel Chains") and in
restaurant Properties to be leased to operators of selected national
and regional fast-food, family-style and casual dining restaurant
chains (the "Restaurant Chains"). The Company may also provide mortgage
financing (the "Mortgage Loans"). The Company also intends to offer
furniture, fixture and equipment financing ("Secured Equipment Leases")
to operators of Hotel Chains and Restaurant Chains.
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company, CNL Hospitality Properties, Inc.,
and its wholly owned subsidiaries, CNL Hospitality GP Corp. and CNL
Hospitality LP Corp., as well as the accounts of CNL Hospitality
Partners, LP. All significant intercompany balances and transactions
have been eliminated.
2. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim period presented. Operating results for
the quarter and six months ended June 30, 1998, may not be indicative
of the results that may be expected for the year
6
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
2. Basis of Presentation - Continued:
ending December 31, 1998. Amounts as of December 31, 1997, included in
the financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1997.
The Company was a development stage enterprise from June 12, 1996
through October 15, 1997. Since operations had not begun, activities
through October 15, 1997 were devoted to organization of the Company.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires the reporting of net earnings and all other changes
to equity during the period, except those resulting from investments by
owners and distributions to owners, in a separate statement that begins
with net earnings. Currently the Company's only component of
comprehensive income is net earnings.
In March 1998, the Emerging Issues Task Force of the Financial
Accounting Standards Board ("FASB") reached a consensus in EITF 97-11,
entitled "Accounting for Internal Costs Relating to Real Estate
Property Acquisitions." EITF 97-11 provides that internal costs of
identifying and acquiring operating Property should be expensed as
incurred. Due to the fact that the Company does not have an internal
acquisitions function and instead, contracts these services from an
external advisor, the effectiveness of EITF 97-11 had no material
effect on the Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities," which is effective for the Company as of January
1, 1999. This SOP requires start-up and organization costs to be
expensed as incurred and also requires previously deferred start-up
costs to be recognized as a cumulative effect adjustment in the
statement of income. The Company does not believe that adoption of this
SOP will have a material effect on the Company's financial position or
results of operations.
7
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
3. Other Assets:
Other assets consisted of the following at:
June 30, December 31,
1998 1997
Acquisition fees and mis-
cellaneous acquisition
expenses to be allocated
to future properties $1,107,474 $ 535,792
Deposits on properties 50,000 -
---------- ---------
$1,157,474 $ 535,792
========== ==========
4. Stock Issuance Costs:
The Company has incurred certain expenses of its offering of shares,
including commissions, marketing support and due diligence expense
reimbursement fees, filing fees, legal, accounting, printing and escrow
fees, which have been deducted from the gross proceeds of the offering.
Preliminary costs incurred prior to raising capital were advanced by an
affiliate of the Company, CNL Real Estate Advisors, Inc. (the
"Advisor"). The Advisor has agreed to pay all organizational and
offering expenses (excluding commissions and marketing support and due
diligence expense reimbursement fees) which exceed three percent of the
gross offering proceeds received from the sale of shares of the
Company.
During the six months ended June 30, 1998 and the year ended December
31, 1997, the Company incurred $1,191,024 and $2,304,561, respectively,
in organizational and offering costs, including $980,230 and $906,032,
respectively, in commissions and marketing support and due diligence
expense reimbursement fees (see Note 6). Of these amounts $1,191,024
and $2,284,561, respectively, have been treated as stock issuance costs
and $20,000 have been treated as organization costs. The stock issuance
costs have been charged to stockholders' equity subject to the three
percent cap described above.
8
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
5. Distributions:
For the six months ended June 30, 1998, 100 percent of the
distributions paid to stockholders were considered ordinary income. No
amounts distributed to the stockholders for the six months ended June
30, 1998 are required to be or have been treated by the Company as a
return of capital for purposes of calculating the stockholders' return
on their invested capital. The characterization for tax purposes of
distributions declared for the six months ended June 30, 1998 may not
be indicative of the results that may be expected for the year ending
December 31, 1998.
6. Related Party Transactions:
During the six months ended June 30, 1998, the Company incurred
$918,966 in selling commissions due to CNL Securities Corp. for
services in connection with the offering of shares. A substantial
portion of this amount ($857,875) was or will be paid by CNL Securities
Corp. as commissions to other broker dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, a portion of which may
be reallowed to other broker-dealers. During the six months ended June
30, 1998, the Company incurred $61,264 of such fees, the majority of
which were reallowed to other broker-dealers and from which all bona
fide due diligence expenses were paid.
The Advisor is entitled to receive acquisition fees for services in
finding, negotiating the leases of and acquiring Properties on behalf
of the Company equal to 4.5% of gross proceeds, loan proceeds from
permanent financing and amounts outstanding on the line of credit, if
any, at the time of listing, but excluding that portion of the
permanent financing used to finance Secured Equipment Leases. During
the six months ended June 30, 1998, the Company incurred $551,380 of
such fees. Such fees are included in other assets at June 30, 1998.
9
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
6. Related Party Transactions - Continued:
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance reporting; stockholder distributions and
reporting; due diligence and marketing; and investor relations
(including administrative services in connection with the offering of
shares), on a day-to-day basis. The expenses incurred for these
services were classified as follows for the six months ended June 30:
1998 1997
-------- ------
Deferred offering costs $ - $ 38,152
Stock issuance costs 154,337 -
General operating and
administrative expenses 76,082 -
-------- -------
$230,419 $ 38,152
======== ========
The amounts due to related parties consisted of the following at:
June 30, December 31,
1998 1997
Due to CNL Securities Corp.:
Commissions $ 22,811 $100,709
Marketing support and due
diligence expense reim-
bursement fee 1,521 7,268
-------- --------
24,332 107,977
-------- --------
Due to CNL Real Estate
Advisors, Inc.:
Expenditures incurred on
behalf of the Company
and accounting and
administrative services 47,231 39,105
Acquisition fees 13,687 46,172
-------- --------
60,918 85,277
-------- --------
$ 85,250 $193,254
======== ========
10
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
7. Commitments:
In April 1998, the Company entered into agreements to acquire two
Properties for purchase prices totalling $27,000,000 excluding closing
costs. In connection with the agreements, the Company placed refundable
deposits totalling $50,000 ($25,000 for each Property) with an escrow
agent. These Properties were acquired on July 31, 1998 (see Note 8).
8. Subsequent Events:
During the period July 1, 1998 through August 3, 1998, the Company
received subscription proceeds for an additional 174,616 shares
($1,746,157) of common stock.
On July 1, 1998 and August 1, 1998, the Company declared distributions
totalling $99,631 and $105,707, respectively, or $.0417 per share of
common stock, payable in September 1998, to stockholders of record on
July 1, 1998 and August 1, 1998, respectively.
On July 31, 1998, the Company acquired the two Properties referenced
above for cash and advances on the line of credit at a total cost of
approximately $27,246,000 (see Note 7). In connection with the purchase
of each Property, the Company, as lessor, entered into a long-term
lease agreement.
On July 31, 1998, the Company entered into a revolving line of credit
and security agreement with a bank to be used by the Company to acquire
hotel Properties. The line of credit provides that the Company will be
able to receive advances of up to $30,000,000 until July 30, 2003, with
an annual review to be performed by the bank to indicate that there has
been no substantial deterioration, in the bank's reasonable discretion,
of the credit quality. Interest expense on each advance shall be
payable monthly, with all unpaid interest and principal due no later
than five years from the date of the advance. Advances under the line
of credit will bear interest at either (i) a rate per annum equal to
318 basis points above the LIBOR or (ii) a rate per annum equal to 30
basis points above the bank's base rate, whichever the Company selects
at the time advances are made. In addition a fee of .5% per advance
will be due and payable to the bank on funds as advanced. Each advance
made under the line of credit will be secured by the assignment of
rents and leases. In addition, the line of credit provides that the
Company will not be able to further encumber the applicable hotel
Property during the
11
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
8. Subsequent Events - Continued:
term of the advance without the bank's consent. The Company will be
required, at each closing, to pay all costs, fees and expenses arising
in connection with the line of credit. The Company must also pay the
bank's attorneys fees, subject to a maximum cap, incurred in connection
with the line of credit and each advance. On July 31, 1998, the Company
obtained two advances totalling $8,600,000 relating to the line of
credit. In connection with the line of credit, the Company incurred a
commitment fee, legal fees and closing costs of $60,266. The proceeds
were used in connection with the purchase of the two hotel Properties
referenced above.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Act of 1934. Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, the
Company's actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the following: changes in general economic conditions, changes in local
and national real estate conditions, continued availability of proceeds from the
Company's offering, the ability of the Company to obtain permanent financing on
satisfactory terms, the ability of the Company to identify suitable investments,
the ability of the Company to locate suitable tenants for its properties and
borrowers for its mortgage loans and secured equipment leases, and the ability
of such tenants and borrowers to make payments under their respective leases,
mortgage loans or secured equipment leases.
Introduction
CNL Hospitality Properties, Inc., formerly known as CNL American Realty
Fund, Inc., is a Maryland corporation that was organized on June 12, 1996. On
June 15, 1998, CNL Hospitality Properties, Inc. formed CNL Hospitality Partners,
LP, a wholly owned Delaware limited partnership (the "Partnership"). Properties
acquired are expected to be held by the Partnership and, as a result, owned by
CNL Hospitality Properties, Inc. through the Partnership. The term "Company"
includes CNL Hospitality Properties, Inc. and its subsidiaries, CNL Hospitality
GP Corp., CNL Hospitality LP Corp. and CNL Hospitality Partners, LP.
The Company was formed to acquire properties (the "Properties") located
across the United States to be leased on a long-term, "triple-net" basis to
operators of selected national and regional limited service, extended stay and
full service hotel chains (the "Hotel Chains") and operators of national and
regional fast-food, family-style and casual dining restaurant chains (the
"Restaurant Chains"). The Company is not obligated to invest in both hotel
Properties and restaurant Properties. The Company may also provide mortgage
financing (the "Mortgage Loans") in the aggregate principal amount of
approximately 5% to 10% of the gross offering proceeds. The Company also intends
to offer furniture, fixture and equipment financing ("Secured Equipment Leases")
to operators of Hotel Chains and Restaurant Chains. Secured Equipment Leases
will be funded from the proceeds of financing to be obtained by the Company. The
aggregate outstanding principal amount of Secured Equipment Leases will not
exceed 10% of gross proceeds from the Company's offerings of shares of common
stock.
13
<PAGE>
Liquidity and Capital Resources
The Company expects to use net offering proceeds from the sale of
shares to purchase Properties and to invest in Mortgage Loans. In addition, the
Company intends to borrow money to acquire Properties, to invest in Mortgage
Loans and Secured Equipment Leases, and to pay certain related fees. The Company
intends to encumber assets in connection with such borrowing.
On July 9, 1997, the Company commenced an offering to the public of up
to 16,500,000 shares of common stock pursuant to a registration statement on
Form S-11 under the Securities Act of 1933, as amended. As of June 30, 1998, the
Company had received aggregate subscription proceeds of $23,578,282 (2,357,828
shares), from the offering, including $9,817 (982 shares) through the Company's
reinvestment plan. The Company anticipates significant additional sales of
shares prior to the termination of the offering. In accordance with the
Company's prospectus, the Company has elected to extend the offering of shares
until a date no later than July 9, 1999.
At the Company's annual meeting of stockholder's held on May 4, 1998,
the stockholders approved an amendment to the Company's Amended and Restated
Articles of Incorporation proposed by the Board of Directors to change the
Company's name. Effective June 3, 1998, the Company changed its name to CNL
Hospitality Properties, Inc. The Board of Directors believes that this will
provide better name recognition of the Company in the context of its business.
As of June 30, 1998, net proceeds to the Company from its offering of
shares and capital contributions from CNL Real Estate Advisors, Inc. (the
"Advisor"), after deduction of selling commissions, marketing support and due
diligence expense reimbursement fees and organizational and offering expenses
totalled approximately $20,283,000. As of June 30, 1998, the Company had
invested $50,000 as earnest money deposits on two Properties, and had incurred
approximately $1,107,500 in acquisition fees and acquisition expenses, leaving
approximately $19,125,500 in net offering proceeds available for investment in
Properties and Mortgage Loans.
On July 31, 1998, the Company entered into a revolving line of credit
and security agreement with a bank to be used by the Company to acquire hotel
Properties. The line of credit provides that the Company will be able to receive
advances of up to $30,000,000 until July 30, 2003, with an annual review to be
performed by the bank to indicate that there has been no substantial
deterioration, in the bank's reasonable discretion, of the credit quality.
Interest expense on each advance shall be payable monthly, with all unpaid
interest and principal due no later than five years from the date of the
advance. Advances under the line of credit will bear interest at either (i) a
rate per annum equal to 318 basis points above the LIBOR or (ii) a rate per
annum equal to 30 basis points above the bank's base rate, whichever the Company
selects at the time advances are made. In addition a fee of .5% per advance will
14
<PAGE>
Liquidity and Capital Resources
be due and payable to the bank on funds as advanced. Each advance made under the
line of credit will be secured by the assignment of rents and leases. In
addition, the line of credit provides that the Company will not be able to
further encumber the applicable hotel Property during the term of the advance
without the bank's consent. The Company will be required, at each closing, to
pay all costs, fees and expenses arising in connection with the line of credit.
The Company must also pay the bank's attorneys fees, subject to a maximum cap,
incurred in connection with the line of credit and each advance. On July 31,
1998, the Company obtained two advances totalling $8,600,000 relating to the
line of credit. In connection with the line of credit, the Company incurred a
commitment fee, legal fees and closing costs of $60,266. The proceeds were used
in connection with the purchase of the two hotel Properties referenced above.
The Company has not yet received a commitment for any long-term financing and
there is no assurance that the Company will obtain any long-term financing on
satisfactory terms.
As of August 3, 1998, the Company had received subscription proceeds of
$25,324,439 (2,532,444 shares) from its offering of shares. As of August 3,
1998, net proceeds to the Company from its offering of shares and capital
contributions from the Advisor, after deduction of selling commissions,
marketing support and due diligence expense reimbursement fees and
organizational and offering expenses totalled approximately $21,889,000. In
addition, the Company received an advance of $8,600,000 under its line of credit
on July 31, 1998. The Company has incurred approximately $1,186,000 in
acquisition fees and acquisition expenses and invested approximately $27,246,000
consisting of approximately $18,646,000 of net proceeds and $8,600,000 advanced
under the line of credit, in two Properties, leaving approximately $2,057,000 in
net offering proceeds available for investment in additional Properties and
Mortgage Loans.
As of August 3, 1998, the Company had initial commitments to acquire
three hotel Properties. The acquisition of each of these Properties is subject
to the fulfillment of certain conditions, including, but not limited to, a
satisfactory environmental survey and property appraisal. In order to acquire
these Properties, the Company must obtain additional funds through the receipt
of additional offering proceeds and/or debt financing. There can be no assurance
that any or all of the conditions will be satisfied or, if satisfied, that one
or more of these Properties will be acquired by the Company. In addition, as of
August 3, 1998, the Company had not entered into any arrangements creating a
reasonable probability a particular Mortgage Loan or Secured Equipment Lease
would be funded.
The Company is presently negotiating to acquire additional Properties,
but as of August 3, 1998, the Company had not acquired any such Properties or
entered into any Mortgage Loans.
15
<PAGE>
Liquidity and Capital Resources
Properties will be leased on a long-term, triple-net basis, meaning
that tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected to
exceed the Company's operating expenses. For these reasons, no short-term or
long-term liquidity problems associated with operating the Properties are
currently anticipated by management.
Until Properties are acquired, or Mortgage Loans are entered into, net
offering proceeds are held in short-term, highly liquid investments which
management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Company's use of
these funds to acquire Properties at such time as Properties suitable for
acquisition are located or to fund Mortgage Loans. At June 30, 1998, the Company
had $19,156,223 invested in such short-term investments (including certificates
of deposit totalling $1,500,417) as compared to $8,869,838 at December 31, 1997.
The increase in the amount invested in short-term investments reflects
subscription proceeds received from the sale of shares during the six months
ended June 30, 1998. The majority of these funds were used to acquire the two
Properties referenced above, the remaining funds will be used primarily to
purchase Properties, to make Mortgage Loans, to pay organizational and offering
expenses and acquisition expenses, to pay distributions to stockholders, to meet
other Company expenses and, in management's discretion, to create cash reserves.
During the six months ended June 30, 1998 and 1997, affiliates of the
Company incurred on behalf of the Company $58,403 and $87,774, respectively, for
certain organizational and offering expenses. In addition, during the six months
ended June 30, 1998, affiliates of the Company incurred on behalf of the Company
$20,302 for certain acquisition expenses and $58,172 for certain operating
expenses. As of June 30, 1998, the Company owed the Advisor $60,918 for such
amounts, unpaid fees and administrative expenses (including accounting;
financial, tax and regulatory compliance and reporting; stockholder
distributions and reporting; due diligence and marketing; and investor
relations). The Advisor has agreed to pay or reimburse to the Company all
organizational and offering expenses in excess of three percent of gross
offering proceeds.
During the six months ended June 30, 1998, the Company generated cash
from operations (which includes interest received less cash paid for operating
expenses) of $210,452. Based on current and anticipated future cash from
operations, the Company declared distributions to its stockholders of $257,086
during the six months ended June 30, 1998. No distributions were paid or
declared for the six months ended June 30, 1997. In addition, on July 1, 1998
and August 1, 1998, the Company declared distributions to stockholders of record
on July 1, 1998 and August 1, 1998, totalling $99,631 and $105,707, respectively
($.0417 per share), payable in September 1998.
16
<PAGE>
Liquidity and Capital Resources
For the six months ended June 30, 1998, 100 percent of the
distributions received by stockholders were considered to be ordinary income for
federal income tax purposes. No amounts distributed or to be distributed to the
stockholders as of August 3, 1998, were required to be or have been treated by
the Company as a return of capital for purposes of calculating the stockholders'
return on their invested capital.
Due to anticipated low operating expenses and rental income expected to
be obtained from Properties (including the two Properties owned by the Company
as of August 3, 1998 and the Properties acquired by the Company in the future),
management does not believe that working capital reserves will be necessary at
this time. Management has the right to cause the Company to maintain reserves
if, in their discretion, they determine such reserves are required to meet the
Company's working capital needs.
Management expects that the cash to be generated from operations will
be adequate to pay operating expenses and to make distributions to stockholders.
Results of Operations
No operations commenced until the Company received the minimum offering
proceeds of $2,500,000 on October 15, 1997. As of June 30, 1998, the Company had
not yet acquired any Properties nor entered into any Mortgage Loans or Secured
Equipment Leases.
During the quarter and six months ended June 30, 1998, the Company
earned $232,006 and $371,159, respectively, in interest income from investments
in money market accounts and other short-term highly liquid investments. As net
offering proceeds are invested in Properties and used to make Mortgage Loans,
the percentage of the Company's total revenues from interest income from
investments in money market accounts or other short term, highly liquid
investments is expected to decrease.
Operating expenses, including amortization expense, were $77,341 and
$169,186 for the quarter and six months ended June 30, 1998, respectively.
Operating expenses, including amortization expense, represent only a portion of
operating expenses which the Company is expected to incur during a full year in
which the Company owns Properties. The dollar amount of operating expenses is
expected to increase as the Company acquires Properties and invests in Mortgage
Loans. However, general and administrative expenses as a percentage of total
revenues is expected to decrease as the Company acquires Properties and invests
in Mortgage Loans.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires the reporting of net earnings and all other changes to equity during
the period, except those resulting from investments by owners and distributions
to owners,
17
<PAGE>
Results of Operations - Continued
in a separate statement that begins with net earnings. Currently,
the Company's only component of comprehensive income is net
earnings.
In March 1998, the Emerging Issues Task Force of the Financial
Accounting Standards Board ("FASB") reached a consensus in EITF 97- 11, entitled
"Accounting for Internal Costs Relating to Real Estate Property Acquisitions."
EITF 97-11 provides that internal costs of identifying and acquiring operating
Property should be expensed as incurred. Due to the fact that the Company does
not have an internal acquisitions function and instead, contracts these services
from an external advisor, the effectiveness of EITF 97-11 had no material effect
on the Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities," which is effective for the Company as of January 1, 1999. This SOP
requires start-up and organization costs to be expensed as incurred and also
requires previously deferred start-up costs to be recognized as a cumulative
effect adjustment in the statement of income. The Company does not believe that
adoption of this SOP will have a material effect on the Company's financial
position or results of operations.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The regular annual meeting of stockholders of the
Company was held in Orlando, Florida on May 4, 1998
for the purposes of electing the board of directors
and voting on the proposal described below.
(b) Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934,
as amended, and the regulations promulgated
thereunder, and there was no solicitation in
opposition to management's solicitations. All of
management's nominees for director were elected.
(c) Two proposals were submitted to a vote of
stockholders as follows:
(1) The stockholders approved the election of
the following persons as directors of the
Company:
<TABLE>
<CAPTION>
Name For Withheld
<S> <C>
G. Richard Hostetter 878,145 0
J. Joseph Kruse 878,145 0
Richard C. Huseman 878,145 0
Robert A. Bourne 878,145 0
James M. Seneff, Jr. 878,145 0
</TABLE>
(2) The stockholders approved, with 771,149
affirmative votes, 61,940 negative votes,
and 54,759 abstentions, the proposal to
approve an amendment to the Company's
Amended and Restated Articles of
Incorporation to change the name of the
Company to CNL Hospitality Properties, Inc.
Item 5. Other Information.
The form of proxy solicited by the Board of Directors in
connection with the Company's 1999 annual meeting of
stockholders will confer discretionary authority to vote on
any matter, if the Company did not have notice of the matter
on or before February 9, 1999. Such notice should be submitted
to Lynn E. Rose, Secretary, 400 E. South Street, Orlando,
Florida 32801.
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.1 CNL American Realty Fund, Inc.
Amended and Restated Articles of
Incorporation, as amended (Filed
herewith.)
3.2 CNL American Realty Fund, Inc.
Bylaws (Included as Exhibit 3.3 to
Registration Statement No. 333-9943
on Form S-11 and incorporated herein
by reference.)
4.1 Reinvestment Plan (Included as
Exhibit 4.4 to Registration
Statement No. 333-9943 on Form S-11
and incorporated herein by
reference.)
10.1 Advisory Agreement, dated as of July
9, 1997, between CNL American Realty
Fund, Inc. and CNL Real Estate
Advisors, Inc. (Included as Exhibit
10.9 to Registration Statement No.
333-9943 on Form S-11 and
incorporated herein by reference.)
10.2 Form of Indemnification Agreement
dated as of July 9, 1997, between
CNL American Realty Fund, Inc. and
each of James M. Seneff, Jr., Robert
A. Bourne, G. Richard Hostetter, J.
Joseph Kruse, Richard C. Huseman,
Charles A. Muller, John T. Walker,
Jeanne A. Wall and Lynn E. Rose
(Filed as exhibit 10.2 to the
Registrant's Annual Report on Form
10-K for the fiscal year ended
December 31, 1997 and incorporated
herein by reference.)
10.3 Agreement of Limited Partnership of
CNL Hospitality Partners, LP (Filed
herewith.)
27 Financial Data Schedule (Filed
herewith.)
(b) The Company filed one report on Form 8-K on June 11,
1998 in connection with the name change of the
Company.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 13th day of August, 1998.
CNL HOSPITALITY PROPERTIES, INC.
By: /s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-----------------------------
ROBERT A. BOURNE
Director and President
(Principal Financial and
Accounting Officer)
EXHIBIT 3.1
Form of CNL American Realty Fund, Inc.
Amended and Restated Articles of Incorporation
<PAGE>
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
CNL AMERICAN REALTY FUND, INC.
CNL American Realty Fund, Inc., a Maryland corporation having its principal
office at 32 South Street, Baltimore, Maryland 21202 (hereinafter, the
"Company"), hereby certifies to the Department of Assessments and Taxation of
the State of Maryland, that:
FIRST: The Company desires to amend and restate its articles of
incorporation as currently in effect.
SECOND: The provisions of the articles of incorporation which are now in
effect and as amended hereby, dated July 9, 1997 in accordance with the Maryland
General Corporation Law (the "MGCL"), are as follows.
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CNL AMERICAN REALTY FUND, INC.
* * * * * * * * * *
ARTICLE I
THE COMPANY; DEFINITIONS
SECTION 1.1. NAME. The name of the corporation (the "Company") is:
CNL American Realty Fund, Inc.
So far as may be practicable, the business of the Company shall be
conducted and transacted under that name, which name (and the word "Company"
wherever used in these Articles of Amendment and Restatement of CNL American
Realty Fund, Inc. (these "Articles of Incorporation"), except where the context
otherwise requires) shall refer to the Directors collectively but not
individually or personally and shall not refer to the Stockholders or to any
officers, employees or agents of the Company or of such Directors.
Under circumstances in which the Directors determine that the use of the
name "CNL American Realty Fund, Inc." is not practicable, they may use any other
designation or name for the Company.
SECTION 1.2. RESIDENT AGENT. The name and address of the resident agent
for service of process of the Company in the State of Maryland is The
Corporation Trust
<PAGE>
Incorporated, 32 South Street, Baltimore, Maryland 21202. The Company may have
such principal office within the State of Maryland as the Directors may from
time to time determine.The Company may also have such other offices or places of
business within or without the State of Maryland as the Directors may from time
to time determine.
SECTION 1.3 NATURE OF COMPANY. The Company is a Maryland corporation
within the meaning of the MGCL.
SECTION 1.4 PURPOSE. The purposes for which the Company is formed are to
conduct any business for which corporations may be organized under the laws of
the State of Maryland including, but not limited to, the following: (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; (ii) to engage in the business of offering furniture,
fixture, and equipment financing to operators of Restaurant Chains and Hotel
Chains; (iii) to engage in the business of offering mortgage financing secured
by Real Property; and (iv) to enter into any partnership, joint venture or other
similar arrangement to engage in any of the foregoing.
SECTION 1.5 DEFINITIONS. As used in these Articles of Incorporation, the
following terms shall have the following meanings unless the context otherwise
requires (certain other terms used in Article VII hereof are defined in Sections
7.2, 7.3, 7.6, and 7.7 hereof):
"ACQUISITION EXPENSES" means any and all expenses incurred by the Company,
the Advisor, or any Affiliate of either in connection with the selection or
acquisition of any Property or the making of any Mortgage Loan, whether or not
acquired, including, without limitation, legal fees and expenses, travel and
communications expenses, costs of appraisals, nonrefundable option payments on
property not acquired, accounting fees and expenses, and title insurance.
"ACQUISITION FEE" means any and all fees and commissions, exclusive of
Acquisition Expenses, paid by any Person or entity to any other Person or entity
(including any fees or commissions paid by or to any Affiliate of the Company or
the Advisor) in connection with making or investing in Mortgage Loans or the
purchase, development or construction of a Property, including, without
limitation, real estate commissions, acquisition fees, finder's fees, selection
fees, development fees, construction fees, nonrecurring management fees,
consulting fees, loan fees, points, the Secured Equipment Lease Servicing Fee,
or any other fees or commissions of a similar nature. Excluded shall be
development fees and construction fees paid to any Person or entity not
affiliated with the Advisor in connection with the actual development and
construction of any Property.
"ADVISOR" or "ADVISORS" means the Person or Persons, if any, appointed,
employed or contracted with by the Company pursuant to Section 4.1 hereof and
responsible for directing or
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<PAGE>
performing the day-to-day business affairs of the Company, including any Person
to whom the Advisor subcontracts substantially all of such functions.
"ADVISORY AGREEMENT" means the agreement between the Company and the
Advisor pursuant to which the Advisor will direct or perform the day-to-day
business affairs of the Company.
"AFFILIATE" or "AFFILIATED" means, as to any individual, corporation,
partnership, trust or other association (other than the Excess Shares Trust),
(i) any Person or entity directly or indirectly through one or more
intermediaries controlling, controlled by, or under common control with another
Person or entity; (ii) any Person or entity, directly or indirectly owning,
controlling, or holding with power to vote ten percent (10%) or more of the
outstanding voting securities of another Person or entity; (iii) any officer,
director, partner or trustee of such Person or entity; (iv) any Person ten
percent (10%) or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held, with power to vote, by such other Person;
and (v) if such other Person or entity is an officer, director, partner, or
trustee of a Person or entity, the Person or entity for which such Person or
entity acts in any such capacity.
"ASSET MANAGEMENT FEE" means the fee payable to the Advisor for day-to-day
professional management services in connection with the Company and its
investments in Properties and Mortgage Loans pursuant to the Advisory Agreement.
"ASSETS" means Properties, Mortgage Loans and Secured Equipment Leases,
collectively.
"AVERAGE INVESTED ASSETS" means, for a specified period, the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in equity interests in and loans secured by real estate before
reserves for depreciation or bad debts or other similar non-cash reserves,
computed by taking the average of such values at the end of each month during
such period.
"BYLAWS" means the bylaws of the Company, as the same are in effect from
time to time.
"CODE" means 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.
"COMPANY PROPERTY" means any and all property, real, personal or otherwise,
tangible or intangible, including Secured Equipment Leases and Mortgage Loans,
which is transferred or conveyed to the Company (including all rents, income,
profits and gains therefrom), which is owned or held by, or for the account of,
the Company.
"COMPETITIVE REAL ESTATE COMMISSION" means a real estate or brokerage
commission for the purchase or sale of property which is reasonable, customary,
and competitive in light of the size, type, and location of the property. The
total of all real estate commissions paid by the
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<PAGE>
Company to all Persons (including the subordinated real estate disposition fee
payable to the Advisor) in connection with any Sale of one or more of the
Company's Properties shall not exceed the lesser of (i) a Competitive Real
Estate Commission or (ii) six percent (6%) of the gross sales price of the
Property or Properties.
"DIRECTORS," "BOARD OF DIRECTORS" or "BOARD" means, collectively, the
individuals named in Section 2.4 of these Amended and Restated Articles of
Incorporation so long as they continue in office and all other individuals who
have been duly elected and qualify as Directors of the Company hereunder.
"DISTRIBUTIONS" means any distributions of money or other property,
pursuant to Section 7.2(iv) hereof, by the Company to owners of Shares,
including distributions that may constitute a return of capital for federal
income tax purposes. The Company will make no distributions other than
distributions of money or readily marketable securities unless the requirements
of Section 7.2(iv) hereof are satisfied.
"EQUIPMENT" shall mean the furniture, fixtures and equipment used at
Restaurant Chains and Hotel Chains.
"EQUITY SHARES" means transferable shares of beneficial interest of the
Company of any class or series, including Common Shares or Preferred Shares.
"GROSS PROCEEDS" means the aggregate purchase price of all Shares sold for
the account of the Company, without deduction for Selling Commissions, volume
discounts, the marketing support and due diligence expense reimbursement fee or
Organizational and Offering Expenses. For the purpose of computing Gross
Proceeds, the purchase price of any Share for which reduced Selling Commissions
are paid to the Managing Dealer or a Soliciting Dealer (where net proceeds to
the Company are not reduced) shall be deemed to be $10.00.
"HOTEL CHAINS" means the national and regional hotel chains, primarily
limited service, extended stay and full service hotel chains, to be
selected by the Advisor, and who themselves or their franchisees will
either (i) lease Properties purchased by the Company, (ii) become borrowers
under Mortgage Loans, or (iii) become lessees or borrowers of Secured
Equipment Leases.
"INDEPENDENT DIRECTOR" means a Director who is not, and within the last two
(2) years has not been, directly or indirectly associated with the Advisor by
virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) performance of services, other
than as a Director, for the Company, (v) service as a director or trustee of
more than three (3) real estate investment trusts advised by the Advisor, or
(vi) maintenance of a material business or professional relationship with the
Advisor or any of its Affiliates. An indirect relationship shall include
circumstances in which a Director's spouse, parents, children, siblings,
mothers- or fathers-in-law, sons- or daughters-in-law or brothers- or
sisters-in-law is or has been associated with the Advisor, any of its Affiliates
or the Company. A business or professional relationship is considered material
if the gross revenue derived by the Director from the Advisor and Affiliates
-4-
<PAGE>
exceeds five percent (5%) of either the Company's annual gross revenue during
either of the last two (2) years or the Director's net worth on a fair market
value basis.
"INDEPENDENT EXPERT" means a Person or entity with no material current or
prior business or personal relationship with the Advisor or the Directors and
who is engaged to a substantial extent in the business of rendering opinions
regarding the value of assets of the type held by the Company.
"INITIAL PUBLIC OFFERING" means the offering and sale of Equity Shares of
the Company pursuant to the Company's first effective registration statement
covering such Common Shares filed under the Securities Act of 1933, as amended.
"INVESTED CAPITAL" means the amount calculated by multiplying the total
number of Shares purchased by Stockholders by the issue price, reduced by the
portion of any Distribution that is attributable to Net Sales Proceeds and by
any amounts paid by the Company to repurchase Shares pursuant to the Company's
plan for redemption of Shares.
"JOINT VENTURES" means those joint venture or general partnership
arrangements in which the Company is a co-venturer or general partner which are
established to acquire Properties.
"LEVERAGE" means the aggregate amount of indebtedness of the Company for
money borrowed (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.
"LINE OF CREDIT" means a line of credit in an amount up to $45,000,000, the
proceeds of which will be used to acquire Properties and make Mortgage Loans and
Secured Equipment Leases.
"LISTING" means the listing of the Shares of the Company on a national
securities exchange or over-the-counter market.
"MANAGER DEALER" means CNL Securities Corp., an Affiliate of the Advisor,
or such other Person or entity selected by the Board of Directors to act as the
managing dealer for the offering. CNL Securities Corp. is a member of the
National Association of Securities Dealers, Inc.
"MGCL" means the Maryland General Corporation Law as contained in the
Corporations and Associations Article of the Annotated Code of Maryland.
"MORTGAGE LOANS" means, in connection with mortgage financing provided by
the Company, notes or other evidences of indebtedness or obligations which are
secured or collateralized by real estate owned by the borrowers.
-5-
<PAGE>
"MORTGAGE" means mortgages, deeds of trust or other security interests on
or applicable to Real Property.
"NASAA REIT GUIDELINES" means the guidelines for Real Estate Investment
Trusts published by the North American Securities Administrators Association.
"NET ASSETS" means the total assets of the Company (other than
intangibles), at cost, before deducting depreciation or other non-cash reserves,
less total liabilities, calculated quarterly by the Company on a basis
consistently applied.
"NET INCOME" means for any period, the total revenues applicable to such
period, less the total expenses applicable to such period excluding
additions to reserves for depreciation, bad debts or other similar non-cash
reserves; provided, however, Net Income for purposes of calculating total
allowable Operating Expenses shall exclude the gain from the sale of the
Company's assets.
"NET SALES PROCEEDS" means in the case of a transaction described in clause
(i)(A) of the definition of Sale, the proceeds of any such transaction less the
amount of all real estate commissions and closing costs paid by the Company. In
the case of a transaction described in clause (i)(B) of such definition, Net
Sales Proceeds means the proceeds of any such transaction less the amount of any
legal and other selling expenses incurred in connection with such transaction.
In the case of a transaction described in clause (i)(C) of such definition, Net
Sales Proceeds means the proceeds of any such transaction actually distributed
to the Company from the Joint Venture. In the case of a transaction or series
of transactions described in clause (i)(D) of the Definition of Sale, Net Sales
Proceeds means the proceeds of any such transaction less the amount of all
commissions and closing costs paid by the Company. In the case of a transaction
described in clause (ii) of the definition of Sale, Net Sales Proceeds means the
proceeds of such transaction or series of transactions less all amounts
generated thereby and reinvested in one or more Properties within one hundred
eighty (180) days thereafter and less the amount of any real estate commissions,
closing costs, and legal and other selling expenses incurred by or allocated to
the Company in connection with such transaction or series of transactions. Net
Sales Proceeds shall also include, in the case of any lease of a Property
consisting of a building only, any Mortgage Loan or any Secured Equipment Lease,
any amounts from tenants, borrowers or lessees that the Company determines, in
its discretion, to be economically equivalent to the proceeds of a Sale. Net
Sales Proceeds shall not include, as determined by the Company in its sole
discretion, any amounts reinvested in one or more Properties, Mortgage Loans,
Secured Equipment Leases or other assets, to repay outstanding indebtedness, or
to establish reserves.
"OPERATING EXPENSES" mean all costs and expenses incurred by the Company,
as determined under generally accepted accounting principles, which in any way
are related to the operation of the Company or to Company business, including
(a) advisory fees, (b) the Soliciting Dealer Servicing Fee, (c) the Asset
Management Fee, (d) the Performance Fee, and (e) the Subordinated Incentive Fee,
but excluding (i) the expenses of raising capital such as Organizational and
Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing,
-6-
<PAGE>
registration, and other fees, printing and other such expenses and tax incurred
in connection with the issuance, distribution, transfer, registration and
Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash
expenditures such as depreciation, amortization and bad debt reserves, (v) the
Advisor's subordinated ten percent (10%) share of Net Sales Proceeds, and (vi)
Acquisition Fees and Acquisition Expenses, real estate commissions on the Sale
of property, and other expenses connected with the acquisition and ownership of
real estate interests, mortgage loans, or other property (such as the costs of
foreclosure, insurance premiums, legal services, maintenance, repair, and
improvement of property).
"ORGANIZATIONAL and OFFERING EXPENSES" means any and all costs and expenses,
other than Selling Commissions, the 0.5% marketing support and due diligence
expense reimbursement fee, and the Soliciting Dealer Servicing Fee incurred by
the Company, the Advisor or any Affiliate of either in connection with the
formation, qualification and registration of the Company and the marketing and
distribution of Shares, including, without limitation, the following: legal,
accounting and escrow fees; printing, amending, supplementing, mailing and
distributing costs; filing, registration and qualification fees and taxes;
telegraph and telephone costs; and all advertising and marketing expenses,
including the costs related to investor and broker-dealer sales meetings. The
Organizational and Offering Expenses paid by the Company in connection with
formation of the Company, together with all Selling Commissions, the 0.5%
marketing support and due diligence reimbursement fee, and the Soliciting Dealer
Servicing Fee incurred by the Company, will not exceed thirteen percent (13%) of
the proceeds raised in connection with such offering.
"PERFORMANCE FEE" means the fee payable to the Advisor under certain
circumstances if certain performance standards have been met and the
Subordinated Incentive Fee has not been paid.
"PERMANENT FINANCING" means financing to acquire Assets, to pay the Secured
Equipment Lease Servicing Fee to pay a fee of 4.5% of any Permanent Financing,
excluding amounts to fund Secured Equipment Leases, as Acquisition Fees, and
refinance outstanding amounts on the Line of Credit.
"PERSON" means 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 any government or any agency
or political subdivision thereof, and also includes 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 (i) an underwriter that participates
in a public offering of Equity Shares for a period of sixty (60) days
following the initial purchase y such underwriter of such Equity Shares in
such public offering, or (ii) CNL Real Estate Advisors, Inc., during the
period ending December 31, 1997, provided that the foregoing exclusions
shall apply only if the ownership of such Equity Shares by an underwriter
or CNL Real Estate Advisors, Inc. would not cause the Company to fail to
qualify as a REIT by reason of being
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<PAGE>
"closely held" within the meaning of Section 856(a) of the Code or otherwise
cause the Company to fail to qualify as a REIT.
"PROPERTY" or "PROPERTIES" means (i) the real properties, including the
buildings located thereon, (ii) the real properties only, or (iii) the buildings
only, which are acquired by the Company, either directly or through joint
venture arrangements or other partnerships.
"PROSPECTUS" means the same as that term is defined in Section 2(10) of the
Securities Act of 1933, including a preliminary prospectus, an offering circular
as described in Rule 256 of the General Rules and Regulations under the
Securities Act of 1933 or, in the case of an intrastate offering, any document
by whatever name known, utilized for the purpose of offering and selling
securities to the public.
"REAL ESTATE ASSET VALUE" or "CONTRACT PURCHASE PRICE" means the amount
actually paid or allocated to the purchase, development, construction or
improvement of a Property, exclusive of Acquisition Fees and Acquisition
Expenses.
"REAL PROPERTY" or "REAL ESTATE" means land, rights in land (including
leasehold interests), and any buildings, structures, improvements,
furnishings, fixtures and equipment located on or used in connection with
land and rights or interests in land.
"REIT" means real estate investment trust as defined pursuant to Sections
856 through 860 of the Code.
"REIT PROVISIONS OF THE CODE" means Sections 856 through 860 of the Code
and any successor or other provisions of the Code relating to real estate
investment trusts (including provisions as to the attribution of ownership
of beneficial interests therein) and the regulations promulgated
thereunder.
"RESTAURANT CHAINS" means the national and regional restaurant chains,
primarily fast-food, family-style, and casual-dining chains, to be selected by
the Advisor, and who themselves or their franchisees will either (i) lease
Properties purchased by the Company, (ii) become borrowers under Mortgage Loans
or (iii) become lessees or borrowers of Secured Equipment Leases.
"ROLL-UP ENTITY" means a partnership, real estate investment trust,
corporation, trust or similar entity that would be created or would survive
after the successful completion of a proposed Roll-Up Transaction.
"ROLL-UP TRANSACTION" means a transaction involving the acquisition,
merger, conversion, or consolidation, directly or indirectly, of the
Company and the issuance of securities of a Roll-Up Entity. Such term does
not include: (i) a transaction involving securities of the Company that
have been listed on a national securities exchange or included for
quotation on the National Market System of the National Association of
Securities Dealers Automated Quotation System for at least 12 months; or
(ii) a transaction involving the conversion to corporate, trust, or
association form of only the Company if, as a consequence of the
transaction, there will be no
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significant adverse change in Stockholder voting rights, the term of existence
of the Company, compensation to the Advisor or the investment objectives of the
Company.
"SALE" or "SALES" (i) means any transaction or series of transactions
whereby: (A) the Company sells, grants, transfers, conveys or relinquishes its
ownership of any Property or portion thereof, including the lease of any
Property consisting of the building only, and including any event with respect
to any Property which gives rise to a significant amount of insurance proceeds
or condemnation awards; (B) the Company sells, grants, transfers, conveys or
relinquishes its ownership of all or substantially all of the interest of the
Company in any Joint Venture in which it is a co-venturer or partner; (C) any
Joint Venture in which the Company as a co-venturer or partner sells, grants,
transfers, conveys or relinquishes its ownership of any Property or portion
thereof, including any event with respect to any Property which gives rise to
insurance claims or condemnation awards; or (D) the Company sells, grants,
conveys, or relinquishes its interest in any Mortgage Loan, Secured Equipment
Lease, or other asset, or portion thereof, including any event with respect to
any Mortgage Loan, Secured Equipment Lease or other asset which gives rise to a
significant amount of insurance proceeds or similar awards, but (ii) shall not
include any transaction or series of transactions specified in clause (i)(A),
(i)(B), or (i)(C) above in which the proceeds of such transaction or series of
transactions are reinvested in one or more Properties within one hundred eighty
(180) days thereafter.
"SECURED EQUIPMENT LEASES" means the Equipment financing made available by
the Company to operators of Restaurant Chains and Hotel Chains pursuant to which
the Company will finance, through loans or direct financing leases, the
Equipment.
"SECURED EQUIPMENT LEASE SERVICING FEE" means the fee payable to the
Advisor by the Company out of the proceeds of the Line of Credit or Permanent
Financing for negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program equal to 2% of the purchase price of the Equipment
subject to each Secured Equipment Lease and paid upon entering into such lease
or loan.
"SECURITIES" means Equity Shares, Excess Shares, any other stock, shares or
other evidences of equity or beneficial or other interests, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in, temporary or interim certificates for, receipts
for, guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
"SELLING COMMISSIONS" means any and all commissions payable to
underwriters, managing dealers, or other broker-dealers in connection with the
sale of Shares, including, without limitation, commissions payable to CNL
Securities Corp.
"SHARES" means the up to 16,500,000 Shares of common stock of the Company
to be sold in the Initial Public Offering.
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"SOLICITING DEALER SERVICING FEE" means an annual fee of .20% of Invested
Capital on December 31 of each year following the year in which the offering of
the Shares terminates, payable to the Managing Dealer, which in turn may reallow
all or a portion of such fee to the Soliciting Dealers whose clients hold Shares
on such date.
"SOLICITING DEALERS" means those broker-dealers that are members of the
National Association of Securities Dealers, Inc., or that are exempt from
broker-dealer registration, and that, in either case, enter into participating
broker or other agreements with the Managing Dealer to sell Shares.
"SPONSOR" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Company or any Person who will control,
manage or participate in the management of the Company, and any Affiliate
of such Person. Not included is any Person whose only relationship with
the Company is that of an independent property manager of Company assets,
and whose only compensation is as such. Sponsor does not include wholly
independent third parties such as attorneys, accountants, and underwriters
whose only compensation is for professional services. A Person may also be
deemed a Sponsor of the Company by:
a. taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company, either
alone or in conjunction with one or more other Persons;
b. receiving a material participation in the Company in connection
with the founding or organizing of the business of the Company,
in consideration of services or property, or both services and
property;
c. having a substantial number of relationships and contacts
with the Company;
d. possessing significant rights to control Company properties;
e. receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or
f. providing goods or services to the Company on a basis which
was not negotiated at arms length with the Company.
"STOCK OPTION PLAN" means a plan that provides for the matters set forth in
Rule 260.140.41 of Section 25140 of the Corporations Code of California, as in
effect as of the date of these Articles of Incorporation.
"STOCKHOLDER'S 8% RETURN," as of each date, means an aggregate amount equal
to an eight percent (8%) cumulative, noncompounded, annual return on Invested
Capital.
"STOCKHOLDERS" means the registered holders of the Company's Equity Shares.
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"SUBORDINATED INCENTIVE FEE" means the fee payable to the Advisor under
certain circumstances if the Shares are listed on a national securities exchange
or over-the-counter market.
"SUCCESSOR" means any successor in interest of the Company.
"TERMINATION DATE" means the date of termination of the Advisory Agreement.
"TOTAL PROCEEDS" means Gross Proceeds plus loan proceeds from Permanent
Financing, excluding loan proceeds used to finance Secured Equipment Leases.
"UNIMPROVED REAL PROPERTY" means Property in which the Company has an
equity interest that is not acquired for the purpose of producing rental or
other operating income, that has no development or construction in process
and for which no development or construction is planned, in good faith, to
commence within one year.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 NUMBER. The number of Directors initially shall be five (5),
which number may be increased or decreased from time to time by resolution of
the Directors then in office or by a majority vote of the Stockholders entitled
to vote: provided, however, that the total number of Directors shall be not
fewer than three (3) and not more than fifteen (15), subject to the Bylaws and
to any express rights of any holders of any series of Preferred Shares to elect
additional directors under specified circumstances. A majority of the Board of
Directors will be Independent Directors except for a period of 90 days after the
death, removal or resignation of an Independent Director. Independent Directors
shall nominate replacements for vacancies in the Independent Director positions.
No reduction in the number of Directors shall cause the removal of any Director
from office prior to the expiration of his term. Any vacancy created by an
increase in the number of Directors will be filled, at any regular meeting or at
any special meeting of the Directors called for that purpose, by a majority of
the Directors. Any other vacancy will be filled at any annual meeting or at any
special meeting of the Stockholders called for that purpose, by a majority of
the Common Shares present in person or by proxy and entitled to vote. For the
purposes of voting for Directors, each Share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
Share is entitled to be voted, or as may otherwise be required by the MGCL or
other applicable law as in effect from time to time.
SECTION 2.2 EXPERIENCE. A Director shall have had at least three (3)
years of relevant experience demonstrating the knowledge and experience required
to successfully acquire and manage the type of assets being acquired by the
Company. At least one of the Independent Directors shall have three (3) years
of relevant real estate experience.
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SECTION 2.3 COMMITTEES. Subject to the MGCL, the Directors may establish
such committees as they deem appropriate, in their discretion, provided that the
majority of the members of each committee are Independent Directors.
SECTION 2.4 INITIAL BOARD; TERM. The initial Directors are James M.
Seneff, Jr., Robert A. Bourne, G. Richard Hostetter, J. Joseph Kruse and Richard
C. Huseman. Each Director shall hold office for one (1) year, until the next
annual meeting of Stockholders and until his successor shall have been duly
elected and shall have qualified. Directors may be elected to an unlimited
number of successive terms.
The names and address of the initial Directors are as follows:
Name Address
---- -------
James M. Seneff, Jr. 400 E. South Street
Orlando, Florida 32801
Robert A. Bourne 400 E. South Street
Orlando, Florida 32801
G. Richard Hostetter 400 E. South Street
Orlando, Florida 32801
J. Joseph Kruse 400 E. South Street
Orlando, Florida 32801
Richard C. Huseman 400 E. South Street
Orlando, Florida 32801
SECTION 2.5 FIDUCIARY OBLIGATIONS. The Directors serve in a fiduciary
capacity to the Company and have a fiduciary duty to the Stockholders of the
Company, including a specific fiduciary duty to supervise the relationship of
the Company with the Advisor.
SECTION 2.6 APPROVAL BY INDEPENDENT DIRECTORS. A majority of Independent
Directors must approve all matters to which Sections 2.1, 3.2(vii) and (xii),
3.3, 4.1, 4.2, 4.6, 4.7, 4.8, 4.10, 4.13, 5.2, 5.4(xiii) and (xiv), 6.3, 6.4,
8.1, 8.2, 9.2 and 9.4 herein apply.
SECTION 2.7 RESIGNATION, REMOVAL OR DEATH. Any Director may resign by
written notice to the Board of Directors, effective upon execution and
delivery to the Company of such written notice or upon any future date
specified in the notice. A Director may be removed from office with or
without cause only at a meeting of the Stockholders called for that
purpose, by the affirmative vote of the holders of not less than a majority
of the Equity Shares then outstanding and entitled to vote, subject to the
rights of any Preferred Shares to vote for such Directors. The notice of
such meeting shall indicate that the purpose, or one of the purposes, of
such meeting is to determine if a Director should be removed.
SECTION 2.8. BUSINESS COMBINATION STATUTE. Notwithstanding any other
provision of these Articles of Incorporation or any contrary provision of
law, the Maryland Business
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Combination Statute, found in Title 3, subtitle 6 of the MGCL, as amended from
time to time, or any successor statute thereto, shall not apply to any "business
combination" (as defined in Section 3-601(e) of the MGCL, as amended from time
to time, or any successor statute thereto) of the Company and any Person.
SECTION 2.9. CONTROL SHARE ACQUISITION STATUTE. Notwithstanding any
other provision of these Articles of Incorporation or any contrary provision of
law, the Maryland Control Share Acquisition Statute, found in Title 3, subtitle
7 of the MGCL, as amended from time to time, or any successor statute thereto
shall not apply to any acquisition of Securities of the Company by any Person.
ARTICLE III
POWERS OF DIRECTORS
SECTION 3.1. General. Subject to the express limitations herein or in
the Bylaws and to the general standard of care required of directors under the
MGCL and other applicable law, (i) the business and affairs of the Company shall
be managed under the direction of the Board of Directors and (ii) the Directors
shall have full, exclusive and absolute power, control and authority over the
Company Property and over the business of the Company as if they, in their own
right, were the sole owners thereof, except as otherwise limited by these
Articles of Incorporation. The Directors have established the written policies
on investments and borrowing set forth in this Article III and Article V hereof
and shall monitor the administrative procedures, investment operations and
performance of the Company and the Advisor to assure that such policies are
carried out. The Directors may take any actions that, in their sole judgment
and discretion, are necessary or desirable to conduct the business of the
Company. A majority of the Board of Directors, including a majority of
Independent Directors, hereby ratify these Articles of Incorporation, which
shall be construed with a presumption in favor of the grant of power and
authority to the Directors. Any construction of these Articles of Incorporation
or determination made in good faith by the Directors concerning their powers and
authority hereunder shall be conclusive. The enumeration and definition of
particular powers of the Directors included in this Article III shall in no way
be limited or restricted by reference to or inference from the terms of this or
any other provision of these Articles of Incorporation or construed or deemed by
inference or otherwise in any manner to exclude or limit the powers conferred
upon the Directors under the general laws of the State of Maryland as now or
hereafter in force.
SECTION 3.2. SPECIFIC POWERS AND AUTHORITY. Subject only to the
expresslimitations herein, and in addition to all other powers and authority
conferred by these Articles of Incorporation or by law, the Directors, without
any vote, action or consent by the Stockholders, shall have and may exercise, at
any time or times, in the name of the Company or on its behalf the following
powers and authorities:
(i) INVESTMENTS. Subject to Article V and Section 9.5 hereof, to
invest in, purchase or otherwise acquire and to hold real, personal or mixed,
tangible or intangible, property of any kind wherever located, or rights or
interests therein or in connection therewith, all without regard
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to whether such property, interests or rights are authorized by law for the
investment of funds held by trustees or other fiduciaries, or whether
obligations the Company acquires have a term greater or lesser than the term of
office of the Directors or the possible termination of the Company, for such
consideration as the Directors may deem proper (including cash, property of any
kind or Securities of the Company); provided, however, that the Directors shall
take such actions as they deem necessary and desirable to comply with any
requirements of the MGCL relating to the types of assets held by the Company.
(ii) REIT QUALIFICATION. The Board of Directors shall use its
best efforts to cause the Company and its Stockholders 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 Section 1.5 hereof). In
furtherance of the foregoing, the Board of Directors 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 Company as a
REIT; provided, however, that in the event that the Board of Directors
determines, by vote of at least two-thirds (2/3) of the Directors, that it no
longer is in the best interests of the Company to qualify as a REIT, the Board
of Directors shall take such actions as are required by the Code, the MGCL and
other applicable law, to cause the matter of termination of qualification as a
REIT to be submitted to a vote of the Stockholders of the Company pursuant to
Section 8.2.
(iii) SALE, DISPOSITION AND USE OF COMPANY PROPERTY. Subject to
Article V and Sections 9.5 and 10.3 hereof, the Board of Directors shall have
the authority to sell, rent, lease, hire, exchange, release, partition, assign,
mortgage, grant security interests in, encumber, negotiate, dedicate, grant
easements in and options with respect to, convey, transfer (including transfers
to entities wholly or partially owned by the Company or the Directors) or
otherwise dispose of any or all of the Company Property by deeds (including
deeds in lieu of foreclosure with or without consideration), trust deeds,
assignments, bills of sale, transfers, leases, mortgages, financing statements,
security agreements and other instruments for any of such purposes executed and
delivered for and on behalf of the Company or the Directors by one or more of
the Directors or by a duly authorized officer, employee, agent or nominee of the
Company, on such terms as they deem appropriate; to give consents and make
contracts relating to the Company Property and its use or other property or
matters; to develop, improve, manage, use, alter or otherwise deal with the
Company Property; and to rent, lease or hire from others property of any kind;
provided, however, that the Company may not use or apply land for any purposes
not permitted by applicable law.
(iv) FINANCINGS. To borrow or, in any other manner, raise money
for the purposes and on the terms they determine, which terms may (i) include
evidencing the same by issuance of Securities of the Company and (ii) may have
such provisions as the Directors determine; to reacquire such Securities of the
Excess Shares Trust; to enter into other contracts or obligations on behalf of
the Excess Shares Trust; to guarantee, indemnify or act as surety with respect
to payment or performance of obligations of any Person; to mortgage, pledge,
assign, grant security interests in or otherwise encumber the Company Property
to secure any such Securities of the Company, contracts or obligations
(including guarantees, indemnifications and suretyships); and to renew, modify,
release, compromise, extend, consolidate or cancel, in whole or in part, any
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obligation to or of the Company or participate in any reorganization of obligors
to the Company; provided, however, that the Company's Leverage, in the absence
of a satisfactory showing that a higher level of borrowing is appropriate, may
not exceed 300% of Net Assets. Any excess in borrowing over such 300% level
shall occur only with approval by a majority Independent Directors and will be
discussed and explained to Stockholders in the first quarterly report of the
Company prepared after such approval occurs.
(v) LENDING. Subject to the provisions of Section 9.5 hereof, to
lend money or other Company Property on such terms, for such purposes and to
such Persons as they may determine.
(vi) SECURED EQUIPMENT LEASES. To engage in the business of
offering furniture, fixture, and equipment financing to the operators of
Restaurant Chains and other businesses, provided, however, that the Company
shall use its best efforts to ensure that the total value of Secured Equipment
Leases, in the aggregate will not exceed 25% of the Company's total assets and
that Secured Equipment Leases to a single lessee or borrower, in the aggregate,
will not exceed 5% of the Company's total assets.
(vii) ISSUANCE OF SECURITIES. Subject to the provisions of
Article VII hereof, to create and authorize and direct the issuance (on either
a pro rata or a non-pro rata basis) by the Company, in shares, units or amounts
of one or more types, series or classes, of Securities of the Company, which may
have such voting rights, dividend or interest rates, preferences,
subordinations, conversion or redemption prices or rights; maturity dates,
distribution, exchange, or liquidation rights or other rights as the Directors
may determine, without vote of or other action by the Stockholders, to such
Persons for such consideration, at such time or times and in such manner and on
such terms as the Directors determine, to list any of the Securities of the
Company on any securities exchange; and to purchase or otherwise acquire, hold,
cancel, reissue, sell and transfer any Securities of the Company.
(viii) EXPENSES AND TAXES. To pay any charges, expenses or
liabilities necessary or desirable, in the sole discretion of the Directors, for
carrying out the purposes of these Articles of Incorporation and conducting
business of the Company, including compensation or fees to Directors, officers,
employees and agents of the Company, and to Persons contracting with the
Company, and any taxes, levies, charges and assessments of any kind imposed upon
or chargeable against the Company, the Company Property or the Directors in
connection therewith; and to prepare and file any tax returns, reports or other
documents and take any other appropriate action relating to the payment of any
such charges, expenses or liabilities.
(ix) COLLECTION AND ENFORCEMENT. To collect, sue for and receive
money or other property due to the Company; to consent to extensions of the time
for payment, or to the renewal, of any Securities or obligations; to engage or
to intervene in, prosecute, defend, compound, enforce, compromise, release,
abandon or adjust any actions, suits, proceedings, disputes, claims, demands,
security interests or things relating to the Company, the Company Property or
the Company's affairs; to exercise any rights and enter into any agreements and
take any other action necessary or desirable in connection with the foregoing.
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(x) DEPOSITS. To deposit funds or Securities constituting part
of the Company Property in banks, trust companies, savings and loan
associations, financial institutions and other depositories, whether or not such
deposits will draw interest, subject to withdrawal on such terms and in such
manner as the Directors determine.
(xi) ALOCATION; ACCOUNTS. To determine whether moneys, profits
or other assets of the Company shall be charged or credited to, or allocated
between, income and capital, including whether or not to amortize any premium or
discount and to determine in what manner any expenses or disbursements are to be
borne as between income and capital (regardless of how such items would normally
or otherwise be charged to or allocated between income and capital without such
determination); to treat any dividend or other distribution on any investment
as, or apportion it between, income and capital; in their discretion to provide
reserves for depreciation, amortization, obsolescence or other purposes in
respect of any Company Property in such amounts and by such methods as they
determine; to determine what constitutes net earnings, profits or surplus; to
determine the method or form in which the accounts and records of the Company
shall be maintained; and to allocate to the Stockholders' equity account less
than all of the consideration paid for Securities and to allocate the balance to
paid-in capital or capital surplus.
(xii) VALUATION OF PROPERTY. To determine the value of all or
any part of the Company Property and of any services, Securities, property or
other consideration to be furnished to or acquired by the Company, and to
revalue all or any part of the Company Property, all in accordance with such
appraisals or other information as are reasonable, in their sole judgment.
(xiv) OWNERSHIP AND VOTING POWERS. To exercise all of the
rights, powers, options and privileges pertaining to the ownership of any
Mortgages, Securities, Real Estate, Secured Equipment Leases and other Company
Property to the same extent that an individual owner might, including without
limitation to vote or give any consent, request or notice or waive any notice,
either in person or by proxy or power of attorney, which proxies and powers of
attorney may be for any general or special meetings or action, and may include
the exercise of discretionary powers.
(xiv) OFFICERS, ETC.; DELEGATION OF POWERS. To elect, appoint or
employ such officers for the Company and such committees of the Board of
Directors with such powers and duties as the Directors may determine, the
Company's Bylaws provide or the MGCL requires; to engage, employ or contract
with and pay compensation to any Person (including subject to Section 9.5
hereof, any Director and Person who is an Affiliate of any Director) as agent,
representative, Advisor, member of an advisory board, employee or independent
contractor (including advisors, consultants, transfer agents, registrars,
underwriters, accountants, attorneys-at-law, real estate agents, property and
other managers, appraisers, brokers, architects, engineers, construction
managers, general contractors or otherwise) in one or more capacities, to
perform such services on such terms as the Directors may determine; to delegate
to one or more Directors, officers or other Persons engaged or employed as
aforesaid or to committees of Directors or to the Advisor, the performance of
acts or other things (including granting of consents), the making of decisions
and the execution of such deeds, contracts, leases or other instruments, either
in the names of the
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Company, the Directors or as their attorneys or otherwise, as the Directors may
determine; and to establish such committees as they deem appropriate.
(xv) ASSOCIATIONS. Subject to Section 9.5 hereof, to cause the
Company to enter into joint ventures, general or limited partnerships,
participation or agency arrangements or any other lawful combinations,
relationships or associations of any kind.
(xvii) REORGANIZATIONS, ETC. Subject to Sections 10.2 and 10.3
hereof, to cause to be organized or assist in organizing any Person under the
laws of any jurisdiction to acquire all or any part of the Company Property,
carry on any business in which the Company shall have an interest or otherwise
exercise the powers the Directors deem necessary, useful or desirable to carry
on the business of the Company or to carry out the provisions of these Articles
of Incorporation, to merge or consolidate the Company with any Person; to sell,
rent, lease, hire, convey, negotiate, assign, exchange or transfer all or any
part of the Company Property to or with any Person in exchange for Securities of
such Person or otherwise; and to lend money to, subscribe for and purchase the
Securities of, and enter into any contracts with, any Person in which the
Company holds, or is about to acquire, Securities or any other interests.
(xvii) INSURANCE. To purchase and pay for out of Company
Property insurance policies insuring the Stockholders, Company and the Company
Property against any and all risks, and insuring the Directors, Advisors and
Affiliates of the Company individually (each an "Insured") against all claims
and liabilities of every nature arising by reason of holding or having held any
such status, office or position or by reason of any action alleged to have been
taken or omitted by the Insured in such capacity, whether or not the Company
would have the power to indemnify against such claim or liability, provided that
such insurance be limited to the indemnification permitted by Section 9.2 hereof
in regard to any liability or loss resulting from negligence, gross negligence,
misconduct, willful misconduct or an alleged violation of federal or state
securities laws. Nothing contained herein shall preclude the Company from
purchasing and paying for such types of insurance, including extended coverage
liability and casualty and workers' compensation, as would be customary for any
Person owning comparable assets and engaged in a similar business, or from
naming the Insured as an additional insured party thereunder, provided that such
addition does not add to the premiums payable by the Company. The Board of
Directors' power to purchase and pay for such insurance policies shall be
limited to policies that comply with all applicable state laws and the NASAA
REIT Guidelines.
(xviii) DISTRIBUTIONS. To declare and pay dividends or other
Distributions to Stockholders, subject to the provisions of Section 7.2 hereof.
(xix) DISCONTINUE OPERATIONS; BANKRUPTCY. To discontinue the
operations of the Company (subject to Section 10.2 hereof); to petition or
apply for relief under any provision of federal or state bankruptcy, insolvency
or reorganization laws or similar laws for the relief of debtors; to permit any
Company Property to be foreclosed upon without raising any legal or equitable
defenses that may be available to the Company or the Directors or otherwise
defending or responding to such foreclosure; to confess judgment against the
Excess Shares Trust (as hereinafter defined); or to take such other action with
respect to indebtedness or other obligations
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of the Directors, the Company Property or the Company as the Directors, in such
capacity, and in their discretion may determine.
(xx) TERMINATION of STATUS. To terminate the status of the
Company as a real estate investment trust under the REIT Provisions of the Code;
provided, however, that the Board of Directors shall take no action to terminate
the Company's status as a real estate investment trust under the REIT Provisions
of the Code until such time as (i) the Board of Directors adopts a resolution
recommending that the Company terminate its status as a real estate investment
trust under the REIT Provisions of the Code, (ii) the Board of Directors
presents the resolution at an annual or special meeting of the Stockholders and
(iii) such resolution is approved by the holders of a majority of the issued and
outstanding Common Shares (as defined in Section 7.2(ii) hereof).
(xxi) FISCAL YEAR. Subject to the Code, to adopt, and from time
to time change, a fiscal year for the Company.
(xxii) SEAL. To adopt and use a seal, but the use of a seal
shall not be required for the execution of instruments or obligations of the
Company.
(xxiii) BYLAWS. To adopt, implement and from time to time alter,
amend or repeal the Bylaws of the Company relating to the business and
organization of the Company, provided that such amendments are not inconsistent
with the provisions of these Articles of Incorporation, and further provided
that the Directors may not amend the Bylaws, without the affirmative vote of a
majority of the Equity Shares, to the extent that such amendments adversely
affect the rights, preferences and privileges of Stockholders.
(xxiv) Listing Shares. To cause the Listing of the Shares at any
time after completion of the Initial Public Offering but in no event shall such
Listing occur more than ten (10) years after completion of the offering.
(xxv) FURTHER POWERS. To do all other acts and things and
execute and deliver all instruments incident to the foregoing powers, and to
exercise all powers which they deem necessary, useful or desirable to carry on
the business of the Company or to carry out the provisions of these Articles of
Incorporation, even if such powers are not specifically provided hereby.
SECTION 3.3 DETERMINATION OF BEST INTEREST OF COMPANY. In determining
what is in the best interest of the Company, a Director shall consider the
interests of the Stockholders of the Company and, in his or her sole and
absolute discretion, may consider (i) the interests of the Company's employees,
suppliers, creditors and customers, (ii) the economy of the nation, (iii)
community and societal interests, and (iv) the long-term as well as short-term
interests of the Company and its Stockholders, including the possibility that
these interests may be best served by the continued independence of the Company.
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ARTICLE IV
ADVISOR
SECTION 4.1 APPOINTMENT AND INITIAL INVESTMENT OF ADVISOR. The Directors
are responsible for setting the general policies of the Company and for the
general supervision of its business conducted by officers, agents, employees,
advisors or independent contractors of the Company. However, the Directors are
not required personally to conduct the business of the Company, and they may
(but need not) appoint, employ or contract with any Person (including a Person
Affiliated with any Director) as an Advisor and may grant or delegate such
authority to the Advisor as the Directors may, in their sole discretion, deem
necessary or desirable. The term of retention of any Advisor shall not exceed
one (1) year, although there is no limit to the number of times that a
particular Advisor may be retained. The Advisor is the holder of 20,000 Shares,
representing an initial investment of $200,000. The Advisor or any Affiliate
may not sell this initial investment while the Advisor remains a Sponsor but may
transfer the 20,000 Shares to other Affiliates.
SECTION 4.2. SUPERVISION OF ADVISOR. The Directors shall evaluate the
performance of the Advisor before entering into or renewing an advisory contract
and the criteria used in such evaluation shall be reflected in the minutes of
meetings of the Board. The Directors may exercise broad discretion in allowing
the Advisor to administer and regulate the operations of the Company, to act as
agent for the Company, to execute documents on behalf of the Company and to make
executive decisions which conform to general policies and principles established
by the Directors.
The Directors shall establish written policies on investments and borrowing
and shall monitor the administrative procedures, investment operations and
performance of the Company and the Advisor to assure that such procedures,
operations and programs are in the best interests of the Stockholders and are
fulfilled.
The Board of Directors is also responsible for reviewing the fees and
expenses of the Company at least annually or with sufficient frequency to
determine that the expenses incurred are in the best interests of the
Stockholders. In addition, a majority of the Independent Directors and a
majority of Directors not otherwise interested in the transaction must approve
each transaction with the Advisor or its Affiliates. A majority of the
Independent Directors also will be responsible for reviewing the performance of
the Advisor and determining that compensation to be paid to the Advisor is
reasonable in relation to the nature and quality of services to be performed and
the investment performance of the Company and that the provisions of the
Advisory Agreement are being carried out. Specifically, the Independent
Directors will consider factors such as the Net Assets and Net Income of the
Company, the amount of the fee paid to the Advisor in relation to the size,
composition and performance of the Company's portfolio, the success of the
Advisor in generating opportunities that meet the investment objectives of the
Company, rates charged to other REITs and to investors other than REITs by
advisors performing the same or similar services, additional revenues realized
by the Advisor and its Affiliates through their relationship with the Company,
whether paid by the Company or by others with whom the Company does
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business, the quality and extent of service and advice furnished by the Advisor,
the performance of the investment portfolio of the Company, including income,
conservation or appreciation of capital, frequency of problem investments and
competence in dealing with distress situations, and the quality of the portfolio
of the Company relative to the investments generated by the Advisor for its own
account. The Independent Directors also shall determine whether any successor
Advisor possesses sufficient qualifications to perform the advisory function for
the Company and whether the compensation provided for in its contract with the
Company is justified.
SECTION 4.3 FIDUCIARY OBLIGATIONS. The Advisor has a fiduciary
responsibility to the Company and to the Stockholders.
SECTION 4.4 AFFILIATION AND FUNCTIONS. The Directors, by resolution or
in the Bylaws, may provide guidelines, provisions, or requirements concerning
the affiliation and functions of the Advisor.
SECTION 4.5 TERMINATION. Either a majority of the Independent Directors
or the Advisor may terminate the advisory contract on sixty (60) days' written
notice without cause or penalty, and, in such event, the Advisor will cooperate
with the Company and the Directors in making an orderly transition of the
advisory function.
SECTION 4.6 REAL ESTATE COMMISSION ON SALE OF PROPERTY. The Company
shall pay the Advisor a deferred, subordinated real estate disposition fee upon
Sale of one or more Properties, in an amount equal to the lesser of (i) one-half
(1/2) of a Competitive Real Estate Commission, or (ii) three percent (3%) of the
sales price of such Property or Properties. Payment of such fee shall be made
only if the Advisor provides a substantial amount of services in connection with
the Sale of a Property or Properties and shall be subordinated to receipt by the
Stockholders of Distributions equal to the sum of (i) their aggregate
Stockholders' 8% Return and (ii) their aggregate Invested Capital. If, at the
time of a Sale, payment of such disposition fee is deferred because the
subordination conditions have not been satisfied, then the disposition fee shall
be paid at such later time as the subordination conditions are satisfied. Upon
Listing, if the Advisor has accrued but not been paid such real estate
disposition fee, then for purposes of determining whether the subordination
conditions have been satisfied, Stockholders will be deemed to have received a
Distribution in the amount equal to the product of the total number of Shares
outstanding and the average closing price of the Shares over a period, beginning
180 days after Listing, of 30 days during which the Shares are traded.
SECTION 4.7 SUBORDINATED SHARE OF NET SALES PROCEEDS. The Company shall
pay the Advisor a deferred, subordinated share from Sales of assets of the
Company, whether or not in liquidation of the Company, equal to 10% of Net Sales
Proceeds remaining after receipt by the Stockholders of Distributions equal to
the sum of (i) the Stockholders' 8% Return and (ii) 100% of Invested Capital.
Following Listing, no share of Net Sales Proceeds will be paid to the Advisor.
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SECTION 4.8 INCENTIVE FEES.
(i) At such time, if any, as Listing occurs, the Advisor shall be
paid the Subordinated Incentive Fee in an amount equal to ten percent (10%) of
the amount by which (i) the market value of the Company (as defined below) plus
the total Distributions paid to Stockholders from the Company's inception until
the date of Listing exceeds (ii) the sum of (A) one hundred percent (100% ) of
Invested Capital and (B) the total Distributions required to be paid to the
Stockholders in order to pay the Stockholders' 8% Return from inception through
the date the market value is determined. For purposes of calculating the
Subordinated Incentive Fee, the market value of the Company shall be the average
closing price or average of bid and asked price, as the case may be, over a
period of thirty (30) days during which the Shares are traded with such period
beginning one hundred eighty (180) days after Listing. In the case of multiple
Advisors, Advisors and any Affiliate shall be allowed incentive fees provided
such fees are distributed by a proportional method reasonably designed to
reflect the value added to Company assets by each respective Advisor or any
Affiliate. The Subordinated Incentive Fee will be reduced by the amount of any
prior payment to the Advisor of a deferred, subordinated share of Net Sales
Proceeds from Sales of assets of the Company.
(ii) In no event shall the Company pay a single Advisor both the
Subordinated Incentive Fee and the Performance Fee.
(iii) In the event that the Company becomes a perpetual life
entity, which will occur if the Shares become listed on a national securities
exchange or over-the-counter market, the Company and the Advisor will negotiate
in good faith a fee structure appropriate for an entity with a perpetual life,
subject to approval by a majority of the Independent Directors. In negotiating
a new fee structure, the Independent Directors shall consider all of the factors
they deem relevant. These are expected to include, but will not necessarily be
limited to: (i) the amount of the advisory fee in relation to the asset value,
composition, and profitability of the Company's portfolio; (ii) the success of
the Advisor in generating opportunities that meet the investment objectives of
the Company; (iii) the rates charged to other REITs and to investors other than
REITs by Advisors that perform the same or similar services; (iv) additional
revenues realized by the Advisor and its Affiliates through their relationship
with the Company, including loan administration, underwriting or broker
commissions, servicing, engineering, inspection and other fees, whether paid by
the Company or by others with whom the Company does business; (v) the quality
and extent of service and advice furnished by the Advisor; (vi) the performance
of the investment portfolio of the Company, including income, conservation or
appreciation of capital, and number and frequency of problem investments; and
(vii) the quality of the Property portfolio of the Company in relationship to
the investments generated by the Advisor for its own account. The Board of
Directors, including a majority of the Independent Directors, may not approve a
new fee structure that, in its judgment, is more favorable to the Advisor than
the current fee structure.
SECTION 4.9 PERFORMANCE FEE. Upon termination of the Advisory Agreement,
the Advisor shall be entitled to receive a Performance Fee if performance
standards satisfactory to a majority of the Board of Directors, including a
majority of the Independent Directors, when
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compared to (a) the performance of the Advisor in comparison with its
performance for other entities; and (b) the performance of other advisors for
similar entities, have been met. If Listing has not occurred, the Performance
Fee, if any, shall equal ten percent (10%) of the amount, if any, by which (i)
the appraised value of the assets of the Company on the Termination Date, less
the amount of all indebtedness secured by such assets, plus the total
Distributions paid to Stockholders from the Company's inception through the
Termination Date, exceeds (ii) Invested Capital plus an amount equal to the
Stockholders' 8% Return from inception through the Termination Date. The
Advisor shall be entitled to receive all accrued but unpaid compensation and
expense reimbursements in cash within thirty (30) days of the Termination Date.
All other amounts payable to the Advisor in the event of a termination shall be
evidenced by a promissory note and shall be payable from time to time. The
Performance Fee shall be paid in twelve (12) equal quarterly installments
without interest on the unpaid balance, provided, however, that no payment will
be made in any quarter in which such payment would jeopardize the Company's REIT
status, in which case any such payment or payments will be delayed until the
next quarter in which payment would not jeopardize REIT status. Notwithstanding
the preceding sentence, any amounts which may be deemed payable at the date the
obligation to pay the Performance Fee is incurred which relate to the
appreciation of the Company's assets shall be an amount which provides
compensation to the terminated Advisor only for that portion of the holding
period for the respective assets during which such terminated Advisor provided
services to the Company. Upon Listing, the Performance Fee, if any, payable
thereafter will be as negotiated between the Company and the Advisor. The
Advisor shall not be entitled to payment of the Performance Fee in the event the
Advisory Agreement is terminated because of failure of the Company and the
Advisor to establish a fee structure appropriate for a perpetual-life entity at
such time, if any, as the Shares become listed on a national securities exchange
or over-the-counter market. The Performance Fee, to the extent payable at the
time of Listing, will not be paid in the event that the Subordinated Incentive
Fee is paid.
SECTION 4.10 ACQUISITION FEE and ACQUISITION EXPENSES. The Company shall
pay the Advisor a fee in the amount of 4.5% of Total Proceeds as Acquisition
Fees. Acquisition Fees shall be reduced to the extent that, and if necessary to
limit, the total compensation paid to all persons involved in the acquisition of
any Property to the amount customarily charged in arms- length transactions by
other persons or entities rendering similar services as an ongoing public
activity in the same geographical location and for comparable types of
Properties, and to the extent that other acquisition fees, finder's fees, real
estate commissions, or other similar fees or commissions are paid by any person
in connection with the transaction. The Company shall reimburse the Advisor for
Acquisition Expenses incurred in connection with the initial selection and
acquisition of Properties, provided that reimbursement shall be limited to the
actual cost of goods and services used by the Company and obtained from entities
not affiliated with the Advisor, or the lesser of the actual cost or 90% of the
competitive rate charged by unaffiliated persons providing similar goods and
services in the same geographic location for goods or services provided by the
Advisor or its Affiliates. The total of all Acquisition Fees and any
Acquisition Expenses shall be reasonable and shall not exceed an amount equal to
six percent (6%) of the Real Estate Asset Value or the Contract Purchase Price
of a Property, or in the case of a Mortgage Loan, six percent (6%) of the funds
advanced, unless a majority of the Board of Directors, including a majority of
the Independent Directors not otherwise interested in the
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transaction, approves fees in excess of these limits subject to a determination
that the transaction is commercially competitive, fair and reasonable to the
Company.
SECTION 4.11 ASSET MANAGEMENT FEE. The Company shall pay the Advisor a
monthly Asset Management Fee in an amount equal to one-twelfth of .60% of the
Company's Real Estate Asset Value and the outstanding principal amount of any
Mortgage Loans, as of the end of the preceding month. Specifically, Real Estate
Asset Value equals the amount invested in the Properties wholly owned by the
Company, determined on the basis of cost, plus, in the case of Properties owned
by any Joint Venture or partnership in which the Company is a co-venturer or
partner, the portion of the cost of such Properties paid by the Company,
exclusive of Acquisition Fees and Acquisition Expenses. The Asset Management
Fee, which will not exceed fees which are competitive for similar services in
the same geographic area, may or may not be taken, in whole or in part as to any
year, in the sole discretion of the Advisor. All or any portion of the Asset
Management Fee not taken as to any fiscal year shall be deferred without
interest and may be taken in such other fiscal year as the Advisor shall
determine.
SECTION 4.12 SECURED EUIPMENT LEASE SERVICING FEE. The Company shall pay
the Advisor a fee out of the proceeds of the Line of Credit or Permanent
Financing for negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program equal to 2% of the purchase price of the Equipment
subject to each Secured Equipment Lease and paid upon entering into such lease
or loan.
SECTION 4.13 REIMBURSEMENT FOR OPERATING EXPENSES. The Company shall not
reimburse the Advisor at the end of any fiscal quarter for Operating Expenses
that, in the four consecutive fiscal quarters then ended (the "Expense Year")
exceed the greater of 2% of Average Invested Assets or 25% of Net Income (the
"2%/25% Guidelines") for such year. Within 60 days after the end of any fiscal
quarter of the Company for which total Operating Expenses for the Expense Year
exceed the 2%/25% Guidelines, the Advisor shall reimburse the Company the amount
by which the total Operating Expenses paid or incurred by the Company exceed the
2%/25% Guidelines.
ARTICLE V
INVESTMENT OBJECTIVES AND LIMITATIONS
SECTION 5.1 INVESTMENT OBJECTIVES. The Company's primary investment
objectives are to preserve, protect, and enhance the Company's assets; while (i)
making Distributions commencing in the initial year of Company operations; (ii)
obtaining fixed income through the receipt of base rent, and increasing the
Company's income (and Distributions) and providing protection against inflation
through automatic increases in base rent and receipt of percentage rent, and
obtaining fixed income through the receipt of payments on Mortgage Loans and
Secured Equipment Leases; (iii) qualifying and remaining qualified as a REIT for
federal income tax purposes; and (iv) providing Stockholders of the Company with
liquidity of their investment within five (5) to ten (10) years after
commencement of the offering, either in whole or in part,
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through (a) Listing, or, (b) if Listing does not occur within ten (10) years
after commencement of the offering, the commencement of orderly Sales of the
Company's assets (outside the ordinary course of business and consistent with
its objective of qualifying as a REIT) and distribution of the proceeds thereof.
The sheltering from tax of income from other sources is not an objective of the
Company. Subject to Section 3.2(v) hereof and to the restrictions set forth
herein, the Directors will use their best efforts to conduct the affairs of the
Company in such a manner as to continue to qualify the Company for the tax
treatment provided in the REIT Provisions of the Code; provided, however, no
Director, officer, employee or agent of the Company shall be liable for any act
or omission resulting in the loss of tax benefits under the Code, except to the
extent provided in Section 9.2 hereof.
SECTION 5.2 REVIEW OF OBJECTIVES. The Independent Directors shall review
the investment policies of the Company with sufficient frequency and at least
annually to determine that the policies being followed by the Company at any
time are in the best interests of its Stockholders. Each such determination and
the basis therefor shall be set forth in the minutes of the meetings of the
Board of Directors.
SECTION 5.3 CERTAIN PERMITTED INVESTMENTS.
(i) The Company may invest in Properties including, but not
limited to, Properties to be leased to operators of Restaurant Chains and Hotel
Chains in various locations across the United States.
(ii) The Company may invest in Joint Ventures with the Advisor,
one or more Directors or any Affiliate, if a majority of Directors (including a
majority of Independent Directors) not otherwise interested in the transaction,
approve such investment as being fair and reasonable to the Company and on
substantially the same terms and conditions as those received by the other joint
venturers.
(iii) The Company may invest in equity securities and Mortgage
Loans, if a majority of Directors (including a majority of Independent
Directors) not otherwise interested in the transaction approve such investment
as being fair, competitive and commercially reasonable.
(iv) The Company may offer Secured Equipment Leases to operators
of Restaurant Chains and Hotel Chains provided that a majority of Directors
(including a majority of Independent Directors) approve the Secured Equipment
Leases as being fair, competitive and commercially reasonable.
SECTION 5.4 INVESTMENT LIMITATIONS. In addition to other investment
restrictions imposed by the Directors from time to time, consistent with the
Company's objective of qualifying as a REIT, the following shall apply to the
Company's investments:
(i) Not more than 10% of the Company's total assets shall be
invested in unimproved real property or mortgage loans on unimproved real
property. For purposes of this
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paragraph, "unimproved real property" does not include any Property or Real
Estate under construction, under contract for development or planned for
development within one year.
(ii) The Company shall not invest in commodities or commodity
future contracts. This limitation is not intended to apply to interest rate
futures, when used solely for hedging purposes.
(iii) The Company shall not invest in or make mortgage loans
unless an appraisal is obtained concerning the underlying property. Mortgage
indebtedness on any property shall not exceed such property's appraised value.
In cases in which a majority of Independent Directors so determine, and in all
cases in which the mortgage loan involves the Advisor, Directors, or Affiliates,
such appraisal of the underlying property must be obtained from an Independent
Expert. Such appraisal shall be maintained in the Company's records for at
least five (5) years and shall be available for inspection and duplication by
any Stockholder. In addition to the appraisal, a mortgagee's or owner's title
insurance policy or commitment as to the priority of the mortgage or condition
of the title must be obtained.
(iv) The Company shall not make or invest in mortgage loans,
including construction loans, on any one (1) property if the aggregate amount of
all mortgage loans outstanding on the property, including the loans of the
Company would exceed an amount equal to eighty-five percent (85%) of the
appraised value of the property as determined by appraisal unless substantial
justification exists because of the presence of other underwriting criteria. For
purposes of this subsection, the "aggregate amount of all mortgage loans
outstanding on the Property, including the loans of the Company" shall include
all interest (excluding contingent participation in income and/or appreciation
in value of the mortgaged property), the current payment of which may be
deferred pursuant to the terms of such loans, to the extent that deferred
interest on each loan exceeds five percent (5%) per annum of the principal
balance of the loan.
(v) The Company shall not invest in indebtedness ("Junior Debt")
secured by a mortgage on real property which is subordinate to the lien or other
indebtedness ("Senior Debt"), except where such amount of such Junior Debt,
plus the outstanding amount of Senior Debt, does not exceed 90% of the appraised
value of such property, if after giving effect thereto, the value of all such
mortgage loans of the Company (as shown on the books of the Company in
accordance with generally accepted accounting principles, after all reasonable
reserves but before provision for depreciation) would not then exceed 25% of the
Company's Net Assets. The value of all investments in Junior Debt of the
Company which does not meet the aforementioned requirements shall be limited to
10% of the Company's tangible assets (which would be included within the 25%
limitation).
(vi) The Company shall not engage in any short sale, or borrow,
on an unsecured basis, if such borrowing will result in an Asset Coverage of
less than 300%, except that such borrowing limitation shall not apply to a first
mortgage trust. "Asset Coverage," for the purpose of this Section 5.4(vi)
means the ratio which the value of the total assets of an issuer, less all
liabilities and indebtedness except indebtedness for unsecured borrowings, bears
to the aggregate amount of all unsecured borrowings of such issuer.
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(vii) The Company shall not make or invest in any mortgage loans
that are subordinate to any mortgage, other indebtedness or equity interest of
the Advisor, the Directors or an Affiliate of the Company. In addition, the
Company shall not invest in any security of any entity holding investments or
engaging in activities prohibited by these Articles of Incorporation.
(viii) The Company shall not invest in equity securities unless a
majority of the Directors (including a majority of Independent Directors) not
otherwise interested in such transaction approve the transaction as being fair,
competitive and commercially reasonable and determine that the transaction will
not jeopardize the Company's ability to qualify and remain qualified as a REIT.
Investments in entities affiliated with the Advisor, a Director, the Company or
their Affiliates are subject to restrictions on Joint Venture investments.
(ix) The Company shall not issue (A) equity securities
redeemable solely at the option of the holder (except that Stockholders may
offer their Common Shares to the Company pursuant to that certain redemption
plan adopted or to be adopted by the Board of Directors on terms outlined in the
section relating to Common Shares entitled "Redemption of Shares" in the
Company's Prospectus relating to the Initial Public Offering); (B) debt
securities unless the historical debt service coverage (in the most recently
completed fiscal year) as adjusted for known charges is sufficient to properly
service that higher level of debt; (C) Equity Shares on a deferred payment
basis or under similar arrangements; (D) non- voting or assessable securities;
(E) options, warrants, or similar evidences of a right to buy its securities
(collectively, "Options") unless (1) issued to all of its Stockholders ratably,
(2) as part of a financing arrangement, or (3) as part of a Stock Option Plan
available to Directors, officers or employees of the Company or the Advisor.
Options may not be issued to the Advisor, Director or any Affiliate thereof
except on the same terms as such Options are sold to the general public. Options
may be issued to persons other than the Advisor, Directors or any Affiliate
thereof but not at exercise prices less than the fair market value of the
underlying securities on the date of grant and not for consideration that in the
judgment of the Independent Directors has a market value less than the value of
such Option on the date of grant. Options issuable to the Advisor, Directors or
any Affiliate thereof shall not exceed 10% of the outstanding Shares on the date
of grant. The voting rights per share of Equity Shares of the Company (other
than the publicly held Equity Shares of the Company) sold in a private offering
shall not exceed the voting rights which bear the same relationship to the
voting rights of the publicly held Equity Shares as the consideration paid to
the Company for each privately offered Equity Share of the Company bears to the
book value of each outstanding publicly held Equity Share.
(x) The Company shall not invest in real estate contracts of sale
unless such contracts of sale are in recordable form and appropriately recorded
in the chain of title.
(xi) A majority of the Directors shall authorize the
consideration to be paid for each Property, based on the fair market value of
the Property. If a majority of the Independent Directors determine, or if the
Property is acquired from the Advisor, a Director, or their Affiliates, such
fair market value shall be determined by a qualified independent real estate
appraiser selected by the Independent Directors.
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(xii) The Company shall not engage in underwriting or the agency
distribution of securities issued by others or in trading, as compared to
investment activities.
(xiii) The Company shall not invest in any foreign currency or
bullion or engage in short sales.
(xiv) The Company shall not issue senior securities except notes
to banks and other lenders and Preferred Shares.
(xv) The aggregate Leverage of the Company shall be reasonable in
relation to the Net Assets of the Company and shall be reviewed by the Directors
at least quarterly. The maximum amount of such Leverage in relation to the Net
Assets shall, in the absence of a satisfactory showing that a higher level of
borrowing is appropriate, not exceed three hundred percent (300%). Any excess
in Leverage over such three hundred percent (300%) level shall be approved by at
least a majority of the Independent Directors and disclosed to Stockholders in
the next quarterly report of the Company, along with the justification for such
excess.
(xvi) Unless at least 80% of the Company's tangible assets are
comprised of Properties or first mortgage loans, the Company may not incur any
indebtedness which would result in an aggregate amount of indebtedness in excess
of 300% of the Net Assets.
(xvii) The Company may borrow money from the Advisor, Director or
any Affiliate thereof, upon a finding by a majority of Directors (including a
majority of Independent Directors) not otherwise interested in the transaction
that such transaction is fair, competitive and commercially reasonable and no
less favorable to the Company than loans between unaffiliated parties under the
same circumstances. Notwithstanding the foregoing, the Advisor and its
Affiliates shall be entitled to reimbursement, at cost, for actual expenses
incurred by the Advisor or its Affiliates on behalf of the Company or Joint
Ventures in which the Company is a co-venturer, subject to subsection (xix)
below.
(xviii) The Company shall not make loans to the Advisor or its
Affiliates.
(xix) The Company shall not operate so as to be classified as an
"investment company" under the Investment Company Act of 1940, as amended.
(xx) The Company will not make any investment that the Company
believes will be inconsistent with its objectives of qualifying and remaining
qualified as a REIT.
The foregoing investment limitations may not be modified or eliminated
without the approval of Stockholders owning a majority of the outstanding Equity
Shares.
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ARTICLE VI
CONFLICTS OF INTEREST
SECTION 6.1 SALES AND LEASES TO COMPANY. The Company may purchase a
Property or Properties from the Advisor, Director, or any Affiliate upon a
finding by a majority of Directors (including a majority of Independent
Directors) not otherwise interested in the transaction that such transaction is
fair and reasonable to the Company and at a price to the Company no greater than
the cost of the asset to such Advisor, Director or Affiliate, or, if the price
to the Company is in excess of such cost, that substantial justification for
such excess exists and such excess is reasonable. In no event shall the cost of
such asset to the Company exceed its current appraised value.
SECTION 6.2. SALES AND LEASES TO THE ADVISOR, DIRECTORS OR AFFILIATES. An
Advisor, Director or Affiliate may acquire or lease assets from the Company if a
majority of Directors (including a majority of Independent Directors) not
otherwise interested in the transaction determine that the transaction is fair
and reasonable to the Company.
SECTION 6.3 MULTIPLE PROGRAMS.
(i) Until completion of the Initial Public Offering of Shares by
the Company, the Advisor and its Affiliates will not offer or sell interests in
any subsequently formed public program that has investment objectives and
structure similar to those of the Company and that intends to (a) invest, on a
cash and/or leveraged basis, in a diversified portfolio of restaurant and hotel
properties to be leased on a "triple-net" basis to operators of Restaurant
Chains and Hotel Chains; (b) offer Mortgage Loans; and (c) offer Secured
Equipment Leases. The Advisor and its Affiliates also will not purchase a
property or offer or invest in a mortgage loan or secured equipment lease for
any such subsequently formed public program that has investment objectives and
structure similar to the Company and that intends to invest on a cash and/or
leveraged basis primarily in a diversified portfolio of restaurant and hotel
properties to be leased on a "triple-net" basis to operators of Restaurant
Chains and Hotel Chains until substantially all (generally, eighty percent
(80%)) of the funds available for investment (net offering proceeds) by the
Company have been invested or committed to investment. (For purposes of the
preceding sentence only, funds are deemed to have been committed to investment
to the extent written agreements in principle or letters of understanding are
executed and in effect at any time, whether or not any such investment is
consummated, and also to the extent any funds have been reserved to make
contingent payments in connection with any Property, whether or not any such
payments are made). Affiliates of the Advisor are currently purchasing
restaurant properties and other types of properties, including furniture,
fixtures, and equipment, and incurring related costs for public and private
investor programs, which have investment objectives that are not identical,
and/or a structure not similar to those of the Company, but which make
investments that include "triple-net" leases of fast-food, family-style, and
casual- dining restaurant properties and other types of properties, mortgage
loans and/or in secured equipment leases. The Advisor or its Affiliates
currently are and in the future may offer interests in one or more public or
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private programs organized to purchase properties of the type to be acquired by
the Company, to offer mortgage loans and/or to offer secured equipment leases.
(ii) In the event that an investment opportunity becomes
available which is suitable for both the Company and a public or private entity
with which the Advisor or its Affiliates are affiliated for which both entities
have sufficient uninvested funds, then the entity which has had the longer
period of time elapse since it was offered an investment opportunity will first
be offered the investment opportunity. An investment opportunity will not be
considered suitable for a program if the requirements of subparagraph (i) above
could not be satisfied if the program were to make the investment. In
determining whether or not an investment opportunity is suitable for more than
one program, the Advisor will examine such factors, among others, as the cash
requirements of each program, the effect of the acquisition both on
diversification of each program's investments by types of restaurants and other
businesses and geographic area, and on diversification of the tenants of its
properties (which also may affect the need for one of the programs to prepare or
produce audited financial statements for a property or a tenant), the
anticipated cash flow of each program, the size of the investment, the amount of
funds available to each program, and the length of time such funds have been
available for investment. If a subsequent development, such as a delay in the
closing of a property or a delay in the construction of a property, causes any
such investment, in the opinion of the Advisor and its Affiliates, to be more
appropriate for an entity other than the entity which committed to make the
investment, however, the Advisor has the right to agree that the other entity
affiliated with the Advisor or its Affiliates may make the investment.
SECTION 6.4 OTHER TRANSACTIONS.
(i) No goods or services will be provided by the Advisor or its
Affiliates to the Company except for transactions in which the Advisor or its
Affiliates provide goods or services to the Company in accordance with these
Articles of Incorporation or if a majority of the Directors (including a
majority of the Independent Directors) not otherwise interested in such
transactions approve such transactions as fair and reasonable to the Company and
on terms and conditions not less favorable to the Company than those available
from unaffiliated third parties.
(ii) The Company will not make any loans to Affiliates. Any
loans to the Company by the Advisor or its Affiliates must be approved by a
majority of the Directors (including a majority of Independent Directors) not
otherwise interested in such transaction as fair, competitive, and commercially
reasonable, and no less favorable to the Company than comparable loans between
unaffiliated parties.
ARTICLE VII
SHARES
SECTION 7.1 AUTHORIZED SHARES. The beneficial interest in the Company
shall be divided into Equity Shares. The total number of Equity Shares which
the Company is authorized
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to issue is one hundred twenty-six million (126,000,000) shares of beneficial
interest, consisting of sixty million (60,000,000) Common Shares (as defined and
described in Section 7.2(ii) hereof), three million (3,000,000) Preferred Shares
(as defined in Section 7.3 hereof) and sixty-three million (63,000,000) Excess
Shares (as defined in Section 7.7 hereof). All Shares shall be fully paid and
nonassessable when issued. Shares may be issued for such consideration as the
Directors determine or, if issued as a result of a Share dividend or Share
split, without any consideration.
SECTION 7.2 COMMON SHARES.
(i) COMMON SHARES SUBJECT TO TERMS OF PREFERRED SHARES. The
Common Shares shall be subject to the express terms of any series of Preferred
Shares.
(ii) DESCRIPTION. Common Shares (herein so called) shall have a
par value of $.01 per share and shall entitle the holders to one (1) vote per
share on all matters upon which Stockholders are entitled to vote pursuant to
Section 8.2 hereof, and shares of a particular class of issued Common Shares
shall have equal dividend, distribution, liquidation and other rights, and shall
have no preference, cumulative, preemptive, appraisal, conversion or exchange
rights. The Directors may classify or reclassify any unissued Common Shares by
setting or changing the number, designation, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of any such Common Shares and, in such
event, the Company shall file for record with the State Department of
Assessments and Taxation of the State of Maryland amended articles in substance
and form as prescribed by Title 2 of the MGCL.
(iii) DISTRIBUTION RIGHTS. The holders of Common Shares shall be
entitled to receive such Distributions as may be declared by the Board of
Directors of the Company out of funds legally available therefor.
(iv) DIVIDEND OR DISTRIBUTION RIGHTS. The Directors from time
to time may declare and pay to Stockholders such dividends or Distributions in
cash or other property as the Directors in their discretion shall determine. The
Directors shall endeavor to declare and pay such dividends and Distributions as
shall be necessary for the Company to qualify as a real estate investment trust
under the REIT Provisions of the Code; provided, however, Stockholders shall
have no right to any dividend or Distribution unless and until declared by the
Directors. The exercise of the powers and rights of the Directors pursuant to
this section shall be subject to the provisions of any class or series of Equity
Shares at the time outstanding. The receipt by any Person in whose name any
Equity Shares are registered on the records of the Company or by his duly
authorized agent shall be a sufficient discharge for all dividends or
Distributions payable or deliverable in respect of such Equity Shares and from
all liability to see to the application thereof. Distributions in kind shall
not be permitted, except for distributions of readily marketable securities;
distributions of beneficial interests in a liquidating trust established for the
dissolution of the Company and the liquidation of its assets in accordance with
the terms of these Articles of Incorporation; or distributions of in-kind
property as long as the Directors (i) advise each Stockholder of the risks
associated with direct ownership of the property; (ii) offer each Stockholder
the election of
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receiving in-kind property distributions; and (iii) distribute in-kind property
only to those Stockholders who accept the Directors' offer.
(v) RIGHTS UPON LIQUIDATION. In the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any distribution of the
assets of the Company, the aggregate assets available for distribution to
holders of the Common Shares (including holders of Excess Shares resulting from
the exchange of Common Shares pursuant to Section 7.6(iii) 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 the 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 Section 7.6(i)) 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 Section 7.6(i)) 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.
(vi) VOTING RIGHTS. Except as may be provided in these Articles
of Incorporation, and subject to the express terms of any series of Preferred
Shares, the holders of the Common Shares shall have the exclusive right to vote
on all matters (as to which a common Stockholder shall be entitled to vote
pursuant to applicable law) at all meetings of the Stockholders of the Company,
and shall be entitled to one (1) vote for each Common Share entitled to vote at
such meeting.
SECTION 7.3 PREFERRED SHARES. The Directors are hereby expressly granted
the authority to authorize from time to time the issuance of one or more series
of Preferred Shares. Prior to the issuance of each such series, the Board of
Directors, 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, however, the voting rights for each share of the Preferred Shares
shall not exceed voting rights which bear the same relationship to the voting
rights of the Common Shares as the consideration paid to the Company for each of
Preferred Shares bears to the book value of the Common Shares or the date that
such Preferred Shares are issued. The authority of the Board of Directors with
respect to each series shall include, but not be limited to, determination of
the following:
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(i) The designation of the series, which may be by distinguishing
number, letter or title.
(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 Company, 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 Company or
any other corporation or 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 of the holders of shares of the series
subject to the limitations contained in this Section 7.3.
(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 these
Articles of Incorporation, the Board of Directors 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 7.4 GENERAL NATURE OF SHARES. All Shares shall be personal
property entitling the Stockholders only to those rights provided in these
Articles of Incorporation, the MGCL or in the resolution creating any class or
series of Shares. The legal ownership of the Company Property and the right to
conduct the business of the Company are vested exclusively in the Directors; the
Stockholders shall have no interest therein other than the beneficial interest
in the Company conferred by their Shares and shall have no right to compel any
partition, division,
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dividend or Distribution of the Company or any of the Company Property. The
death of a Stockholder shall not terminate the Company or give his legal
representative any rights against other Stockholders, the Directors or the
Company Property, except the right, exercised in accordance with applicable
provisions of the Bylaws, to require the Company to reflect on its books the
change in ownership of the Shares. Holders of Shares shall not have any
preemptive or other right to purchase or subscribe for any class of securities
of the Company which the Company may at any time issue or sell.
SECTION 7.5 NO ISSUANCE OF SHARE CERTIFICATES. The Company shall not
issue share certificates except to Stockholders who make a written request to
the Company. A Stockholder's investment shall be recorded on the books of the
Company. To transfer his or her Shares a Stockholder shall submit an executed
form to the Company, which form shall be provided by the Company upon request.
Such transfer will also be recorded on the books of the Company. Upon issuance
or transfer of shares, the Company will provide the Stockholder with information
concerning his or her rights with regard to such stock, in a form substantially
similar to Section 7.6(xii), and required by the Bylaws and the MGCL or other
applicable law.
SECTION 7.6 RESTRICTIONS ON OWNERSHIP AND TRANSFER.
(i) DEFINITIONS. For purposes of Sections 7.6 and 7.7, the
following terms shall have the following meanings:
"ACQUIRE" means 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" means ownership of 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 of the
Code, as modified by Section 856(h)(1)(B) of the Code. For purposes of this
definition, the term "individual" 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 Owns" and
"Beneficially Owned" shall have correlative meanings.
"BENEFICIARY" means a beneficiary of the Excess Shares Trust as
determined pursuant to Section 7.7(v)(a) hereof.
"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 New York Stock Exchange, or if the affected
class or series of Equity Shares are not so listed or admitted to trading, as
reported in the principal
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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 Equity Shares are listed or
admitted to trading, or, if the affected class or series of Equity Shares are
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 Equity
Shares are 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 Directors 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 Directors in its
discretion.
"COMMON SHARE OWNERSHIP LIMIT" means, with respect to the Common Shares,
nine point eight percent (9.8%) of the outstanding Common Shares, subject to
adjustment pursuant to Section 7.6(x) (but not more than nine point nine percent
(9.9%) of the outstanding Common Shares, as so adjusted) and to the limitations
contained in Section 7.6(xi).
"CONSTRUCTIVE OWNERSHIP" means 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 Owns" and "Constructively Owned" shall have correlative
meanings.
"EXCESS SHARES TRUST" means the trust created pursuant to Section 7.7(i)
hereof.
"EXCESS SHARES TRUSTEE" means the Company as trustee for the Excess
Shares Trust, and any successor trustee appointed by the Company.
"MARKET PRICE" means, during the offering, the price per Equity Share
and thereafter, until the Equity Shares are listed for trading on an exchange or
market, a price determined on the basis of the quarterly valuation of the
Company's assets. Upon listing of the Shares, market price shall mean the
average of the Closing Prices for the ten (10) consecutive Trading Days
immediately preceding such day (or those days during such ten (10)-day period
for which Closing Prices are available).
"OWNERSHIP LIMIT" means the Common Share Ownership Limit or the
Preferred Share Ownership Limit, or both, as the context may require.
"PREFERRED SHARE OWNERSHIP LIMIT" means, with respect to the Preferred
Shares, nine point eight percent (9.8%) of the outstanding Shares of a
particular series of Preferred Shares of the Company, subject to adjustment
pursuant to Section 7.6(x) (but not more than nine point nine
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percent (9.9%) of the outstanding Preferred Shares, as so adjusted) and to the
limitations contained in this Section 7.6.
"PURPORTED BENEFICIAL HOLDER" means, 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 (iii) of this Section 7.6,
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" means, 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 which results in Excess Shares had been
valid under Section 7.6(ii). The Purported Beneficial Transferee and the
Purported Record Transferee may be the same Person.
"PURPORTED RECORD HOLDER" means, 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
Section 7.6(iii), 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.
"PURPORTED RECORD TRANSFEREE" means, with respect to any purported
Transfer or Acquisition which results in Excess Shares, the record holder of the
Equity Shares if such Transfer or Acquisition which results in Excess Shares had
been valid under Section 7.6(ii). The Purported Record Transferee and the
Purported Beneficial Transferee may be the same Person.
"RESTRICTION TERMINATION DATE" means the first day after the date of the
closing of the Initial Public Offering on which the Board of Directors of the
Company determines, pursuant to Section 3.2(xxii) hereof, that it is no longer
in the best interests of the Company to attempt or continue to qualify as REIT.
"TRADING DAY" means a day on which the principal national securities
exchange on which the affected class or series of Equity Shares are listed or
admitted to trading is open for the transaction of business or, if the affected
class or series of Equity Shares are 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" means 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
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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.
(ii) OWNERSHIP AND TRANSFER LIMITATIONS.
(a) Notwithstanding any other provision of these Articles of
Incorporation, except as provided in Section 7.6(ix) and Section 7.8, from the
date of the Initial Public Offering and prior to the Restriction Termination
Date, no Person shall Beneficially or Constructively Own Equity Shares in excess
of the Common or Preferred Share Ownership Limit.
(b) Notwithstanding any other provision of these Articles of
Incorporation, except as provided in Section 7.6(ix) and Section 7.8, from the
date of the Initial Public Offering and prior to the Restriction Termination
Date, any Transfer, Acquisition, change in the capital structure of the Company,
other purported change in Beneficial or Constructive Ownership of Equity Shares
or other event or transaction that, if effective, would result in any Person
Beneficially or Constructively Owning Equity Shares in excess of the Common or
Preferred Share Ownership Limit shall be void AB INITIO as to the Transfer,
Acquisition, change in the capital structure of the Company, other purported
change in Beneficial or 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 Common or
Preferred Share Ownership Limit, 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.
(c) Notwithstanding any other provision of these Articles of
Incorporation, and except as provided in Section 7.8, from the date of the
Initial Public Offering and prior to the Restriction Termination Date, any
Transfer, Acquisition, change in the capital structure of the Company, 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 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
Company, other purported change in Beneficial or Constructive Ownership
(including actual ownership) 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 Owner or Constructive Owner) shall
acquire no rights in that number of Equity Shares.
(d) Notwithstanding any other provision of these Articles of
Incorporation, except as provided in Section 7.8, from the date of the Initial
Public Offering and prior to the Restriction Termination Date, any Transfer,
Acquisition, change in the capital structure of the Company, other purported
change in Beneficial or
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Constructive Ownership of Equity Shares or other event or transaction that, if
effective, would cause the Company 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 Company to fail to qualify as
a REIT shall be void ab initio as to the Transfer, Acquisition, change in the
capital structure of the Company, 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 Company to be "closely held" within the
meaning of Section 856(h) of the Code or otherwise, directly or indirectly,
would cause the Company 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.
(e) Notwithstanding any other provision of these Articles of
Incorporation, except as provided in Section 7.8, from the date of the Initial
Public Offering and prior to the Restriction Termination Date, any Transfer,
Acquisition, change in capital structure of the Company, or other purported
change in Beneficial or Constructive Ownership of Equity Shares or other event
or transaction that, if effective, would (i) cause the Company 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 Company 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
Company, 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 Company 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.
(f) Notwithstanding any other provision of these Articles of
Incorporation, any person selling securities on behalf of the Company in its
Initial Public Offering may not complete a sale of securities to a Stockholder
until at least five (5) business days after the date the Stockholder receives a
final Prospectus and shall send each Stockholder a confirmation of his or her
purchase.
(iii) EXCHANGE FOR EXCESS SHARES.
(a) If, notwithstanding the other provisions contained in
this Article VII, at any time from the date of the Initial Public Offering and
prior to the Restriction Termination Date, there is a purported Transfer,
Acquisition, change in the capital structure of the Company, other purported
change in the Beneficial or Constructive Ownership of Equity Shares or other
event or transaction such that any Person would either Beneficially or
Constructively Own Equity Shares in excess of the Common or Preferred Share
Ownership Limit, then, except as otherwise provided in Section 7.6(ix), such
Equity Shares (rounded up to the next whole number of shares) in
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excess of the Common or Preferred Share Ownership Limit 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 VII 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, other change in
purported Beneficial or Constructive Ownership of Shares, or other event or
transaction.
(b) If, notwithstanding the other provisions contained in
this Article VII, at any time after the date of the Initial Public Offering and
prior to the Restriction Termination Date, there is a purported Transfer,
Acquisition, change in the capital structure of the Company, other purported
change in the 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 (b), (c), (d) and (e) of paragraph
(ii) of this Section 7.6 or, directly or indirectly, would cause the Company
for any reason 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 Company to fail to qualify as a REIT, then the
Shares (rounded up to the next whole number of Shares) being Transferred or
which are otherwise affected by the change in capital structure or other
purported change in Beneficial or Constructive Ownership and which, in any case,
would cause the Company to be "closely held" within the meaning of such Section
856(h) or otherwise would cause the Company 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 VII 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, other
purported change in Beneficial or Constructive Ownership or other event or
transaction.
(iv) REMEDIES FOR BREACH. If the Board of Directors or its
designee shall at any time determine in good faith that a Transfer, Acquisition,
change in the capital structure of the Company or other purported change in
Beneficial or Constructive Ownership or other event or transaction has taken
place in violation of Section 7.6(ii) or that a Person intends to Acquire or has
attempted to Acquire Beneficial or Constructive Ownership of any Equity Shares
in violation of this Section 7.6, the Board of Directors or its designee shall
take such action as it deems advisable to refuse to give effect to or to prevent
such Transfer, Acquisition, change in the capital structure of the Company,
other attempt to Acquire Beneficial or Constructive Ownership of any Shares or
other event or transaction, including, but not limited to, refusing to give
effect thereto on the books of the Company or instituting injunctive proceedings
with respect thereto; provided, however, that any Transfer, Acquisition, change
in the capital structure of the Company, attempted Transfer or other attempt to
Acquire Beneficial or Constructive Ownership of any Equity Shares or other event
or transaction in violation of subparagraphs (b), (c), (d) and (e) of Section
7.6(ii) (as applicable) shall be void ab initio and where applicable
automatically shall result
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in the exchange described in Section 7.6(iii), irrespective of any action (or
inaction) by the Board of Directors or its designee.
(v) NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or
attempts to Acquire Beneficial or Constructive Ownership of Equity Shares in
violation of Section 7.6(ii) 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 Section 7.6(iii), or otherwise shall immediately give
written notice to the Company, or, in the event of a proposed or attempted
Transfer, Acquisition, or purported change in Beneficial or Constructive
Ownership, shall give at least fifteen (15) days prior written notice to the
Company, of such event and shall promptly provide to the Company such other
information as the Company, in its sole discretion, may request in order to
determine the effect, if any, of such Transfer, attempted Transfer, Acquisition,
Attempted Acquisition or purported change in Beneficial or Constructive
Ownership on the Company's status as a REIT.
(vi) OWNERS REQUIRED TO PROVIDE INFORMATION. From the date of
the Initial Public Offering and prior to the Restriction Termination Date:
(a) Every Beneficial or Constructive Owner of more than five
percent (5%), or such lower percentages as determined pursuant to regulations
under the Code or as may be requested by the Board of Directors, in its sole
discretion, of the outstanding shares of any class or series of Equity Shares of
the Company shall annually, no later than January 31 of each calendar year, give
written notice to the Company 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 Company such additional information as the
Company, in its sole discretion, may request in order to determine the effect,
if any, of such Beneficial or Constructive Ownership on the Company's status as
a REIT and to ensure compliance with the Common or Preferred Share Ownership
Limit and other restrictions set forth herein.
(b) Each Person who is a Beneficial or Constructive Owner of
Equity Shares and each Person (including the Stockholder of record) who is
holding Equity Shares for a Beneficial or Constructive Owner promptly shall
provide to the Company such information as the Company, in its sole discretion,
may request in order to determine the Company's status as a REIT, to comply with
the requirements of any taxing authority or other governmental agency, to
determine any such compliance or to ensure compliance with the Common or
Preferred Share Ownership Limit and other restrictions set forth herein.
(vii) REMEDIES NOT LIMITED. Nothing contained in this Article
VII except Section 7.8 shall limit scope or application of the provisions of
this Section 7.6, the ability of the Company to implement or enforce compliance
with the terms thereof or the authority of the Board of Directors to take any
such other action or actions as it may deem necessary or advisable to
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protect the Company and the interests of its Stockholders by preservation of the
Company's status as a REIT and to ensure compliance with the Ownership Limit for
any class or series of Equity Shares and other restrictions set forth herein,
including, without limitation, refusal to give effect to a transaction on the
books of the Company.
(viii) AMBIGUITY. In the case of an ambiguity in the application
of any of the provisions of this Section 7.6, including any definition contained
in Sections 1.5 and 7.6(i), the Board of Directors shall have the power and
authority, in its sole discretion, to determine the application of the
provisions of this Section 7.6 with respect to any situation based on the facts
known to it.
(ix) EXCEPTION. The Board of Directors, upon receipt of a ruling
from the Internal Revenue Service, an opinion of counsel or other evidence
satisfactory to the Board of Directors, in its sole discretion, in each case to
the effect that the restrictions contained in subparagraphs (c), (d) and (e) of
Section 7.6(ii) will not be violated, may waive or change, in whole or in part,
the application of the Common or Preferred Share 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 Directors 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 Company's
status as a REIT.
(x) INCREASE IN COMMON OR PREFERRED SHARE OWNERSHIP LIMIT.
Subject to the limitations contained in Section 7.6(xi), the Board of Directors
may from time to time increase the Common or Preferred Share Ownership Limit.
(xi) LIMITATIONS ON MODIFICATIONS.
(a) 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 Company would
be "closely held" within the meaning of Section 856(h) of the Code (assuming
ownership of shares of Equity Shares by all Persons equal to the greatest of (A)
the actual ownership, (B) the Beneficial Ownership of Equity Shares by each
Person, or (C) the applicable Ownership Limit with respect to such Person.
(b) Prior to any modification of the Ownership Limit with
respect to any Person, the Board of Directors 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 Company's status as a REIT.
(c) Neither the Preferred Share Ownership Limit nor the
Common Share Ownership Limit may be increased to a percentage that is greater
than nine point nine percent (9.9%).
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(xii) NOTICE TO STOCKHOLDERS UPON ISSUANCE OR TRANSFER. Upon
issuance or transfer of Shares, the Company shall provide the recipient with a
notice containing information about the shares purchased or otherwise
transferred, in lieu of issuance of a share certificate, in a form substantially
similar to the following:
"The securities issued or transferred are subject to restrictions on
transfer and ownership for the purpose of maintenance of the Company'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 Articles of
Incorporation of the Company, no Person may (i) Beneficially or
Constructively Own Common Shares of the Company in excess of 9.8% (or
such greater percent as may be determined by the Board of Directors of
the Company) of the outstanding Common Shares; (ii) Beneficially or
Constructively Own shares of any series of Preferred Shares of the
Company in excess of 9.8% 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 Company being "closely held" under Section 856(h) of the Code or
which otherwise would cause the Company 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 above limitations and
any Person who Beneficially or Constructively Owns Excess Shares as a
transferee of Common or Preferred Shares resulting in an exchange for
Excess Shares (as described below) immediately must notify the Company
in writing or, in the event of a proposed or attempted Transfer or
Acquisition or purported change in Beneficial or Constructive Ownership,
must give written notice to the Company at least 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 Company's Articles of Incorporation 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 Company, all as provided by the Articles of Incorporation
of the Company. All defined terms used in this legend have the meanings
identified in the Company's Articles of
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Incorporation, 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 Stockholder who so requests."
SECTION 7.7 EXCESS SHARES.
(i) OWNERSHIP IN TRUST. Upon any purported Transfer,
Acquisition, change in the capital structure of the Company, other purported
change in Beneficial or Constructive Ownership or event or transaction that
results in Excess Shares pursuant to Section 7.6(iii), such Excess Shares shall
be deemed to have been transferred to the Company, 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
Section 7.6(v). Excess Shares so held in trust shall be issued and outstanding
stock of the Company. 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 Section 7.6(v).
The Purported Beneficial Transferee shall have no rights in such Excess Shares
except as provided in Section 7.7(iii) and (v).
(ii) DISTRIBUTION RIGHTS. Excess Shares shall not be entitled to
any dividends or Distributions (except as provided in Section 7.7(iii)). Any
dividend or Distribution paid prior to the discovery by the Company that the
Equity Shares have been exchanged for Excess Shares shall be repaid to the
Company 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.
(iii) RIGHTS UPON LIQUIDATION.
(a) 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 Company, 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 Company'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 (A) each
other holder of Excess Shares resulting from the exchange of Preferred
Shares of all series entitled to so participate; (B) each holder of
Preferred Shares of all series entitled to so participate; and (C) each
holder of Common Shares and Excess Shares resulting from the exchange of
Common Shares (to the extent permitted by Section 7.6(iii) hereof), that
portion of the aggregate assets available for distribution (determined in
accordance with applicable law) as the number of shares of such Excess
Shares held by such holder bears to the total number of (1) outstanding
Excess Shares resulting from the exchange of Preferred Shares of all series
entitled to
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so participate; (2) outstanding Preferred Shares of all series entitled to so
participate; and (3) outstanding Common Shares and Excess Shares resulting from
the exchange of Common Shares. The Company, as holder of the Excess Shares in
trust, or, if the Company shall have been dissolved, any trustee appointed by
the Company 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 Company. 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 (A) 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 (B) 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
shares of 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. 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.
(b) 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 Company, each holder of Excess Shares resulting from the
exchange of Common Shares shall be entitled to receive, ratably with (A) each
other holder of such Excess Shares and (B) 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 Section 7.6(iii)), 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 Company, as holder of the
Excess Shares in trust, or, if the Company shall have been dissolved, any
trustee appointed by the Company prior to its dissolution, shall distribute
ratably to the Beneficiaries of the Excess Shares, 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 Company. Anything
herein to the contrary notwithstanding, in no event shall the amount payable to
a holder with respect to Excess Shares exceed (A) 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 (B) if the holder did not give full value for such Equity 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. Any amount available for distribution in excess
of the foregoing limitations shall be
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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.
(iv) VOTING RIGHTS. The holders of Excess Shares shall not be
entitled to vote on any matters (except as required by the MGCL).
(v) RESTRICTIONS ON TRANSFER; DESIGNATION OF BENEFICIARY.
(a) 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 or Acquisition that resulted in the Excess Shares), if (A) the Excess
Shares held in the Excess Shares Trust would not be Excess Shares 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 Shares that exceeds (1) 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 (2) 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. 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 were originally exchanged for such Excess Shares), and such
Equity Shares shall be transferred of record to the Beneficiary of the interest
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 advance written notice to the Company of the
intended transfer and the Company must have waived in writing its purchase
rights under Section 7.7(vi).
(b) 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 (i) of this Section 7.6(v), 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 Company.
(c) If any of the transfer restrictions set forth in this
Section 7.6(v), or any application thereof, are determined to be void, invalid
or unenforceable by any court
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having jurisdiction over the issue, the Purported Record Transferee (or
Purported Record Holder) may be deemed, at the option of the Company, to have
acted as the agent of the Company 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 Company.
(vi) PURCHASE RIGHT IN EXCESS SHARES. Excess Shares shall be
deemed to have been offered for sale to the Company, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction that
created such Excess Shares (or, in the case of 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) and (ii)
the Market Price of the Equity Shares exchanged for such Excess Shares on the
date the Company, or its designee, accepts such offer. The Company 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 Company, purported change in Beneficial
Ownership or other event or transaction which resulted in such Excess Shares and
(ii) the date on which the Board of Directors determines in good faith that a
Transfer, Acquisition, change in capital structure of the Company, purported
change in Beneficial or Constructive Ownership resulting in Excess Shares has
occurred, if the Company does not receive a notice pursuant to Section 7.6(v),
but in no event later than a permitted Transfer pursuant to and in compliance
with the terms of Section 7.7(v).
(vii) REMEDIES NOT LIMITED. Nothing contained in this Article
VII except Section 7.8 shall limit scope or application of the provisions of
this Section 7.7, the ability of the Company to implement or enforce compliance
with the terms hereof or the authority of the Board of Directors to take any
such other action or actions as it may deem necessary or advisable to protect
the Company and the interests of its Stockholders by preservation of the
Company's status as a REIT and to ensure compliance with applicable Share
Ownership Limits and the other restrictions set forth herein, including, without
limitation, refusal to give effect to a transaction on the books of the Company.
(viii) AUTHORIZATION. At such time as the Board of Directors
authorizes a series of Preferred Shares pursuant to Section 7.3 of this Article
VII, without any further or separate action of the Board of Directors, 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 such Excess Shares are already authorized or this Article VII
requires different terms.
SECTION 7.8 SETTLEMENTS. Nothing in Sections 7.6 and 7.7 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 other national
securities exchange on which the Common Shares are listed.
SECTION 7.9 SEVERABILITY. If any provision of this Article VII or any
application of any such provision is determined to be void, invalid or
unenforceable by any court having
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jurisdiction over the issue, the validity and enforceability of the remaining
provisions of this Article VII 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 7.10 WAIVER. The Company 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 VII if the Company determines,
based on an opinion of nationally recognized tax counsel, that the issuance of
such Excess Shares or the fact that such Excess Shares are deemed to be
outstanding, would jeopardize the status of the Company as a REIT (as that term
is defined in Section 1.5).
ARTICLE VIII
STOCKHOLDERS
SECTION 8.1 MEETINGS OF STOCKHOLDERS. There shall be an annual meeting of
the Stockholders, to be held at such time and place as shall be determined by or
in the manner prescribed in the Bylaws, at which the Directors shall be elected
and any other proper business may be conducted. The annual meeting will be held
at a location convenient to the Stockholders, on a date which is a reasonable
period of time following the distribution of the Company's annual report to
Stockholders but not less than thirty (30) days after delivery of such report. A
majority of Stockholders present in person or by proxy at an annual meeting at
which a quorum is present, may, without the necessity for concurrence by the
Directors, vote to elect the Directors. A quorum shall be 50% of the then
outstanding Shares. Special meetings of Stockholders may be called in the
manner provided in the Bylaws, including at any time by Stockholders holding, in
the aggregate, not less than ten percent (10%) of the outstanding Equity Shares
entitled to be cast on any issue proposed to be considered at any such special
meeting. If there are no Directors, the officers of the Company shall promptly
call a special meeting of the Stockholders entitled to vote for the election of
successor Directors. Any meeting may be adjourned and reconvened as the
Directors determine or as provided by the Bylaws.
SECTION 8.2 VOTING RIGHTS OF STOCKHOLDERS. Subject to the provisions of
any class or series of Shares then outstanding and the mandatory provisions of
any applicable laws or regulations, the Stockholders shall be entitled to vote
only on the following matters; (a) election or removal of Directors as provided
in Sections 8.1, 2.4 and 2.7 hereof; (b) amendment of these Articles of
Incorporation as provided in Section 10.1 hereof; (c) termination of the Company
as provided in Section 11.2 hereof; (d) reorganization of the Company as
provided in Section 10.2 hereof; (e) merger, consolidation or sale or other
disposition of all or substantially all of the Company Property, as provided in
Section 10.3 hereof; and (f) termination of the Company's status as a real
estate investment trust under the REIT Provisions of the Code, as provided in
Section 3.2(xxii) hereof. The Stockholders may terminate the status of the
Company as a REIT under the Code by a vote of a majority of the Shares
outstanding and entitled to vote. Except with respect to the foregoing matters,
no action taken by the Stockholders at any meeting shall in any way bind the
Directors.
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SECTION 8.3 VOTING LIMITATIONS ON SHARES HELD BY THE ADVISOR, DIRECTORS
AND AFFILIATES. With respect to Shares owned by the Advisor, the Directors, or
any of their Affiliates, neither the Advisor, nor the Directors, nor any of
their Affiliates may vote or consent on matters submitted to the Stockholders
regarding the removal of the Advisor, Directors or any of their Affiliates or
any transaction between the Company and any of them. In determining the
requisite percentage in interest of Shares necessary to approve a matter on
which the Advisor, Directors and any of their Affiliates may not vote or
consent, any Shares owned by any of them shall not be included.
SECTION 8.4 STOCKHOLDER ACTION TO BE TAKEN BY MEETING. Any action
required or permitted to be taken by the Stockholders of the Company must be
effected at a duly called annual or special meeting of Stockholders of the
Company and may not be effected by any consent in writing of such Stockholders.
SECTION 8.5 RIGHT OF INSPECTION. Any Stockholder and any designated
representative thereof shall be permitted access to all records of the Company
at all reasonable times, and may inspect and copy any of them for a reasonable
charge. Inspection of the Company books and records by the office or agency
administering the securities laws of a jurisdiction shall be provided upon
reasonable notice and during normal business hours.
SECTION 8.6 ACCESS TO STOCKHOLDER LIST. An alphabetical list of the
names, addresses and telephone numbers of the Stockholders of the Company, along
with the number of Shares held by each of them (the "Stockholder List"), shall
be maintained as part of the books and records of the Company and shall be
available for inspection by any Stockholder or the Stockholder's designated
agent at the home office of the Company upon the request of the Stockholder. The
Stockholder List shall be updated at least quarterly to reflect changes in the
information contained therein. A copy of such list shall be mailed to any
Stockholder so requesting within ten (10) days of the request. The copy of the
Stockholder List shall be printed in alphabetical order, on white paper, and in
a readily readable type size (in no event smaller than 10-point type). The
Company may impose a reasonable charge for expenses incurred in reproduction
pursuant to the Stockholder request. A Stockholder may request a copy of the
Stockholder List in connection with matters relating to Stockholders' voting
rights, and the exercise of Stockholder rights under federal proxy laws.
If the Advisor or Directors neglect or refuse to exhibit, produce or mail a
copy of the Stockholder List as requested, the Advisor and the Directors shall
be liable to any Stockholder requesting the list for the costs, including
attorneys' fees, incurred by that Stockholder for compelling the production of
the Stockholder List, and for actual damages suffered by any Stockholder by
reason of such refusal or neglect. It shall be a defense that the actual
purpose and reason for the requests for inspection or for a copy of the
Stockholder List is to secure such list of Stockholders or other information for
the purpose of selling such list or copies thereof, or of using the same for a
commercial purpose other than in the interest of the applicant as a Stockholder
relative to the affairs of the Company. The Company may require the Stockholder
requesting the Stockholder List to represent that the list is not requested for
a commercial purpose unrelated to the Stockholder's interest in the Company. The
remedies provided
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hereunder to Stockholders requesting copies of the Stockholder List are in
addition, to and shall not in any way limit, other remedies available to
Stockholders under federal law, or the laws of any state.
SECTION 8.7 REPORTS. The Directors, including the Independent Directors,
shall take reasonable steps to insure that the Company shall cause to be
prepared and mailed or delivered to each Stockholder as of a record date after
the end of the fiscal year and each holder of other publicly held securities of
the Company within one hundred twenty (120) days after the end of the fiscal
year to which it relates an annual report for each fiscal year ending after the
initial public offering of its securities which shall include: (i) financial
statements prepared in accordance with generally accepted accounting principles
which are audited and reported on by independent certified public accountants;
(ii) the ratio of the costs of raising capital during the period to the capital
raised; (iii) the aggregate amount of advisory fees and the aggregate amount of
other fees paid to the Advisor and any Affiliate of the Advisor by the Company
and including fees or changes paid to the Advisor and any Affiliate of the
Advisor by third parties doing business with the Company; (iv) the Operating
Expenses of the Company, stated as a percentage of Average Invested Assets and
as a percentage of its Net Income; (v) a report from the Independent Directors
that the policies being followed by the Company are in the best interests of its
Stockholders and the basis for such determination; (vi) separately stated, full
disclosure of all material terms, factors, and circumstances surrounding any and
all transactions involving the Company, Directors, Advisors and any Affiliate
thereof occurring in the year for which the annual report is made, and the
Independent Directors shall be specifically charged with a duty to examine and
comment in the report on the fairness of such transactions; and (vii)
Distributions to the Stockholders for the period, identifying the source of such
Distributions, and if such information is not available at the time of the
distribution, a written explanation of the relevant circumstances will accompany
the Distributions (with the statement as to the source of Distributions to be
sent to Stockholders not later than sixty (60) days after the end of the fiscal
year in which the distribution was made).
ARTICLE IX
LIABILITY OF STOCKHOLDERS, DIRECTORS, ADVISORS AND AFFILIATES;
TRANSACTIONS BETWEEN AFFILIATES AND THE COMPANY
SECTION 9.1 LIMITATION OF STOCKHOLDER LIABILITY. No Stockholder shall be
liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Company by reason of his being a Stockholder, nor
shall any Stockholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any Person in connection with the Company Property or
the affairs of the Company by reason of his being a Stockholder. The Company
shall include a clause in its contracts which provides that Stockholders shall
not be personally liable for obligations entered into on behalf of the Company.
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SECTION 9.2 LIMITATION OF LIABILITY AND INDEMNIFICATION.
(i) The Company shall indemnify and hold harmless a Director,
Advisor, or Affiliate (the "Indemnitee") against any or all losses or
liabilities reasonably incurred by the Indemnitee in connection with or by
reason of any act or omission performed or omitted to be performed on behalf of
the Company in such capacity, provided, that the Indemnitee has determined, in
good faith, that the course of conduct which caused the loss or liability was in
the best interests of the Company. The Company shall not indemnify or hold
harmless the Indemnitee if: (i) in the case that the Indemnitee is not an
Independent Director, the loss or liability was the result of negligence or
misconduct by the Indemnitee, or (ii) in the case that the Indemnitee is an
Independent Director, the loss or liability was the result of gross negligence
or willful misconduct by the Indemnitee. Any indemnification of expenses or
agreement to hold harmless may be paid only out of the Net Assets of the Company
and no portion may be recoverable from the Stockholders.
(ii) The Company shall not provide indemnification for any loss,
liability or expense arising from or out of an alleged violation of federal or
state securities laws by such party unless one or more of the following
conditions are met: (i) there has been a successful adjudication on the merits
of each count involving alleged securities law violations as to the Indemnitee,
(ii) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the Indemnitee; or (iii) a court of competent
jurisdiction approves a settlement of the claims against the Indemnitee and
finds that indemnification of the settlement and the related costs should be
made, and the court considering the request for indemnification has been advised
of the position of the Securities and Exchange Commission and of the published
position of any state securities regulatory authority in which securities of the
Company were offered or sold as to indemnification for violations of securities
laws.
(iii) Notwithstanding anything to the contrary contained in the
provisions of subsection (i) and (ii) above of this Section, the Company shall
not indemnify or hold harmless an Indemnitee if it is established that: (a) the
act or omission was material to the loss or liability and was committed in bad
faith or was the result of active or deliberate dishonesty, (b) the Indemnitee
actually received an improper personal benefit in money, property, or services,
(c) in the case of any criminal proceeding, the Indemnitee had reasonable cause
to believe that the act or omission was unlawful, or (d) in a proceeding by or
in the right of the Company, the Indemnitee shall have been adjudged to be
liable to the Company.
(iv) The Directors may take such action as is necessary to carry
out this Section 9.2 and are expressly empowered to adopt, approve and amend
from time to time Bylaws, resolutions or contracts implementing such provisions.
No amendment of these Articles of Incorporation or repeal of any of its
provisions shall limit or eliminate the right of indemnification provided
hereunder with respect to acts or omissions occurring prior to such amendment or
repeal.
SECTION 9.3 PAYMENT OF EXPENSES. The Company shall pay or reimburse
reasonable legal expenses and other costs incurred by a Director, Advisor, or
Affiliate in advance of final
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disposition of a proceeding if all of the following are satisfied: (i) the
proceeding relates to acts or omissions with respect to the performance of
duties or services on behalf of the Company, (ii) the Indemnitee provides the
Company with written affirmation of his good faith belief that he has met the
standard of conduct necessary for indemnification by the Company as authorized
by Section 9.2 hereof, (iii) the legal proceeding was initiated by a third party
who is not a Stockholder or, if by a Stockholder of the Company acting in his or
her capacity as such, a court of competent jurisdiction approves such
advancement, and (iv) the Indemnitee provides the Company with a written
agreement to repay the amount paid or reimbursed by the Company, together with
the applicable legal rate of interest thereon, if it is ultimately determined
that the Indemnitee did not comply with the requisite standard of conduct and is
not entitled to indemnification. Any indemnification payment or reimbursement
of expenses will be furnished in accordance with the procedures in Section
2-418(e) of the Maryland General Corporation Law.
SECTION 9.4 EXPRESS EXCULPATORY CLAUSES IN INSTRUMENTS. Neither the
Stockholders nor the Directors, officers, employees or agents of the Company
shall be liable under any written instrument creating an obligation of the
Company by reason of their being Stockholders, Directors, officers, employees or
agents of the Company, and all Persons shall look solely to the Company Property
for the payment of any claim under or for the performance of that instrument.
The omission of the foregoing exculpatory language from any instrument shall not
affect the validity or enforceability of such instrument and shall not render
any Stockholder, Director, officer, employee or agent liable thereunder to any
third party, nor shall the Directors or any officer, employee or agent of the
Company be liable to anyone as a result of such omission.
SECTION 9.5 TRANSACTIONS WITH AFFILIATES. The Company shall not engage in
transactions with any Affiliates, except to the extent that each such
transaction has, after disclosure of such affiliation, been approved or ratified
by the affirmative vote of a majority of the Directors (including a majority of
the Independent Directors) not Affiliated with the person who is party to the
transaction and:
(i) The transaction is fair and reasonable to the Company and its
Stockholders.
(ii) The terms of such transaction are at least as favorable as
the terms of any comparable transactions made on an arms-length basis and known
to the Directors.
(iii) The total consideration is not in excess of the appraised
value of the property being acquired, if an acquisition is involved.
(iv) Payments to the Advisor, its Affiliates and the Directors
for services rendered in a capacity other than that as Advisor or Director may
only be made upon a determination that:
(a) The compensation is not in excess of their compensation
paid for any comparable services; and
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(b) The compensation is not greater than the charges for
comparable services available from others who are competent and not Affiliated
with any of the parties involved.
Transactions between the Company and its Affiliates are further subject to
any express restrictions in these Articles of Incorporation (including Article
IV and Section 7.7) or adopted by the Directors in the Bylaws or by resolution,
and further subject to the disclosure and ratification requirements of MGCL
(section) 2-419 and other applicable law.
ARTICLE X
AMENDMENT; REORGANIZATION; MERGER, ETC.
SECTION 10.1 AMENDMENT.
(i) These Articles of Incorporation may be amended, without the
necessity for concurrence by the Directors, by the affirmative vote of the
holders of not less than a majority of the Equity Shares then outstanding and
entitled to vote thereon, except that (1) no amendment may be made which would
change any rights with respect to any outstanding class of securities, by
reducing the amount payable thereon upon liquidation, or by diminishing or
eliminating any voting rights pertaining thereto; and (2) Section 10.2 hereof
and this Section 10.1 shall not be amended (or any other provision of these
Articles of Incorporation be amended or any provision of these Articles of
Incorporation be added that would have the effect of amending such sections),
without the affirmative vote of the holders of two-thirds (2/3) of the Equity
Shares then outstanding and entitled to vote thereon.
(ii) The Directors, by a two-thirds (2/3) vote, may amend
provisions of these Articles of Incorporation from time to time as necessary to
enable the Company to qualify as a real estate investment trust under the REIT
Provisions of the Code. With the exception of the foregoing, the Directors may
not amend these Articles of Incorporation.
(iii) An amendment to these Articles of Incorporation shall
become effective as provided in Section 12.5.
(iv) These Articles of Incorporation may not be amended except as
provided in this Section 10.1.
SECTION 10.2 REORGANIZATION. Subject to the provisions of any class or
series of Equity Shares at the time outstanding, the Directors shall have the
power (i) to cause the organization of a corporation, association, trust or
other organization to take over the Company Property and to carry on the affairs
of the Company, or (ii) merge the Company into, or sell, convey and transfer the
Company Property to any such corporation, association, trust or organization in
exchange for Securities thereof or beneficial interests therein, and the
assumption by the transferee of the liabilities of the Company, and upon the
occurrence of (i) or (ii) above
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terminate the Company and deliver such Securities or beneficial interests
ratably among the Stockholders according to the respective rights of the class
or series of Equity Shares held by them; provided, however, that any such action
shall have been approved, at a meeting of the Stockholders called for that
purpose, by the affirmative vote of the holders of not less than a majority of
the Equity Shares then outstanding and entitled to vote thereon.
SECTION 10.3 MERGER, CONSOLIDATION OR SALE OF COMPANY PROPERTY. Subject
to the provisions of any class or series of Equity Shares at the time
outstanding, the Directors shall have the power to (i) merge the Company into
another entity, (ii) consolidate the Company with one (1) or more other entities
into a new entity; (iii) sell or otherwise dispose of all or substantially all
of the Company Property; or (iv) dissolve or liquidate the Company, other than
before the initial investment in Company Property; provided, however, that such
action shall have been approved, at a meeting of the Stockholders called for
that purpose, by the affirmative vote of the holders of not less than a majority
of the Equity Shares then outstanding and entitled to vote thereon. Any such
transaction involving an Affiliate of the Company or the Advisor also must be
approved by a majority of the Directors (including a majority of the Independent
Directors) not otherwise interested in such transaction as fair and reasonable
to the Company and on terms and conditions not less favorable to the Company
than those available from unaffiliated third parties.
In connection with any proposed Roll-Up Transaction, which, in general
terms, is any transaction involving the acquisition, merger, conversion, or
consolidation, directly or indirectly, of the Company and the issuance of
securities of a Roll-Up Entity that would be created or would survive after
the successful completion of the Roll-Up Transaction, an appraisal of all
Properties shall be obtained from a competent independent appraiser. The
Properties shall be appraised on a consistent basis, and the appraisal
shall be based on the evaluation of all relevant information and shall
indicate the value of the Properties as of a date immediately prior to the
announcement of the proposed Roll-Up Transaction. The appraisal shall
assume an orderly liquidation of Properties over a 12-month period. The
terms of the engagement of the independent appraiser shall clearly state
that the engagement is for the benefit of the Company and the Stockholders.
A summary of the appraisal, indicating all material assumptions underlying
the appraisal, shall be included in a report to Stockholders in connection
with a proposed Roll-Up Transaction. In connection with a proposed Roll-Up
Transaction, the person sponsoring the Roll-Up Transaction shall offer to
Stockholders who vote against the proposed Roll-Up Transaction the choice
of:
(i) accepting the securities of a Roll-Up Entity offered in the
proposed Roll-Up Transaction; or
(ii) one of the following:
(a) remaining Stockholders of the Company and preserving
their interests therein on the same terms and conditions as existed previously;
or
(b) receiving cash in an amount equal to the Stockholder's
pro rata share of the appraised value of the net assets of the Company.
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<PAGE>
The Company is prohibited from participating in any proposed Roll-Up
Transaction:
(iii) which would result in the Stockholders having democracy
rights in a Roll-Up Entity that are less than the rights provided for in
Sections 8.1, 8.2, 8.4, 8.5, 8.6 and 9.1 of these Articles of Incorporation;
(iv) which includes provisions that would operate as a material
impediment to, or frustration of, the accumulation of shares by any purchaser of
the securities of the Roll-Up Entity (except to the minimum extent necessary to
preserve the tax status of the Roll-Up Entity), or which would limit the ability
of an investor to exercise the voting rights of its Securities of the Roll-Up
Entity on the basis of the number of Shares held by that investor;
(v) in which investor's rights to access of records of the
Roll-Up Entity will be less than those described in Sections 8.5 and 8.6 hereof;
or
(vi) in which any of the costs of the Roll-Up Transaction would
be borne by the Company if the Roll-Up Transaction is not approved by the
Stockholders.
ARTICLE XI
DURATION OF COMPANY
SECTION 11.1 The Company automatically will terminate and dissolve on
December 31, 2007, will undertake orderly liquidation and Sales of Company
assets and will distribute any Net Sales Proceeds to Stockholders, unless
Listing occurs, in which event the Company shall continue perpetually unless
dissolved pursuant to the provisions contained herein or pursuant to any
applicable provision of the MGCL.
SECTION 11.2 DISSOLUTION OF THE COMPANY BY STOCKHOLDER VOTE. The Company
may be terminated at any time, without the necessity for concurrence by the
Board of Directors, by the vote or written consent of a majority of the
outstanding Equity Shares.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 GOVERNING LAW. These Articles of Incorporation are executed
by the undersigned Directors and delivered in the State of Maryland with
reference to the laws thereof, and the rights of all parties and the validity,
construction and effect of every provision hereof shall be subject to and
construed according to the laws of the State of Maryland without regard to
conflicts of laws provisions thereof.
SECTION 12.2 RELIANCE BY THIRD PARTIES. Any certificate shall be final
and conclusive as to any persons dealing with the Company if executed by an
individual who, according to the
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<PAGE>
records of the Company or of any recording office in which these Articles of
Incorporation may be recorded, appears to be the Secretary or an Assistant
Secretary of the Company or a Director, and if certifying to: (i) the number or
identity of Directors, officers of the Company or Stockholders; (ii) the due
authorization of the execution of any document; (iii) the action or vote taken,
and the existence of a quorum, at a meeting of the Directors or Stockholders;
(iv) a copy of the Articles of Incorporation or of the Bylaws as a true and
complete copy as then in force; (v) an amendment to these Articles of
Incorporation; (vi) the dissolution of the Company; or (vii) the existence of
any fact or facts which relate to the affairs of the Company. No purchaser,
lender, transfer agent or other person shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made on behalf of
the Company by the Directors or by any duly authorized officer, employee or
agent of the Company.
SECTION 12.3 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(i) The provisions of these Articles of Incorporation are
severable, and if the Directors shall determine that any one or more of such
provisions are in conflict with the REIT Provisions of the Code, or other
applicable federal or state laws, the conflicting provisions shall be deemed
never to have constituted a part of these Articles of Incorporation, even
without any amendment of these Articles of Incorporation pursuant to Section
10.1 hereof; provided, however, that such determination by the Directors shall
not affect or impair any of the remaining provisions of these Articles of
Incorporation or render invalid or improper any action taken or omitted prior to
such determination. No Director shall be liable for making or failing to make
such a determination.
(ii) If any provision of these Articles of Incorporation shall be
held invalid or unenforceable in any jurisdiction, such holding shall not in any
manner affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of these Articles of Incorporation in any
jurisdiction.
SECTION 12.4 CONSTRUCTION. In these Articles of Incorporation, unless the
context otherwise requires, words used in the singular or in the plural include
both the plural and singular and words denoting any gender include both genders.
The title and headings of different parts are inserted for convenience and shall
not affect the meaning, construction or effect of these Articles of
Incorporation. In defining or interpreting the powers and duties of the Company
and its Directors and officers, reference may be made, to the extent
appropriate, to the Code and to Titles 1 through 3 of the Corporations and
Associations Article of the Annotated Code of Maryland, referred to herein as
the "MGCL."
SECTION 12.5 RECORDATION. These Articles of Incorporation and any
amendment hereto shall be filed for record with the State Department of
Assessments and Taxation of Maryland and may also be filed or recorded in such
other places as the Directors deem appropriate, but failure to file for record
these Articles of Incorporation or any amendment hereto in any office other than
in the State of Maryland shall not affect or impair the validity or
effectiveness of these Articles of Incorporation or any amendment hereto. A
restated Articles of Incorporation shall, upon filing, be conclusive evidence of
all amendments contained therein and
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<PAGE>
may thereafter be referred to in lieu of the original Declaration of Trust and
the various amendments thereto.
* * * * * * * * * *
THIRD: This amendment and restatement of the Articles of Incorporation of
the Company has been approved by a majority of the Directors and approved by the
Stockholders as required by law.
FOURTH: The Company currently has authority to issue one hundred thousand
(100,000) shares of capital stock, all of one class of common stock, par value
$0.01 per share. The number, classes, par values and preferences, rights,
powers, restrictions, limitations, qualifications, terms and conditions of the
shares of capital stock that the Company will have authority to issue upon
effectiveness of this amendment and restatement of its Articles of Incorporation
are set forth in Article VII of the foregoing amendment and restatement of such
Articles of Incorporation.
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<PAGE>
IN WITNESS WHEREOF, these Articles of Incorporation have been signed on
this 3rd day of July, 1997, by the undersigned President and Secretary, each of
whom acknowledges, under penalty of perjury, that this document is his or her
free act and deed, and that to the best of his or her knowledge, information and
belief, the matters and facts set forth herein are true in all material
respects.
CNL AMERICAN REALTY FUND, INC.
By:
-------------------------------
Name: Robert A. Bourne
Title: President
ATTEST:
By:
-------------------------------
Name: Lynn E. Rose
Title: Secretary
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<PAGE>
ARTICLES OF AMENDMENT
TO
THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CNL AMERICAN REALTY FUND, INC.
CNL American Realty Fund, Inc., a Maryland corporation having
its principal office in Maryland in Baltimore City, Maryland (hereinafter called
the "corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") are hereby amended by striking out ARTICLE I,
SECTION 1.1
Name. The name of the corporation (the "Company") is: CNL
American Realty Fund, Inc.
So far as may be practicable, the business of the Company
shall be conducted and transacted under that name, which name (and the word
"Company" wherever used in these Articles of Amendment and Restatement of CNL
American Realty Fund, Inc. (these "Articles of Incorporation"), except where the
context otherwise requires) shall refer to the Directors collectively but not
individually or personally and shall not refer to the Stockholders or to any
officers, employees or agents of the Company or of such Directors.
and inserting in lieu thereof the following:
Name. The name of the corporation (the "Company") is: CNL
Hospitality Properties, Inc.
So far as may be practicable, the business of the Company
shall be conducted and transacted under that name, which name (and the word
"Company" wherever used in these Articles of Amendment and Restatement of CNL
Hospitality Properties, Inc. (these "Articles of Incorporation"), except where
the context otherwise requires) shall refer to the Directors collectively but
not individually or personally and shall not refer to the Stockholders or to any
officers, employees or agents of the Company or of such Directors.
<PAGE>
SECOND: The amendment of the Articles of Incorporation of the
corporation as hereinabove set forth has been duly advised by the board of
directors and approved by the stockholders of the corporation.
IN WITNESS WHEREOF: CNL American Realty Fund, Inc., has caused
these presents to be signed in its name and on its behalf by its President and
attested by its Secretary on June 2, 1998.
THE UNDERSIGNED, President of CNL American Realty Fund, Inc.,
who executed on behalf of said corporation, the foregoing Articles of Amendment,
of which this certificate is made a part, hereby acknowledges, in the name and
on behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of his
of her knowledge, information, and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
ATTEST: CNL American Realty Fund, Inc.
/s/ Lynn E. Rose /s/ Robert A. Bourne
- ---------------------- -------------------------
Lynn E. Rose, Robert A. Bourne,
Secretary President
AGREEMENT OF LIMITED PARTNERSHIP OF
CNL HOSPITALITY PARTNERS, LP
Dated as of June 15,1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 - DEFINED TERMS 1
ARTICLE 2 - ORGANIZATIONAL MATTERS 6
Section 2.1 - Formation of Partnership 6
Section 2.2 - Principal Office and Registered Agent 6
Section 2.3 - Principal Office and Agent 6
Section 2.4 - Power of Attorney 7
Section 2.5 - Term 8
ARTICLE 3 - PURPOSE 8
Section 3.1 -Purpose and Business 8
Section 3.2 - Powers 8
ARTICLE 4 - CAPITAL CONTRIBUTIONS 8
Section 4.1 - Capital Contributions of the Partners 8
Section 4.2 - Issuances of Additional Partnership Interests 9
Section 4.3 - No Preemptive Rights 9
Section 4.4 - No Interest on Capital 9
ARTICLE 5 - DISTRIBUTIONS 10
Section 5.1 - Requirement and Characterization of Distributions 10
Section 5.2 - Distributions in Kind 10
Section 5.3 - Amounts Withheld 10
Section 5.4 - Distributions Upon Liquidation 10
ARTICLE 6 - ALLOCATIONS 10
Section 6.1 - Allocations for Capital Account Purposes 10
ARTICLE 7 - MANAGEMENT AND OPERATIONS OF BUSINESS 11
Section 7.1 - Management 11
Section 7.2 - Certificate of Limited Partnership 14
Section 7.3 - Restrictions on General Partner's Authority 14
Section 7.4 - Title to Partnership Assets 14
Section 7.5 - Reliance by Third Parties 14
ARTICLE 8 - RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS 15
Section 8.1 - Limitation of Liability 15
Section 8.2 - Management of Business 15
ARTICLE 9 - BOOKS, RECORDS, ACCOUNTING AND REPORTS 15
Section 9.1 - Records and Accounting 15
Section 9.2 - Fiscal Year 15
ARTICLE 10 - TAX MATTERS 16
Section 10.1 - Preparation of Tax Returns 16
Section 10.2 - Tax Elections 16
Section 10.3 - Tax Matters Partner 16
Section 10.4 - Organizational Expenses 17
Section 10.5 - Withholding 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 11 - TRANSFERS AND WITHDRAWALS 18
Section 11.1 - Transfer 18
Section 11.2 - Transfer of General Partner's Partnership Interest 18
Section 11.3 - Transfer of Limited Partners' Partnership Interests 18
Section 11.4 - Acquisition of Partnership Interest by Partnership 18
ARTICLE 12 - DISSOLUTION, LIQUIDATION AND TERMINATION 18
Section 12.1 - Dissolution 18
Section 12.2 - Winding Up 19
Section 12.3 - Compliance with Timing Requirements of Regulations 20
Section 12.4 - Deemed Distribution and Recontribution 20
Section 12.5 - Rights of Limited Partners 20
Section 12.6 - Notice of Dissolution 20
Section 12.7 - Termination of Partnership and Cancellation of Certificate
of Limited Partnership 21
Section 12.8 - Reasonable Time for Winding-Up 21
Section 12.9 - Waiver of Partition 21
Section 12.10 - Liability of the Liquidator 21
ARTICLE 13 - AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS 21
Section 13.1 - Amendments 21
Section 13.2 - Meetings of the Partners 22
ARTICLE 14 - GENERAL PROVISIONS 23
Section 14.1 - Addresses and Notice 23
Section 14.2 - Titles and Captions 23
Section 14.3 - Pronouns and Plurals 23
Section 14.4 - Further Action 23
Section 14.5 - Binding Effect 23
Section 14.6 - Creditors 23
Section 14.7 - Waiver 24
Section 14.8 - Counterparts 24
Section 14.9 - Applicable Law 24
Section 14.10 - Invalidity of Provisions 24
Section 14.11 - Entire Agreement 24
Section 14.12 - No Rights as Shareholders 25
</TABLE>
Exhibit A - Partners, Contributions and Partnership Interests
Exhibit B - Capital Account Maintenance
Exhibit C - Special Allocation Rules
Exhibit D - Value of Contributed Property
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP OF CNL HOSPITALITY PARTNERS, LP
THIS AGREEMENT OF LIMITED PARTNERSHIP, dated as of June ___, 1998, is
entered into by and between CNL Hospitality GP Corp., a Delaware corporation, as
the general partner of the Partnership (the "General Partner") and CNL
Hospitality LP Corp., a Delaware corporation, as the limited partner of the
Partnership (the "Limited Partner").
WITNESSETH:
WHEREAS, the General Partner caused the Partnership to file a
Certificate of Limited Partnership on June ___, 1998, thereby causing the
Partnership to be formed; and
WHEREAS, the General Partner and the Limited Partner desire to enter
into this Agreement to set forth the rights and obligations of the parties
hereto.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as
amended, or any successor statute.
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 4.2 hereof and who is shown as such on
the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement, or is treated as being obligated to restore pursuant to Regulations
Section 1.704-1(b)(2)(ii)(c), or is deemed to be obligated to restore pursuant
to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5), and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704- 1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as of
the end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Exhibit B hereof.
"Affiliate" means, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, (ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests, or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), and (iii) above. For the purposes of
this definition, "control," when used with
<PAGE>
respect to any Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which banking institutions in the State of New York are authorized or required
by law or executive order to close.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B.
"Capital Contribution" means, with respect to any Partner, any cash,
cash equivalents or the Net Asset Value of Contributed Property which such
Partner contributes or is deemed to contribute to the Partnership pursuant to
Section 4.1 or 4.2.
"Carrying Value" means (i) with respect to a Contributed Property or
Adjusted Property, the Gross Asset Value of such property, reduced (but not
below zero) by all Depreciation with respect to such Property charged to the
Partners' Capital Accounts following the contribution of or adjustment with
respect to such Property, and (ii) with respect to any other Partnership
property, the adjusted basis of such property for federal income tax purposes,
all as of the time of determination. The Carrying Value of any property shall be
adjusted from time to time in accordance with Exhibit B, and to reflect changes,
additions or other adjustments to the Carrying Value for improvements,
dispositions and acquisitions of Partnership properties, as deemed appropriate
by the General Partner.
"Certificate" means the Certificate of Limited Partnership relating to
the Partnership filed with the Secretary of State of Delaware, as amended from
time to time in accordance with the terms hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the 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.
"Contributed Property" means each property or other asset, in such form
as may be permitted by the Act, but excluding cash contributed or deemed
contributed to the Partnership. Once the Carrying Value of a Contributed
Property is adjusted pursuant to Section 1.D of Exhibit B, such property shall
no longer constitute a Contributed Property for purposes of Exhibit B, but shall
be deemed an Adjusted Property for such purposes.
"Depreciation" means, for each Partnership Year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value
<PAGE>
as the federal income tax depreciation, amortization, or other cost recovery
deduction for such year bears to such beginning adjusted tax basis; provided,
however, that if the federal income tax depreciation, amortization, or other
cost recovery deduction for such year is zero, Depreciation shall be determined
with reference to such beginning Carrying Value using any reasonable method
selected by the General Partner.
"General Partner" means CNL Hospitality GP Corp., or its successors as
general partner of the Partnership.
"General Partner Interest" means the Partnership Interest held by the
General Partner . A General Partner Interest may be expressed as a number of
Partnership Units. Any Partnership Units or Partnership Interests obtained by
the General Partner in connection with the issuance of additional Partnership
Interests or Partnership Units pursuant to Section 4.2 or otherwise, shall be
owned by the General Partner as part of its General Partner Interest.
"General Partner Shareholder" has the meaning set forth in Section 3.1
hereof.
"Gross Asset Value" of any Contributed Property means the value of such
property as set forth in Exhibit D, or if no value is set forth in Exhibit D,
the fair market value of such property or other consideration at the time of
contribution as determined by the General Partner using such reasonable method
of valuation as it may adopt. The General Partner shall, in its sole and
absolute discretion, use such method as it deems reasonable and appropriate to
allocate the aggregate of the Gross Asset Values of Contributed Properties
contributed in a single or integrated transaction among the separate properties
on a basis proportional to their respective fair market values.
"Incapacity" or "Incapacitated" means, (i) as to any individual
Partner, death, total physical disability or entry of an order by a court of
competent jurisdiction adjudicating him incompetent to manage his Person or his
estate; (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (iii) as to any partnership which is a Partner, the
dissolution and commencement of winding up of the partnership; (iv) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership; (v) as to any trustee of a trust which is a
Partner, the termination of the trust (but not the substitution of a new
trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (a) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief of or against
such Partner under any bankruptcy, insolvency or other similar law now or
hereafter in effect has not been dismissed within one hundred twenty (120) days
after the commencement thereof, (g) the appointment without the Partner's or
acquiescence of a trustee, receiver or liquidator has not been vacated or stayed
within ninety (90) days of such appointment, or (h) an appointment referred to
in clause (g) which has been stayed is not vacated within ninety (90) days after
the expiration of any such stay.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Lien" means any lien, security interest, mortgage, deed of trust,
charge, claim, encumbrance, pledge, option, right of first offer or first
refusal and any other right or interest of any kind or nature, actual or
contingent, or other similar encumbrance of any nature whatsoever.
<PAGE>
"Limited Partner" means any Person named as a Limited Partner in
Exhibit A, as such Exhibit may be amended from time to time, or any Additional
Limited Partner, in such Person's capacity as a Limited Partner in the
Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.
"Liquidating Event(s)" has the meaning set forth in Section 12.1.
"Liquidator" has the meaning set forth in Section 12.2.
"Net Asset Value" means (i) in the case of any Contributed Property set
forth in Exhibit D and as of the time of its contribution to the Partnership,
the Net Asset Value of such property as set forth in Exhibit D, (ii) in the case
of any Contributed Property not set forth in Exhibit D and as of the time of its
contribution to the Partnership, the Gross Asset Value of such property, reduced
by any liabilities either assumed by the Partnership upon such contribution or
to which such property is subject when contributed, and (iii) in the case of any
property distributed to a Partner by the Partnership, 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, as determined under
Section 752 of the Code and the Regulations thereunder.
"Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Section 1.B of Exhibit B. Once an item of income, gain, loss or deduction that
has been included in the initial computation of Net Income is subjected to the
special allocation rules in Exhibit C, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Section 1.B of Exhibit B. Once an item of income, gain, loss or deduction that
has been included in the initial computation of Net Loss is subjected to the
special allocation rules in Exhibit C, Net Loss or the resulting Net Income,
whichever the case may be, shall be recomputed without regard to such item.
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of Exhibit C if such
properties were disposed of in a taxable transaction in full satisfaction of
such liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.
<PAGE>
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement and any successor thereto.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of
Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Section 4.1 or 4.2. As
of the Effective Date, there shall be considered to be 100 Partnership Units
outstanding, with each Partnership Unit representing a 1% Percentage Interest in
the Partnership.
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
"Percentage Interest" means, as to a Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding and as
specified in Exhibit A, as such Exhibit may be amended from time to time. In the
event any underwriters' over-allotment option granted in the Underwriting
Agreement shall be exercised in part or full, the issuance of additional
Partnership Units to the General Partner corresponding to the number of REIT
Shares issued by the General Partner in connection with such exercise and the
resulting reduction in the Percentage Interest of each Limited Partner other
than the General Partner shall reflected in Exhibit A.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 734 or 743 of the
Code) upon the disposition of any property or asset of the Partnership, which
gain is characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Regulations" means the income tax regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section 1.G of
Exhibit C.
"REIT" means a real estate investment trust under Sections 856 through
860 of the Code.
<PAGE>
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocable
pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax
Disparities.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, or other entity of which a majority of (i) the voting power of the
voting equity securities or (ii) the outstanding equity interests is owned,
directly or indirectly, by such Person.
"Terminating Capital Transaction" means any sale or other disposition
of all or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Transaction" has the meaning set forth in Section 11.2.B.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the fair
market value of such property (as determined under Exhibit B) as of such date,
over (ii) the Carrying Value of such property (prior to any adjustment to be
made pursuant to Exhibit B) as of such date.
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the Carrying
Value of such property (prior to any adjustment to be made pursuant to Exhibit
B) as of such date, over (ii) the fair market value of such property (as
determined under Exhibit B) as of such date.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Formation of Partnership
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. 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 Act. The Partnership Interest of each
Partner shall be personal property for all purposes.
Section 2.2 Name
The name of the Partnership shall be CNL Hospitality Partners, LP. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters 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 and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular communication to the
Limited Partners.
Section 2.3 Principal Office and Registered Agent
The address of the principal office of the Partnership shall be located
at 400 East South Street, Orlando, FL 32801, and the registered agent for
service of process on the Partnership in the State of Delaware shall be The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, DE 19801, or such other place as the General Partner may from time
to time designate by notice to the Limited Partners. The Partnership may
maintain offices at such other place or places within or outside the State of
Florida as the General Partner deems advisable.
<PAGE>
Section 2.4 Power of Attorney
A. Each Limited Partner hereby constitutes and appoints the General
Partner, any Liquidator, and authorized officers and attorneys-in-fact of each,
and each of those acting singly, in each case with full power of substitution,
as its true and lawful agent and attorney-in-fact, with full power and authority
in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices (a) all certificates, documents
and other instruments (including, without limitation, this
Agreement and the Certificate and all amendments or
restatements thereof) that the General Partner or the
Liquidator deems appropriate or necessary to qualify or
continue the existence or qualification of the Partnership as
a limited partnership in the State of Delaware and in all
other jurisdictions in which the Partnership may conduct
business or own property; (b) all instruments that the General
Partner or the Liquidator deems appropriate or necessary to
reflect any amendment, change, modification or restatement of
this Agreement in accordance with the terms; (c) all
conveyances and other instruments or documents that the
General Partner deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership pursuant to the
terms of this Agreement, including, without limitation, a
certificate of cancellation; (d) all instruments relating to
the admission, withdrawal, removal or substitution of any
Partner pursuant to, or other events described in, Article 12
hereof or the Capital Contribution of any Partner; and (e) all
certificates, documents and other instruments relating to the
determination of the rights, preferences and privileges of
Partnership Interests; and
(2) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and absolute
discretion of the General Partner or any 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 or appropriate or necessary, in the sole discretion
of the General Partner or any Liquidator, to effectuate the
terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner or any Liquidator to amend this Agreement except in accordance with
Article 13 hereof 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, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner and the transfer of
all or any portion of such Limited Partner's Partnership Units and shall extend
to such Limited Partner's heirs, successors, assigns and personal
representatives. Each such Limited Partner hereby agrees to be bound by any
representation made by the General Partner or any Liquidator, acting in good
faith pursuant to such power of attorney, and each such Limited Partner hereby
waives any and all defenses which may be available to contest, negate or
disaffirm the action of the General Partner or any Liquidator, taken in good
faith under such power of attorney. Each Limited Partner shall execute and
deliver to the General Partner or the Liquidator, within fifteen (15) days after
receipt of the General Partner's or Liquidator's request therefor, such further
designations, powers of attorney and other instruments as the General Partner or
the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.
<PAGE>
Section 2.5 Term
The term of the Partnership commenced on June ___, 1998, the date the
Certificate was filed with the Secretary of State of Delaware in accordance with
the Act, and shall continue until December 31, 2050, unless the Partnership is
dissolved sooner pursuant to the provisions of Article 12 or as otherwise
provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is to (i) conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act, including, without
limitation, 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 of all kinds; (ii) enter into
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, and to exercise all of the powers of an owner in any such entity; and
(iii) do anything necessary, appropriate, proper, advisable, desirable,
convenient or incidental to the foregoing; provided, however, that such business
shall be limited to and conducted in such a manner as to permit the sole
shareholder of the General Partner (the "General Partner Shareholder") at all
times to qualify as a REIT, unless the General Partner Shareholder voluntarily
terminates its REIT status pursuant to its articles of incorporation. In
connection with the foregoing, and without limiting the right of the General
Partner Shareholder in its sole discretion to cease qualifying as a REIT, the
Partners acknowledge that the current status of the General Partner Shareholder
as a REIT inures to the benefit of all the Partners and not solely the General
Partner or the General Partner Shareholder.
Section 3.2 Powers
Subject to all of the terms, covenants, conditions and limitations
contained in this Agreement and any other agreement entered into by the
Partnership, the Partnership shall have full power and authority to do any and
all acts and things necessary, appropriate, proper, advisable, desirable,
incidental to or convenient for the furtherance and accomplishment of the
purposes and business described herein and for the protection and benefit of the
Partnership, including, without limitation, full power and authority, directly
or through its ownership interest in other entities, to enter into, perform and
carry out contracts of any kind, borrow money and issue evidences of
indebtedness, whether or not secured by mortgage, deed of trust, pledge or other
lien, acquire and develop real property, and lease, sell, transfer or otherwise
dispose of real property; provided, however, that the Partnership shall not
take, or refrain from taking, any action which, in the judgment of General
Partner, in its sole and absolute discretion, (i) could adversely affect the
ability of the General Partner Shareholder to achieve or maintain qualification
as a REIT, (ii) could subject the General Partner or the General Partner
Shareholder to any additional taxes under Section 857 or Section 4981 of the
Code, or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over the General Partner or its securities, unless
such action (or inaction) shall have been specifically consented to by the
General Partner in writing.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners
A. On the Effective Date, the Partners shall make the Capital
Contributions set forth in Exhibit A to this Agreement. To the extent the
Partnership acquires any property by the merger of any other Person into the
Partnership, Persons who receive Partnership Interests in exchange for their
interests in the Person merging into the Partnership shall become Partners and
shall be deemed to have made Capital Contributions as provided in the
<PAGE>
applicable merger agreement and as set forth in Exhibit A as amended to reflect
such deemed Capital Contributions. The Partners shall own Partnership Units in
the amounts set forth for each Partner in Exhibit A and shall have a Percentage
Interest in the Partnership as set forth in Exhibit A, which Percentage Interest
shall be adjusted in Exhibit A from time to time by the General Partner to the
extent necessary to reflect accurately exchanges, Capital Contributions, the
issuance of additional Partnership Units (pursuant to any merger or otherwise),
or similar events having an effect on a Partner's Percentage Interest. Except as
provided in Sections 4.2, the Partners shall have no obligation to make any
additional Capital Contributions or loans to the Partnership.
B. The ownership of Partnership Units may be evidenced by such form of
certificate as the General Partner may from time to time prescribe. Upon
surrender to the General Partner of a certificate evidencing the ownership of
Partnership Units, accompanied by proper evidence of authority to transfer, the
General Partner shall cancel the old certificate, issue a new certificate to the
Person entitled thereto and record the transaction upon its books. The General
Partner may issue a new certificate or certificates in place of any certificate
or certificates previously issued, which previously-issued certificate or
certificates are alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the owner claiming the certificate or
certificates to be lost, stolen or destroyed. When issuing such new certificate
or certificates, the General Partner may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or its legal representative, to give the
Partnership a bond in such sum as the General Partner may direct as indemnity
against any claim that may be made against the Partnership with respect to the
certificate or certificates alleged to have been lost, stolen or destroyed.
Section 4.2 Issuances of Additional Partnership Interests
The General Partner is hereby authorized to cause the Partnership from
time to time to issue to Partners (including the General Partner) or other
persons (including, without limitation, in connection with the contribution of
property to the Partnership) additional Partnership Units or other Partnership
Interests in one or more classes, or one or more series of any 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 Limited Partnership Interests, all as shall be determined by the
General Partner in its sole and absolute discretion subject to Delaware law,
including, without limitation, (i) the allocations of items of Partnership
income, gain, loss, deduction and credit to each such class or series of
Partnership Interests; (ii) the right of each such class or series of
Partnership Interests to share in Partnership distributions; and (iii) the
rights of each such class or series of Partnership Interests upon dissolution
and liquidation of the Partnership; provided that no such additional Partnership
Units or other Partnership Interests shall be issued to the General Partner
unless either (a)(1) the additional Partnership Interests are issued in
connection with the grant, award, or issuance of shares of the General Partner,
which shares have designations, preferences and other rights such that the
economic interests attributable to such shares are substantially similar to the
designations, preferences and other rights of the additional Partnership
Interests issued to the General Partner in accordance with this Section 4.2, and
(2) the General Partner 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 shares of the General Partner, or (b) the additional Partnership
Interests are issued to all Partners in proportion to their respective
Percentage Interests.
Section 4.3 No Preemptive Rights
No Person shall have any preemptive, preferential or other similar
right with respect to (i) additional Capital Contributions or loans to the
Partnership; or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
Section 4.4 No Interest on Capital
No Partner shall be entitled to interest on its Capital Contribution or
its Capital Account.
<PAGE>
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
The General Partner shall make such distributions pro rata to the
Partners in proportion to their respective Partnership Interests in such amounts
and at such intervals as it determines in its discretion.
Section 5.2 Distributions In Kind
Pursuant to Section 17-605 of the Act, the General Partner has the
authority to make in-kind distributions of assets to the Partners. Any such
distributions in kind shall be distributed among the Partners in the same manner
as set forth in Section 5.1 with respect to Available Cash (provided that
distributions in kind made after commencement of the liquidation of the
Partnership shall be distributed to the Partners in accordance with Section
12.2). The General Partner shall determine the fair market value of any assets
distributed in kind using such reasonable method of valuation as it may adopt.
Section 5.3 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to a Partner shall be treated as amounts distributed to
such Partner pursuant to Section 5.1 for all purposes under this Agreement.
Section 5.4 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership, shall be distributed to the Partners in accordance with Section
12.2.
ARTICLE 6
ALLOCATIONS
Section 6.1 Allocations for Capital Account Purposes
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
A. Net Income. After giving effect to the special allocations set forth
in Section 1 of Exhibit C, Net Income shall be allocated (i) first, to the
General Partner to the extent that Net Losses previously allocated to the
General Partner pursuant to the last sentence of Section 6.1.B exceed Net Income
previously allocated to the General Partner pursuant to this clause (i) of
Section 6.1.A, and (ii) thereafter, Net Income shall be allocated to the
Partners in accordance with their respective Percentage Interests.
B. Net Loss. After giving effect to the special allocations set forth
in Section 1 of Exhibit C, Net Loss shall be allocated to the Partners in
accordance with their respective Percentage Interests; provided that Net Loss
shall not be allocated to any Limited Partner pursuant to this Section 6.1.B to
the extent that such allocation would cause such Limited Partner to have an
Adjusted Capital Account Deficit at the end of such taxable year (or increase
any existing Adjusted Capital Account Deficit). All Net Loss in excess of the
limitations set forth in this Section 6.1.B shall be allocated to the General
Partner.
<PAGE>
C. Allocation of Nonrecourse Debt. For purposes of Regulations Section
1.752-3(a), the Partners agree that Nonrecourse Liabilities of the Partnership
in excess of the sum of (i) the amount of Partnership Minimum Gain and (ii) the
total amount of Nonrecourse Built-In Gain shall be allocated among the Partners
in accordance with their respective Percentage Interests.
D. Recapture Income. If any portion of gain from the sale of property
is treated as Recapture Income, such Recapture Income shall be allocated among
the Partners in accordance with the provisions of Regulations Sections
1.1245-1(e) and 1.1250-1(f).
E. Allocations to Reflect Issuance of Additional Partnership Interests.
In the event that the Partnership issues additional Partnership Interests to the
General Partner or any Additional Limited Partner under Section 4.2 hereof, the
General Partner shall make such revisions to Sections 6.1.A and B above as it
determines are necessary to reflect the issuance of such additional Partnership
Interests.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs the Partnership are and shall be
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, making prepayments on
loans and borrowing money to permit the Partnership to make
distributions to its Partners in such amounts as will permit
the General Partner Shareholder (so long as the General
Partner Shareholder elects to qualify as a REIT) to avoid the
payment of any federal income tax (including, for this
purpose, any excise tax pursuant to Section 4981 of the Code)
and to make distributions to its shareholders sufficient to
permit the General Partner Shareholder to maintain REIT
status), the assumption or guarantee of, or other contracting
for, indebtedness and other liabilities, the issuance of
evidences of indebtedness (including the securing of same by
deed to secure debt, mortgage, deed of trust or other lien or
encumbrance on the Partnership's assets) and the incurring of
any obligations it deems necessary for the conduct of the
activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering
of periodic or other reports to governmental or other agencies
having jurisdiction over the business or assets of the
Partnership;
<PAGE>
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership
(including the exercise or grant of any conversion, option,
privilege, or subscription right or other right available in
connection with any assets at any time held by the
Partnership) or the merger or other combination of the
Partnership with or into another entity (all of the foregoing
subject to any prior approval only to the extent required by
Section 7.3 hereof);
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the
terms of this Agreement and on any terms it sees fit,
including, without limitation, the financing of the conduct of
the operations of the General Partner, the Partnership or any
of the Partnership's Subsidiaries, the lending of funds to
other Persons (including, without limitation, the
Partnership's Subsidiaries) and the repayment of obligations
of the Partnership and its Subsidiaries and any other Person
in which it has an equity investment and the making of capital
contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property or
improvements owned by the Partnership or any Subsidiary of the
Partnership;
(6) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner
considers useful or necessary to the conduct of the
Partnership's operations or the implementation of the General
Partner's powers under this Agreement, including contracting
with contractors, developers, consultants, accountants, legal
counsel, other professional advisors and other agents and the
payment of their expenses and compensation out of the
Partnership's assets;
(7) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the establishment of one or more divisions of the Partnership,
the selection and dismissal of employees of the Partnership,
any division of the Partnership, or the General Partner
(including, without limitation, employees having titles such
as "president," "vice president," "secretary" and "treasurer"
of the Partnership, any division of the Partnership, or the
General Partner), and of agents, outside attorneys,
accountants, consultants and contractors of the General
Partner, the Partnership or any division of the Partnership,
and the determination of their compensation and other terms of
employment or hiring;
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
(12) the formation of, or acquisition of a debt or equity ownership
interest in, and the contribution of property to, any further
limited or general partnerships, joint ventures, corporations,
trusts or other entities that it deems desirable (including,
without limitation, the acquisition of interests in, and the
contributions of property to, its Subsidiaries and any other
Person in which it has an investment from time to time);
(13) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of
dispute resolution, or abandonment of any claim, cause of
action, liability, debt or damages due or owing to or from the
Partnership, the commencement or defense of suits, legal
proceedings, administrative proceedings, arbitrations or other
forms of dispute resolution, and the representation of the
Partnership in all suits
<PAGE>
or legal proceedings, administrative proceedings, arbitrations
or other forms of dispute resolution, the incurring of legal
expense, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by law;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its
Subsidiaries or any other Person (including, without
limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of
valuation as it may adopt;
(16) the exercise, directly or indirectly through any
attorney-in-fact acting under a general or limited power of
attorney, of any right, including the right to vote,
appurtenant to any asset or investment held by the
Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Partnership or any other Person in
which the Partnership has a direct or indirect interest, or
jointly with any such Subsidiary or other Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which
the Partnership does not have an interest pursuant to
contractual or other arrangements with such Person; and
(19) the making, execution and delivery of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases or
legal instruments or agreements in writing necessary or
appropriate in the judgment of the General Partner for the
accomplishment of any of the powers of the General Partner
enumerated in this Agreement.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation, to the fullest extent permitted under the Act or other applicable
law. The execution, delivery or performance by the General Partner or the
Partnership of any agreement authorized or permitted under this Agreement shall
not constitute a breach by the General Partner of any duty that the General
Partner may owe the Partnership or the Limited Partners or any other Persons
under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner at
the expense of the Partnership, may or may not cause the Partnership to obtain
and maintain casualty, liability and other insurance on the properties of the
Partnership.
D. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.
E. In exercising its authority under this Agreement, the General
Partner may, but shall be under no obligation to, take into account the tax
consequences to any Partner of any action taken by it. The General Partner and
the Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner pursuant
to its authority under this Agreement.
<PAGE>
Section 7.2 Certificate of Limited Partnership
The General Partner has previously filed the Certificate with the
Secretary of State of Delaware as required by the Act. The General Partner shall
use all reasonable efforts to cause to be filed such other certificates or
documents as may 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 and each other jurisdiction in which the Partnership may elect to do
business or own property. To the extent that such action is determined by the
General Partner to be reasonable and necessary or appropriate, the General
Partner shall file amendments to and restatements of the Certificate and do all
the 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 and each other jurisdiction in which the Partnership
may elect to do business or own property. The General Partner shall not be
required before or after filing, to deliver or mail a copy of the Certificate or
any amendment thereto to any Limited Partner.
Section 7.3 Restrictions on General Partner's Authority
A. The General Partner may not take any action in contravention of an
express prohibition or limitation of this Agreement without the written consent
of all of the Partners (or such lower percentage of the Partners as may be
specifically provided for under a provision of this Agreement or the Act).
B. Except as provided in Article 12 hereof, the General Partner may not
sell, exchange, transfer or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
(including by way of merger, consolidation or other combination with any other
Person) without the consent of holders of a majority of the outstanding
Partnership Units (including Partnership Units held by the General Partner).
Section 7.4 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partner, 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, as the General Partner may
determine, including Affiliates of the General Partner. 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 nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
Section 7.5 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
<PAGE>
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement or under the Act.
Section 8.2 Management of Business
No Limited Partner (other than the General Partner, any of its
Affiliates or any officer, director, employee, partner, agent or trustee of the
General Partner, the Partnership or any of their Affiliates, in their capacity
as such) shall take part in the operation, management or control (within the
meaning of the 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 the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Limited Partners under this Agreement.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business. Any records maintained
by or on behalf of the Partnership in the regular course of its business may be
kept on, or be in the form of, punch cards, magnetic tape, photographs, micro
graphics or any other information storage device, provided that the records so
maintained are convertible into clearly legible written form within a reasonable
period of time. The books of the Partnership shall be maintained, for financial
and tax purposes, on an accrual basis in accordance with generally accepted
accounting principles, or other such basis as the General Partner determines to
be necessary or appropriate.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
<PAGE>
ARTICLE 10
TAX MATTERS
Section 10.1 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
required of the Partnership for federal, state and local income tax purposes,
and the delivery to the Limited Partners of all tax information reasonably
required by the Limited Partners for federal, state and local income tax
reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
or choose any available reporting method pursuant to the Code or state or local
tax law. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, the election under Section 754 of the
Code) or change any reporting method in its sole and absolute discretion.
Section 10.3 Tax Matters Partner
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6223(c)(3) of
the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address and profits interest of
each of the Limited Partners, provided that such information is provided to the
Partnership by the Limited Partners.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to
any administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner for
income tax purposes (such administrative proceedings being referred to
as a "tax audit" and such judicial proceedings being referred to as
"judicial review"), and in the settlement agreement the tax matters
partner may expressly state that such agreement shall bind all
Partners, except that such settlement agreement shall not bind any
Partner (i) who (within the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the tax
matters partner shall not have the authority to enter into a settlement
agreement on behalf of such Partner or (ii) who is a "notice partner"
(as defined in Section 6231 of the Code) or a member of a "notice
group" (as defined in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be taken
into account by a Partner for tax purposes (a "final adjustment") is
mailed to the tax matters partner, to seek judicial review of such
final adjustment, including the filing of a petition for readjustment
with the Tax Court or the United States Claims Court, or the filing of
a complaint for refund with the District Court of the United States for
the district in which the Partnership's principal place of business is
located;
(3) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with
the IRS at any time and, if any part of such request is not allowed by
the IRS, to file an appropriate pleading (petition or complaint) for
judicial review with respect to such request;
<PAGE>
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to any item required
to be taken into account by a Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of Indemnitees
set forth in Section 7.7 of this Agreement shall be fully applicable to the tax
matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters partner
in performing its duties as such (including legal and accounting fees) shall be
borne by the Partnership. Nothing herein shall be construed to restrict the
Partnership from engaging an accounting firm to assist the tax matters partner
in discharging its duties hereunder.
Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a sixty (60)-month period as provided
in Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from
or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited
Partner, or (ii) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the available funds of the
Partnership which would, but for such payment, be distributed to the Limited
Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii)
shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and, until repayment of such loan, shall succeed to
all rights and remedies of the Partnership as against such defaulting Limited
Partner (including, without limitation, the right to receive distributions). Any
amounts payable by a Limited Partner hereunder shall bear interest at the base
rate on corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four percentage
points (but not higher than the maximum lawful rate) from the date such amount
is due (i.e., fifteen (15) days after demand) until such amount is paid in full.
Each Limited Partner shall take such actions as the Partnership or the General
Partner shall request in order to perfect or enforce the security interest
created hereunder.
<PAGE>
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
The term "transfer," when used in this Article 11 with respect to a
Partnership Unit, shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by law or otherwise.
Section 11.2 Transfer of General Partner's Partnership Interest
The General Partner may not transfer any of its General Partner
Interest or withdraw as General Partner, except in connection with the
dissolution and liquidation of the General Partner.
Section 11.3 Transfer of Limited Partners' Partnership Interests
No Limited Partner may transfer any of its Partnership Interest.
Section 11.4 Acquisition of Partnership Interest by Partnership
The Partnership may acquire, by purchase, redemption or otherwise, any
Partnership Interest or other interest of a Partner in the Partnership. Any
Partnership Interest or other interest so acquired by the Partnership shall be
deemed canceled. In the event that a Partnership Interest is acquired by the
Partnership pursuant to this Section 11.4, the Partnership Interest of each
other existing Partner shall be increased, as of the date of acquisition of such
Partnership Interest by the Partnership, such that the Partnership Interest of
each Partner shall be equal to the sum of (a) each Partner's existing
Partnership Interest, plus (b) the product obtained by multiplying (i) each
Partner's existing Partnership Interest by (ii) a fraction, the numerator of
which is equal to the Partnership Interest acquired by the Partnership and the
denominator of which is equal to the result obtained by subtracting (A) one
minus (B) the Partnership Interest acquired by the Partnership.
ARTICLE 12
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 12.1 Dissolution
Except as set forth in this Article 12, no Partner shall have the right
to dissolve the Partnership. The Partnership shall not be dissolved by the
admission of Additional Limited Partners or by the admission of a successor
General Partner in accordance with the terms of this Agreement. Upon the
withdrawal of the General Partner, any successor General Partner shall continue
the business of the Partnership. The Partnership shall dissolve, and its affairs
shall be wound up, upon the first to occur of any of the following ("Liquidating
Events"):
A. the expiration of its term as provided in Section 2.5;
B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of bankruptcy), unless, within ninety (90) days after such
event of withdrawal all the remaining Partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the date of
withdrawal, of a successor General Partner;
<PAGE>
C. an election to dissolve the Partnership made by the General
Partner, in its sole and absolute discretion;
D. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
E. the sale of all or substantially all of the assets and
properties of the Partnership; or
F. a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that the General Partner is bankruptcy or
insolvent, or a final and non-appealable order for relief is entered by a court
with appropriate jurisdiction against the General Partner, in each case under
any federal or state bankruptcy or insolvency laws as now or hereafter in
effect, unless prior to the entry of such order or judgment all of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date prior to the date of such order or
judgment, of a substituted General Partner.
Section 12.2 Winding Up
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or, in the event there is no remaining General Partner, any
Person elected by a majority in interest of the Limited Partners (the General
Partner or such other Person being referred to herein as the "Liquidator") shall
be responsible for overseeing the winding up and dissolution of the Partnership
and shall take full account of the Partnership's liabilities and property and
the Partnership property shall be liquidated as promptly as is consistent with
obtaining the fair value thereof, and the proceeds therefrom (which may, to the
extent determined by the General Partner, include shares of stock in the General
Partner) shall be applied and distributed in the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than
the Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners; and
(3) The balance, if any, to the General Partner and Limited
Partners in accordance with their Capital Accounts, after
giving effect to all contributions, distributions, and
allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 12.
B. Notwithstanding the provisions of Section 12.2.A which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
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 Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 12.2.A, undivided interests in such
Partnership assets as the Liquidator deems not suitable for liquidation. Any
such distributions in kind shall be made only if, in the good faith judgment of
the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
<PAGE>
C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 12 may be:
1. distributed to a trust established for the benefit of the
General Partner and Limited Partners for the purpose of liquidating
Partnership assets, collecting amounts owed to the Partnership, and
paying any contingent or unforeseen liabilities or obligations of the
Partnership or of the General Partner arising out of or in connection
with the Partnership. The assets of any such trust shall be distributed
to the General Partner and Limited Partners from time to time, in the
reasonable discretion of Liquidator, in the same proportions as the
amount distributed to such trust by the Partnership would otherwise
have been distributed to the General Partner and Limited Partners
pursuant to this Agreement; or
2. withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the
Partnership, provided that such withheld or escrowed amounts shall be
distributed to the General Partner and Limited Partners in the manner
and order of priority set forth in Section 12.2.A as soon as
practicable.
Section 12.3 Compliance with Timing Requirements of Regulations
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 12 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
If any Partner has a deficit balance in its Capital Account (after giving effect
to all contributions, distributions and allocations for all taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership
with respect to such deficit, and such deficit shall not be considered a debt
owed to the Partnership or to any other Person for any purpose whatsoever.
Section 12.4 Deemed Contribution and Distribution
Notwithstanding any other provision of this Article 12, in the event
the Partnership is considered liquidated within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the
Partnership's property shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged, and the Partnership's affairs shall not be
wound up. Instead, for federal income tax purposes and purposes of maintaining
Capital Accounts pursuant to Exhibit B hereto, the Partnership shall be deemed
to have contributed all of its assets and liabilities to a new partnership in
exchange for an interest in the new partnership. Immediately thereafter, the
Partnership shall be deemed to have liquidated by distributing interests in the
new partnership to the Partners (including the transferee of a Partnership
Interest).
Section 12.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its Capital Contributions, distributions, or allocations.
Section 12.6 Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs that would,
absent an election or objection by one or more Partners pursuant to Section
12.1, result in a dissolution of the Partnership, the General Partner shall,
within thirty (30) days thereafter, provide written notice thereof to each of
the Partners.
<PAGE>
Section 12.7 Termination of Partnership and Cancellation of Certificate of
Limited Partnership
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 12.2, the Partnership shall be terminated, a
certificate of cancellation shall be filed, and all qualifications of the
Partnership as a foreign limited partnership in jurisdictions other than the
State of Delaware shall be canceled and such other actions as may be necessary
to terminate the Partnership shall be taken.
Section 12.8 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 12.2, in order to minimize any losses otherwise attendant
upon such winding-up, and the provisions of this Agreement shall remain in
effect among the Partners during the period of liquidation.
Section 12.9 Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership
property.
Section 12.10 Liability of the Liquidator
The Liquidator shall be indemnified and held harmless by the
Partnership from and against any and all claims, demands, liabilities, costs,
damages and causes of action of any nature whatsoever arising out of or
incidental to the Liquidator's taking of any action authorized under or within
the scope of this Agreement; provided, however, that the Liquidator shall not be
entitled to indemnification, and shall not be held harmless, where the claim,
demand, liability, cost, damage or cause of action at issue arises out of:
(i) a matter entirely unrelated to the Liquidator's action or
conduct pursuant to the provisions of this Agreement; or
(ii) the proven willful misconduct or gross negligence of the
Liquidator.
ARTICLE 13
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 13.1 Amendments
A. Amendments to this Agreement may be proposed by the General Partner
or by any Limited Partners holding twenty-five percent (25%) or more of the
Percentage Interests. Following such proposal, the General Partner shall submit
any proposed amendment to the Limited Partners using such methods as the General
Partner reasonably determines to be appropriate. A proposed amendment shall be
adopted and be effective as an amendment thereto if it is approved by the
General Partner and it receives the consent of holders of a majority of the
Percentage Interests of the Limited Partners.
B. Notwithstanding Section 13.1.A, the General Partner shall have the
power, without the consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any
Affiliate of the General Partner for the benefit of the
Limited Partners;
<PAGE>
(2) to reflect the admission, substitution, termination, or
withdrawal of partners in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and
preferences of the holders of any additional Partnership
Interests issued pursuant to Section 4.2.A hereof;
(4) to reflect a change that does not adversely affect any of the
Limited Partners in any material respect, or to cure any
ambiguity, correct or supplement any provision in this
Agreement not inconsistent with law or with other provisions,
or make other changes with respect to matters arising under
this Agreement that will not be inconsistent with law or with
the provisions of this Agreement; and
(5) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in
federal or state law.
The General Partner shall provide notice to the Limited Partners when any action
under this Section 13.1.B is taken.
C. Notwithstanding Sections 13.1.A and 13.1.B, this Agreement shall not
be amended without the consent of each Partner adversely affected if such
amendment would (i) convert a Limited Partner's interest in the Partnership into
a general partner interest, (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner, (iii) alter rights of the
Partner to receive distributions pursuant to Article 5, or the allocations
specified in Article 6 (except as permitted pursuant to Section 4.2 and Section
13.1.B(3)) in a manner adverse to such Partner, (iv) cause the termination of
the Partnership prior to the time set forth in Sections 2.5 or 12.1, or (vi)
amend this Section 13.1.C. Further, no amendment may alter the restrictions on
the General Partner's authority set forth in Section 7.3 without the consent
specified in that section.
Section 13.2 Meetings of the Partners
A. Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written request by
Limited Partners holding twenty-five percent (25%) or more of the Percentage
Interests. The call shall state the nature of the business to be transacted.
Partners may vote in person or by proxy at such meeting. Except as otherwise
expressly provided in this Agreement, the consent of holders of a majority of
the outstanding Partnership Units (including Partnership Units held by the
General Partner) shall control.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by the holders of a majority of the outstanding
Partnership Units (or such other percentage as is expressly required by this
Agreement). Such consent may be in one instrument or in several instruments, and
shall have the same force and effect as a vote of the holders of a majority of
the outstanding Partnership Units (or such other percentage as is expressly
required by this Agreement). Such consent shall be filed with the General
Partner. An action so taken shall be deemed to have been taken at a meeting held
on the effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to act for
it by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of or written notice
such revocation from the Limited Partner executing such proxy.
<PAGE>
D. Each meeting of Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate in its sole discretion. Without limitation, meetings of Partners may
be conducted in the same manner as meetings of the shareholders of the General
Partner and may be held at the same time as, and as part of, meetings of the
shareholders of the General Partner.
ARTICLE 14
GENERAL PROVISIONS
Section 14.1 Addresses and Notice
All notices, requests, demands and other communications hereunder to a
Partner shall be in writing and shall be deemed to have been duly given if
delivered by hand or if sent by certified mail, return receipt requested,
properly addressed and postage prepaid, or transmitted by commercial overnight
courier to the Partner at the address set forth in Exhibit A or at such other
address as the Partner shall notify the General Partner in writing. Such
communications shall be deemed sufficiently given, served, sent or received for
all purposes at such time as delivered to the addressee (with the return receipt
or delivery receipt being deemed conclusive evidence of such delivery) or at
such time as delivery is refused by the addressee upon presentation.
Section 14.2 Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, (i) references to "Articles" and
"Sections" are to Articles and Sections of this Agreement, and (ii) references
to "Exhibits" are to the Exhibits attached to this Agreement. Each Exhibit
attached hereto and referred to herein is hereby incorporated by reference.
Section 14.3 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.
Section 14.4 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.
Section 14.5 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.
Section 14.6 Creditors
None of the provisions of this Agreement shall be for the benefit of,
or shall be enforceable by, any creditor of the Partnership.
<PAGE>
Section 14.7 Waiver
No failure by any party to insist upon the strict performances 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.
Section 14.8 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.
Section 14.9 Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 14.10 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.
Section 14.11 Entire Agreement
This Agreement contains the entire understanding and agreement among
the Partners with respect to the subject matter hereof and any other prior
written or oral understandings or agreements among them with respect thereto.
<PAGE>
Section 14.12 No Rights as Shareholders
Nothing contained in this Agreement shall be construed as conferring
upon the holders of the Partnership Units any rights whatsoever as shareholders
of the General Partner, including without limitation any right to receive
dividends or other distributions made to shareholders of the General Partner or
to vote or to consent or to receive notice as shareholders in respect of any
meeting of shareholders for the election of directors of the General Partner or
any other matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first written above.
GENERAL PARTNER:
CNL Hospitality GP Corp.
By: /s/ Robert A. Bourne
------------------------------
Name: Robert A. Bourne
Its: President
LIMITED PARTNER:
CNL Hospitality LP Corp.
By: /s/ Robert A. Bourne
------------------------------
Name: Robert A. Bourne
Its: President
<PAGE>
EXHIBIT A
PARTNERS, CONTRIBUTIONS AND
PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Net Asset Value of Percentage Partnership
Name and Address of Partner Contribution Contributed Property Interest Units
- --------------------------- ------------ -------------------- -------------- -----------
<S> <C>
General Partner:
CNL Hospitality GP Corp. $20 20% 20
400 East South Street
Orlando, FL 32801
Limited Partner:
CNL Hospitality LP Corp. $80 80% 80
400 East South Street
Orlando, FL 32801
</TABLE>
<PAGE>
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed 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 1.B hereof and allocated to such Partner pursuant to Section 6.1.A of
the Agreement and Exhibit C hereof, and decreased by (x) the amount of cash or
Net Asset Value of all actual and deemed distributions of cash or property made
to such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1.B of the Agreement and Exhibit C hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), 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 which may be made by
the Partnership, provided that the amounts of any adjustments
to the adjusted bases of the assets of the Partnership made
pursuant to Section 734 of the Code as a result of the
distribution of property by the Partnership to a Partner (to
the extent that such adjustments have not previously been
reflected in the Partners' Capital Accounts) shall be
reflected in the Capital Accounts of the Partners in the
manner and subject to the limitations prescribed in
Regulations Section 1.704-1(b)(2)(iv)(m).
(2) The computation of all items of income, gain, loss and
deduction shall be made without regard to the fact that items
described in Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code
are not includable in gross income or are neither currently
deductible nor capitalized for federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as
if the adjusted basis of such property as of such date of
disposition were equal in amount to the Partnership's Carrying
Value with respect to such property as of such date.
(4) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account
Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereof, the amount of any
such adjustment shall be taken into account as gain or loss
from the disposition of such asset.
(6) Any items specially allocated under Section 2 of Exhibit C
hereof shall not be taken into account.
<PAGE>
C. A transferee (including an Assignee) of a Partnership Unit shall
succeed to a pro rata portion of the Capital Account of the transferor.
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D(2), the
Carrying Values of all Partnership assets shall be adjusted
upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as
of the times of the adjustments provided in Section 1.D(2)
hereof, as if such Unrealized Gain or Unrealized Loss had been
recognized on an actual sale of each such property and
allocated pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest
in the Partnership by any new or existing Partner in exchange
for more than a de minimis Capital Contribution; (b)
immediately prior to the distribution by the Partnership to a
Partner of more than a de minimis amount of property as
consideration for an interest in the Partnership; and (c)
immediately prior to the liquidation of the Partnership within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
provided, however, that adjustments pursuant to clauses (a)
and (b) above shall be made only if the General Partner
determines that such adjustments are necessary or appropriate
to reflect the relative economic interests of the Partners in
the Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e),
the Carrying Value of Partnership assets distributed in kind
shall be adjusted upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to such Partnership
property, as of the time any such asset is distributed, as if
such Unrealized Gain or Unrealized Loss had been recognized on
an actual sale of such Partnership property and allocated
pursuant to Section 6.1 of the Agreement.
(4) In determining Unrealized Gain or Unrealized Loss for purposes
of this Exhibit B, the aggregate cash amount and fair market
value of all Partnership assets (including cash or cash
equivalents) shall be determined by the General Partner using
such reasonable method of valuation as it may adopt, or in the
case of a liquidating distribution pursuant to Article 13 of
the Agreement, shall be determined and allocated by the
Liquidator using such reasonable methods of valuation as it
may adopt. The General Partner, or the Liquidator, as the case
may be, shall allocate such aggregate fair market value among
the assets of the Partnership (in such manner as it determines
in its sole and absolute discretion to arrive at a fair market
value for individual properties).
E. The provisions of this Agreement (including this Exhibit B and the
other Exhibits to this Agreement) relating to the maintenance of Capital
Accounts are intended to comply with Regulations Section 1.704- 1(b), and shall
be interpreted and applied in a manner consistent with such Regulations. In the
event the General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or the Limited Partners) are computed in order
to comply with such Regulations, the General Partner may make such modification
without regard to Article 13 of the Agreement, provided that it is not likely to
have a material effect on the amounts distributable to any Person pursuant to
Article 12 of the Agreement upon the dissolution of the Partnership. The General
Partner also shall (i) make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Partners and the amount of
Partnership capital reflected on the Partnership's balance sheet, as computed
for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q),
and (ii) make any appropriate modifications in the event unanticipated events
might otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
<PAGE>
EXHIBIT C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules
Notwithstanding any other provision of the Agreement or this Exhibit C,
the following special allocations shall be made in the following order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of Section
6.1 of the Agreement or any other provisions of this Exhibit C, if there is a
net decrease in the Partnership Minimum Gain during any Partnership Year (except
as a result of certain conversions and refinancings of Partnership indebtedness,
certain Capital Contributions, or certain revaluations of the Partnership
property as further described in Regulations Sections 1.704-2(d)(4),
1.704-2(f)(2) or 1.704-2(f)(3)), each Partner shall be specially allocated items
of Partnership income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Regulations
Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 1.A is intended to comply
with the minimum gain chargeback requirements in Regulations Section 1.704-2(f)
and for purposes of this Section 1.A only, each Partner's Adjusted Capital
Account Deficit shall be determined prior to any other allocations pursuant to
Section 6.1 of this Agreement with respect to such Partnership Year and without
regard to any decrease in Partner Minimum Gain during such Partnership Year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other provision
of Section 6.1 of the Agreement or any other provisions of this Exhibit C
(except Section 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership Year (except
as a result of certain conversions and refinancings of Partnership indebtedness,
certain Capital Contributions, or certain revaluations of the Partnership
property as further described in Regulations Sections 1.704-2(i)(3) and
1.704-2(i)(4)), each Partner who has a share of the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Partner's share of the net decrease in Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(5). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each General Partner and Limited Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Regulations
Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 1.B is intended to comply
with the minimum gain chargeback requirement in such Sections of the Regulations
and shall be interpreted consistently therewith. Solely for purposes of this
Section 1.B, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of the Agreement or this
Exhibit with respect to such Partnership Year, other than allocations pursuant
to Section 1.A hereof.
C. Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-
1(b)(2)(ii)(d)(6), and after giving effect to the allocations required under
Sections 1.A and 1.B hereof, such Partner has an Adjusted Capital Account
Deficit, items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership Year) shall be specifically allocated to such Partner in an amount
and manner sufficient to eliminate, to the extent required by the Regulations,
its Adjusted Capital Account Deficit created by such adjustments, allocations or
distributions as quickly as possible. This Section 1.C is intended to constitute
a "qualified income offset" under Regulations Section 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
<PAGE>
D. Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
Year shall be allocated to the Partners in accordance with their respective
Percentage Interests. If the General Partner determines in its good faith
discretion that the Partnership's Nonrecourse Deductions must be allocated in a
different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio for such
Partnership Year to the numerically closest ratio which would satisfy such
requirements.
E. Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any Partnership Year shall be specially allocated to the Partner who bears
the economic risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
F. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 734(b)
of the Code is required, pursuant to Regulations Section 1.704- 1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
G. Curative Allocations. The allocations set forth in Section 1.C of
this Exhibit C (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations promulgated under Section 704 of the
Code. The Regulatory Allocations shall be taken into account in allocating Net
Income, Net Loss and other items of income, gain, loss and deduction to each
Partner so that, to the extent possible, and to the extent permitted by the
Regulations, the cumulative allocations of Net Income, Net Loss and other items
and the Regulatory Allocations to each Partner shall be equal to the net amount
that would have been allocated to each Partner if the Regulatory Allocations had
not been made.
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal income
tax purposes, each item of income, gain, loss and deduction shall be allocated
among the Partners in the same manner as its correlative item of "book" income,
gain, loss or deduction is allocated pursuant to Section 6.1 of the Agreement
and Section 1 of this Exhibit C.
B. Notwithstanding any other provision in this Agreement, in an attempt
to eliminate Book-Tax Disparities attributable to a Contributed Property or
Adjusted Property, items of income, gain, loss, and deduction shall be allocated
for federal income tax purposes among the Partners as follows:
(1)(a) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the
Partners consistent with the principles of Section
704(c) of the Code to take into account the variation
between the Gross Asset Value of such property and
its adjusted basis at the time of contribution; and
(b) any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall be
allocated among the Partners in the same manner as
its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement
and Section 1 of this Exhibit C.
(2)(a) In the case of an Adjusted Property, such items shall:
<PAGE>
(1) 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 Exhibit B, and
(2) second, in the event such property was originally a
Contributed Property, be allocated among the Partners
in a manner consistent with Section 2.B(1) of this
Exhibit C; and
(b) any item of Residual Gain or Residual Loss attributable to an
Adjusted Property shall be allocated among the Partners in the
same manner its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement and Section
1 of this Exhibit C.
(3) all other items of income, gain, loss and deduction shall be
allocated among the Partners the same manner as their
correlative item of "book" gain or loss is allocated pursuant
to Section 6.1 of the Agreement and Section 1 of the Exhibit
C.
C. For purposes of Sections 2.B(1) (a) and 2.B(2) (a) of this Exhibit
C, the General Partner shall elect in its sole and absolute discretion the
method to be used under Regulations Section 1.704-3 to eliminate Book-Tax
Disparities attributable to a Contributed Property or Adjusted Property.
<PAGE>
EXHIBIT D
VALUE OF CONTRIBUTED PROPERTY
Underlying Property Gross Asset Value Net Asset Value
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Hospitality Properties, Inc. at June 30, 1998, and its statement of
income for the six months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Hospitality Properties, Inc. for the six months
ended June 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 19,156,223<F1>
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,332,910
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 0
0
0
<COMMON> 23,778
<OTHER-SE> 20,216,882
<TOTAL-LIABILITY-AND-EQUITY> 20,332,910
<SALES> 0
<TOTAL-REVENUES> 371,159
<CGS> 0
<TOTAL-COSTS> 169,186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 201,973
<INCOME-TAX> 0
<INCOME-CONTINUING> 201,973
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201,973
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<FN>
<F1>Cash includes certificates of deposit totalling $1,500,417.
<F2>Due to the nature of its industry, CNL Hospitality Properties, Inc. has an
unclassified balance sheet; therefore, no values are listed above for current
assets and current liabilities.
</FN>
</TABLE>
