As filed with the Securities and Exchange Commission on March ___, 1998
Registration No. 333-______
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------------------------------
CNL HEALTH CARE PROPERTIES, INC.
(Exact Name of Registrant as Specified in Charter)
400 East South Street
Orlando, Florida 32801
Telephone: (407) 422-1574
(Address of Principal executive offices)
James M. Seneff, Jr.
Chief Executive Officer
400 East South Street
Orlando, Florida 32801
Telephone: (407) 422-1574
(Name, Address and Telephone
Number of Agent for Service)
COPIES TO:
THOMAS H. McCORMICK, ESQUIRE
THOMAS J. PLOTZ, ESQUIRE
Shaw Pittman Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the registration statement becomes effective.
<TABLE>
<CAPTION>
====================================================================================================================================
Title of each class of securities to Amount to be Proposed maximum Proposed maximum Amount of
be registered registered offering price per Share aggregate offering price Registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $0.01 par value 15,000,000 $10.00 $150,000,000 $44,250
Common Stock, $0.01 par value (1) 500,000 10.00 5,000,000 1,475
Common Stock, $0.01 par value (2) 600,000 12.00 7,200,000 2,124
Soliciting Dealer Warrants (3) 600,000 0.0008 480 0
====================================================================================================================================
</TABLE>
(1) Represents Shares issuable pursuant to the Company's Reinvestment Plan.
(2) Represents Shares which are issuable upon exercise of warrants issuable
to CNL Securities Corp. or its assignees pursuant to the Warrant
Purchase Agreement dated ______________, 1998.
(3) Represents warrants issuable to the Managing Dealer to purchase 600,000
Shares pursuant to the Warrant Purchase Agreement dated _____________,
1998.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC. PROSPECTUS
Shares of Common Stock
$2,500,000 - Minimum
Minimum Purchase - 250 Shares ($2,500)
100 Shares ($1,000) for IRAs and Keogh and Pension Plans
(Minimum purchase may be higher in certain states)
CNL HEALTH CARE PROPERTIES, INC. (the "Company") is a Maryland
corporation which intends to qualify for federal income tax purposes as a real
estate investment trust (a "REIT"). The Company may sell up to 15,500,000 shares
of common stock (the "Shares"), including 500,000 Shares pursuant to the
Company's reinvestment plan, for a maximum of $155,000,000. The Company has been
formed primarily to acquire real estate properties (the "Properties") related to
health care and seniors' housing facilities (the "Health Care Facilities")
located across the United States. The Health Care Facilities may include, but
will not be limited to, congregate living, assisted living and skilled nursing
facilities for seniors, continuing care retirement communities and life care
communities, and medical office buildings and walk-in clinics. The Properties
will be leased on a long term, "triple-net" basis to operators of the Health
Care Facilities. Under the Company's triple-net leases, the tenant generally
will be responsible for property costs associated with ongoing operations,
including repairs, maintenance, property taxes, utilities, and insurance. In
addition, the Company expects that leases will be structured to require the
tenant to pay base annual rent with (i) automatic fixed increases in the base
rent or (ii) increases in the base rent based on increases in consumer price
indices, over the term of the lease. The Company may also provide mortgage
financing (the "Mortgage Loans") to operators of Health Care Facilities in the
aggregate principal amount of approximately 5% to 10% of the Company's total
assets. The Company also intends to offer furniture, fixture and equipment
financing ("Secured Equipment Leases") to operators of Health Care Facilities.
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 is not expected to exceed 10% of the Company's total assets.
The Company is not a mutual fund or other type of investment company within the
meaning of the Investment Company Act of 1940, and is not subject to regulation
thereunder.
There are significant risks associated with an investment in the
Company (see "Risk Factors" at Page 11), including the following:
o If the Company raises only $2,500,000 from sales of Shares, it will
acquire no more than two medical office buildings or walk-in clinics,
and will have reduced diversification of its investments.
o The Company will rely on CNL Health Care Advisors, Inc. (the "Advisor")
with respect to all investment decisions, subject to approval by the
Board of Directors in certain circumstances. The experience of the
Advisor and Directors of the Company with acquiring and leasing Health
Care Facilities, mortgage financing and equipment leasing is limited,
which could adversely affect the Company's business.
o The Advisor and its Affiliates are or will be engaged in other
activities that will result in potential conflicts of interest with the
services that the Advisor will provide to the Company and could take
actions that are more favorable to such other entities than to the
Company.
o The Company currently owns no Properties, and investors, therefore,
will not have the opportunity to evaluate the Properties that the
Company will acquire.
o There is currently no public trading market for the Shares, and there
is no assurance that one will develop.
o If the Shares are not listed on a national securities exchange or
over-the-counter market ("Listing") within ten years of commencement of
the offering, as to which there can be no assurance, the Company will
commence the orderly sale of its assets and the distribution of the
proceeds. Listing does not assure liquidity.
o The Secured Equipment Lease program is dependent upon obtaining
financing.
o Market and economic conditions that the Company cannot control,
including government regulation of the health care industry, will have
an effect (either positive or negative) on the value of the Company's
investments and the amount of revenues that the Company receives from
tenants.
o The Company may incur debt, including debt to make Distributions to
stockholders in order to maintain its status as a REIT.
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 fixed increases in
base rent or increases in the base rent based on increases in consumer price
indices, over the term of the lease, and obtaining fixed income through the
receipt of payments from 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 to ten years after commencement of the offering, either
in whole or in part, through (a) Listing, or (b) the commencement of the orderly
sale of the Company's assets, and distribution of the proceeds thereof (outside
the ordinary course of business and consistent with its objective of qualifying
as a REIT). There can be no assurance that these investment objectives will be
met.
This Prospectus describes an investment in Shares of the Company. The
Company will use the proceeds from the sale of Shares to purchase Properties and
to make Mortgage Loans. The Company also intends to borrow money to purchase
Properties and finance Mortgage Loans as well as to fund Secured Equipment
Leases. No stockholder may hold more than 9.8% of the total Shares. Of the
proceeds from the sale of Shares, approximately 84% will be used to acquire
Properties and make Mortgage Loans, and approximately 9% will be paid in fees
and expenses to Affiliates of the Company for their services and as
reimbursement for Organizational and Offering Expenses incurred on behalf of the
Company; the balance will be used to pay other expenses of the offering. The
Company has registered an offering of 15,500,000 Shares, with 500,000 of such
Shares available only to stockholders purchasing Shares in this initial public
offering who receive a copy of this Prospectus and who elect to participate in
the Company's reinvestment plan (the "Reinvestment Plan"). Any participation in
the reinvestment plan by a person who becomes a stockholder otherwise than by
participating in this offering must be made pursuant to a solicitation under a
separate prospectus. See "Summary of Reinvestment Plan." In addition, the
Company has registered 600,000 shares of common stock issuable upon the exercise
of warrants granted to the Managing Dealer. See `The Offering - Plan of
Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Selling Proceeds to
Public Commissions(1) Company(2)(3)
-------------- ---------------- -----------------
<S> <C>
Per Share $ 10.00 $ 0.75 $ 9.25
Total Minimum $ 2,500,000 $ 187,500 $ 2,312,500
Total Maximum(4) $ 155,000,000 $ 11,625,000 $ 143,375,000
</TABLE>
(footnotes on following page)
CNL SECURITIES CORP.
March __, 1998
<PAGE>
(1) CNL Securities Corp. (the "Managing Dealer") will receive Selling
Commissions of 7.5% on sales of Shares, subject to reduction in certain
circumstances. The Managing Dealer, which is an Affiliate of the
Company, may engage other broker-dealers that are members of the
National Association of Securities Dealers, Inc. or other entities
exempt from broker-dealer registration (collectively, the "Soliciting
Dealers") to sell Shares and reallow to them commissions of up to 7%
with respect to Shares which they sell. The amounts indicated for
Selling Commissions assume that reduced Selling Commissions are not
paid in connection with the purchase of any Shares and do not include a
0.5% marketing support and due diligence expense reimbursement fee
payable to the Managing Dealer, all or a portion of which may be
reallowed to certain Soliciting Dealers, with prior written approval
from, and in the sole discretion of, the Managing Dealer. See "The
Offering Plan of Distribution" for a description of the marketing
support and due diligence expense reimbursement fee payable to the
Managing Dealer. The Company also will issue to the Managing Dealer, a
warrant (the "Soliciting Dealer Warrants") to purchase one share of
common stock for every 25 Shares sold, to be exercised, if at all,
during the ten-year period commencing with the date the offering begins
(the "Exercise Period"), at a price of $12.00 per share. All or any
part of such Soliciting Dealer Warrants may be reallowed to certain
Soliciting Dealers with prior written approval from, and in the sole
discretion of, the Managing Dealer, unless prohibited by federal or
state securities laws. See "Summary of Articles of Incorporation and
Bylaws - Description of Capital Stock - Soliciting Dealer Warrants" and
"The Offering - Plan of Distribution."
(2) Before deducting (i) Organizational and Offering Expenses of the
Company estimated to be 3% of gross offering proceeds computed at
$10.00 per Shares sold ("Gross Proceeds") and (ii) the marketing
support and due diligence expense reimbursement fee. Organizational and
Offering Expenses exclude Selling Commissions and the marketing support
and due diligence reimbursement fee.
(3) In addition, assuming 15,500,000 Shares, including 500,000 Shares
available to stockholders participating in the Company's Reinvestment
Plan, are sold and 600,000 Soliciting Dealer Warrants are issued to the
Managing Dealer, $480 of additional proceeds will be raised, and
assuming all such warrants are exercised at the exercise price of
$12.00 per share, a total of $7,200,000 of additional proceeds will be
raised. No Selling Commissions or marketing support and due diligence
expense reimbursement fee will be paid in connection with the issuance
of the Soliciting Dealer Warrants or the shares issuable upon the
exercise thereof.
(4) Includes 500,000 Shares which may be issued pursuant to the Company's
Reinvestment Plan. Those stockholders who elect to participate in the
Reinvestment Plan will have their Distributions reinvested in
additional Shares.
NEITHER THE ATTORNEY GENERAL OF THE STATE OF NEW YORK NOR THE ATTORNEY
GENERAL OF THE STATE OF NEW JERSEY OR THE BUREAU OF SECURITIES OF THE STATE OF
NEW JERSEY HAS PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
All subscription funds for Shares will be deposited in an
interest-bearing escrow account with SouthTrust Asset Management Company of
Florida, N.A., which will act as the escrow agent for this offering, until
subscription funds for the Company's Shares total $2,500,000. Subscription funds
will be released from escrow to the Company to be used for Company purposes
within approximately 30 days after the minimum is reached. No sale of Shares
shall be completed until at least five business days after the date on which the
subscriber receives a copy of this Prospectus. No Shares will be sold unless
subscriptions for at least 250,000 Shares ($2,500,000) have been obtained within
one year after the initial date of this Prospectus. In no event will
subscription funds be held in escrow for longer than one year, and any refunds
of subscriptions due to the failure of the Company to reach the required minimum
shall be returned with interest. Pursuant to the requirements of the
Commissioner of Securities of the State of Pennsylvania, subscriptions from
Pennsylvania residents may not be released from escrow, or included in
determining whether the $2,500,000 minimum for the Company has been reached,
until subscriptions for Shares totalling at least $7,775,000 have been received
from all sources. The offering of Shares will terminate no later than
___________, 1999 (one year after the initial date of this Prospectus), unless
the Company elects to extend it to a date no later than ___________, 2000 (two
years after the initial date of this Prospectus), in states that permit such
extension.
PENNSYLVANIA INVESTORS: Because the minimum offering is less than
$15,500,000, all Pennsylvania investors are cautioned to evaluate carefully the
Company's ability fully to accomplish its stated objectives and to inquire as to
the current dollar volume of subscriptions for the Shares.
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
ANY STATE IN WHICH SUCH OFFER OR SALE WOULD BE UNLAWFUL, AND NO SUBSCRIPTION
WILL BE ACCEPTED FROM ANY PERSON WHO DOES NOT MEET THE SUITABILITY STANDARDS SET
FORTH HEREIN. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER
SHALL CREATE, UNDER ANY CIRCUMSTANCES, AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. IF, HOWEVER, ANY
MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED,
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY, AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE
WHICH MAY FLOW FROM AN INVESTMENT IN THIS COMPANY IS PROHIBITED.
Until ___________, 1998 (90 days after the initial date of this
Prospectus), all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to unsold allotments or
subscriptions.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
TABLE OF CONTENTS...............................................................................................
SUMMARY.........................................................................................................
CNL Health Care Properties, Inc............................................................................
Risk Factors...............................................................................................
Estimated Use of Proceeds..................................................................................
Conflicts of Interest......................................................................................
Management.................................................................................................
Management Compensation....................................................................................
Summary of Reinvestment Plan...............................................................................
Business...................................................................................................
Investment Objectives And Policies.........................................................................
Description of Shares......................................................................................
Distribution Policy........................................................................................
Prior Performance of Affiliates............................................................................
Tax Status Of The Company..................................................................................
The Offering...............................................................................................
Definitions................................................................................................
RISK FACTORS....................................................................................................
Investment Risks...........................................................................................
Minimum Offering.......................................................................................
Lack of Diversification................................................................................
Limited Experience of Management.......................................................................
Reliance on Management.................................................................................
Reliance on Advisor....................................................................................
Leverage...............................................................................................
Conflicts of Interest..................................................................................
Competing Demands on Officers and
Directors.....................................................................................
Timing of Sales and Acquisitions Impact...........................................................
Property Development..............................................................................
The Company May Invest With Affiliates of
the Advisor...................................................................................
No Independent Review of the Company or
the Prospectus by Managing Dealer.............................................................
No Separate Counsel for the Company,
Affiliates and Investors......................................................................
Lack of Liquidity of Shares............................................................................
Lack of Control by the Company over Joint Ventures.....................................................
Lack of Control of Property Management.................................................................
Mortgage Loans.........................................................................................
Real Estate Market Conditions.....................................................................
Interest Rate Fluctuations........................................................................
Delays in Liquidating Defaulted Mortgage
Loans.........................................................................................
Regulation........................................................................................
Secured Equipment Leases...............................................................................
Default by Lessee.................................................................................
Regulation........................................................................................
Tax Risks.........................................................................................
No Operating History...................................................................................
Impact of Inflation....................................................................................
iii
<PAGE>
Majority Stockholder Vote Binding on
All Stockholders..................................................................................
Broad Discretion of the Board of Directors
in Management of the Company's Operations.........................................................
Restrictions on Transfer Relating to REIT Status.......................................................
Limited Liability of Officers and Directors............................................................
Possible Effect of ERISA...............................................................................
Insufficient Working Capital...........................................................................
Ability to use Leverage to Make Distributions..........................................................
Real Estate and Financing Risks............................................................................
An Unspecified Property Offering ....................................................................
Inability of Potential Investors to Evaluate
Properties....................................................................................
No Limitation on Number of Properties
of a Particular Facility Type.................................................................
No Assurance of Obtaining Suitable
Investments...................................................................................
Conflicts of Interest.............................................................................
Possible Delays in Investment..........................................................................
Lack of Control Over Properties Under
Construction......................................................................................
Ground Lease Property Risks............................................................................
Impasse or Conflicts with Joint Venture Partner........................................................
Impasse with Joint Venture Partner................................................................
Interests of Joint Venture Partner................................................................
Limitations on the Ability of the Company to
Liquidate.........................................................................................
Inability to Control the Sale of Certain Properties....................................................
Real Property Investments..............................................................................
Lack of Control Over Market and Business
Conditions....................................................................................
Multiple Property Leases or Mortgage Loans
with Individual Tenants or Borrowers..........................................................
Re-leasing of Properties..........................................................................
Lack of Adequate Insurance........................................................................
Health Care Facilities.................................................................................
Reliance on Government Reimbursement..............................................................
Dependence on Attracting Senior Citizens
with Ability to Pay...........................................................................
Health Care Reform................................................................................
Government Regulation of Health Care Industry.....................................................
Limitations on Alternative Uses of Company
Properties....................................................................................
Impact of Adverse Trends...............................................................................
Certificate of Need Laws in Certain States.............................................................
Competition............................................................................................
Possible Environmental Liabilities.....................................................................
The Line of Credit and Permanent Financing.............................................................
Unspecified Secured Equipment Leases...................................................................
Tax Risks..................................................................................................
REIT Qualification.....................................................................................
Secured Equipment Lease Treatment......................................................................
Effect of REIT Disqualification........................................................................
Effect of Distribution Requirements....................................................................
iv
<PAGE>
Restrictions on Maximum Share Ownership................................................................
Other Tax Liabilities..................................................................................
Changes in Tax Laws....................................................................................
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE......................................................................
Suitability Standards......................................................................................
How to Subscribe...........................................................................................
ESTIMATED USE OF PROCEEDS.......................................................................................
MANAGEMENT COMPENSATION.........................................................................................
CONFLICTS OF INTEREST...........................................................................................
Prior and Future Programs..................................................................................
Acquisition of Properties and Investment
in Mortgage Loans.......................................................................................
Sales of Properties........................................................................................
Joint Investment With An Affiliated Program................................................................
Competition for Management Time............................................................................
Compensation of the Advisor................................................................................
Relationship with Managing Dealer..........................................................................
Legal Representation.......................................................................................
Certain Conflict Resolution Procedures.....................................................................
SUMMARY OF REINVESTMENT PLAN....................................................................................
General....................................................................................................
Investment of Distributions................................................................................
Participant Accounts, Fees, and Allocation of Shares.......................................................
Reports to Participants....................................................................................
Election to Participate or Terminate Participation.........................................................
Federal Income Tax Considerations..........................................................................
Amendments and Termination.................................................................................
REDEMPTION OF SHARES............................................................................................
BUSINESS........................................................................................................
General....................................................................................................
Site Selection and Acquisition of Properties...............................................................
Standards for Investment in Properties.....................................................................
Description of Properties..................................................................................
Description of Property Leases.............................................................................
Joint Venture Arrangements.................................................................................
Mortgage Loans.............................................................................................
Management Services........................................................................................
Borrowing..................................................................................................
Sale of Properties, Mortgage Loans and Secured
Equipment Leases........................................................................................
Competition................................................................................................
Regulation of Mortgage Loans and Secured
Equipment Leases........................................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE COMPANY...........................................................................
Liquidity and Capital Resources............................................................................
Results of Operations......................................................................................
MANAGEMENT......................................................................................................
General....................................................................................................
Fiduciary Responsibility of the Board of Directors.........................................................
Directors and Executive Officers...........................................................................
Independent Directors......................................................................................
Committees of the Board of Directors.......................................................................
Compensation of Directors and Executive Officers...........................................................
v
<PAGE>
Management Compensation....................................................................................
THE ADVISOR AND THE ADVISORY AGREEMENT..........................................................................
The Advisor................................................................................................
The Advisory Agreement.....................................................................................
PRIOR PERFORMANCE INFORMATION...................................................................................
INVESTMENT OBJECTIVES AND POLICIES..............................................................................
General....................................................................................................
Certain Investment Limitations.............................................................................
DISTRIBUTION POLICY.............................................................................................
General....................................................................................................
Distributions..............................................................................................
SUMMARY OF THE ARTICLES OF INCORPORATION
AND BYLAWS...................................................................................................
General....................................................................................................
Description of Capital Stock...............................................................................
Board of Directors.........................................................................................
Stockholder Meetings.......................................................................................
Advance Notice for Stockholder Nominations for
Directors and Proposals of New Business.................................................................
Amendments to the Articles of Incorporation................................................................
Mergers, Combinations, and Sale of Assets..................................................................
Termination of the Company and REIT Status.................................................................
Restriction of Ownership...................................................................................
Responsibility of Directors................................................................................
Limitation of Liability and Indemnification................................................................
Removal of Directors.......................................................................................
Inspection of Books and Records............................................................................
Restrictions on "Roll-Up" Transactions.....................................................................
FEDERAL INCOME TAX CONSIDERATIONS...............................................................................
Introduction...............................................................................................
Taxation of the Company....................................................................................
Taxation of Stockholders...................................................................................
State and Local Taxes......................................................................................
Characterization of Property Leases........................................................................
Characterization of Secured Equipment Leases...............................................................
Investment in Joint Ventures...............................................................................
REPORTS TO STOCKHOLDERS.........................................................................................
THE OFFERING....................................................................................................
General....................................................................................................
Plan of Distribution.......................................................................................
Subscription Procedures....................................................................................
Escrow Arrangements........................................................................................
ERISA Considerations.......................................................................................
Determination of Offering Price............................................................................
SUPPLEMENTAL SALES MATERIAL.....................................................................................
LEGAL OPINIONS..................................................................................................
EXPERTS.........................................................................................................
ADDITIONAL INFORMATION..........................................................................................
DEFINITIONS.....................................................................................................
Form of Reinvestment Plan.................................................................................Exhibit A
Financial Information.....................................................................................Exhibit B
Prior Performance Tables..................................................................................Exhibit C
Subscription Agreement....................................................................................Exhibit D
</TABLE>
vi
<PAGE>
SUMMARY
THIS SECTION SUMMARIZES CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND IS INTENDED FOR QUICK REFERENCE ONLY. THIS IS NOT A COMPLETE
DESCRIPTION OF THE INVESTMENT. POTENTIAL STOCKHOLDERS MUST READ AND EVALUATE THE
FULL TEXT OF THIS PROSPECTUS AND ALL SUPPORTING DOCUMENTS ATTACHED AS EXHIBITS
HERETO IN ORDER TO EVALUATE AN INVESTMENT IN THE COMPANY. THE FOLLOWING SUMMARY
THEREFORE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THIS
PROSPECTUS AND THE SUPPORTING DOCUMENTS. CAPITALIZED TERMS NOT OTHERWISE DEFINED
HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THE "DEFINITIONS" SECTION OF THE
PROSPECTUS.
CNL HEALTH CARE PROPERTIES, INC.
CNL Health Care Properties, Inc. (the "Company") is a Maryland corporation
which intends to qualify for federal income tax purposes as a real estate
investment trust (a "REIT"). The Company's address is 400 East South Street,
Orlando, Florida 32801, telephone (407) 422-1574 or toll free (800) 522-3863.
The Company has been formed primarily to acquire real estate properties
(the "Properties") related to health care facilities (the "Health Care
Facilities") located across the United States. The Health Care Facilities may
include, but will not be limited to, congregate living, assisted living and
skilled nursing facilities for seniors, continuing care retirement communities
and life care communities, and medical office buildings and walk-in clinics. The
Properties will be leased on a long-term (generally, 10 to 20 years, plus
renewal options for an additional 10 to 20 years), "triple-net" basis, which
means that the tenant generally will be responsible for repairs, maintenance,
property taxes, utilities, and insurance. The Company expects to structure the
leases of its Properties to provide for payment of base annual rent with (i)
automatic fixed increases in base rent or (ii) increases in the base rent based
on increases in consumer price indices, over the term of the lease. The Company
also may offer mortgage financing (the "Mortgage Loans") to operators of Health
Care Facilities secured by real estate owned by the borrower. However, because
it prefers to focus on investing in Properties, which have the potential to
appreciate, the Company currently expects to provide Mortgage Loans in the
aggregate principal amount of approximately 5% to 10% of the Company's total
assets. The Company expects that the interest rate and terms (generally, 10 to
20 years) of the Mortgage Loans will be similar to those of its leases. To a
lesser extent, the Company also will offer furniture, fixtures and equipment
("Equipment") financing to operators of Health Care Facilities through loans or
direct financing leases (collectively, the "Secured Equipment Leases"). The
aggregate outstanding principal amount of Secured Equipment Leases is not
expected to exceed 10% of the Company's total assets. See "Business" for a
description of the types of Properties that may be selected by CNL Health Care
Advisors, Inc. (the "Advisor"), the Property selection and acquisition
processes, and the nature of the Mortgage Loans and Secured Equipment Leases.
The Company intends to borrow money to acquire Properties, Mortgage Loans,
and Secured Equipment Leases (collectively, the "Assets"), and to pay certain
fees. The Company plans to obtain a revolving line of credit (the "Line of
Credit") initially in an amount up to $45,000,000. The Line of Credit may be
increased at the discretion of the Board of Directors. In addition to the Line
of Credit, the Company may obtain other financing (the "Permanent Financing").
The Board of Directors anticipates that the aggregate amount of the Permanent
Financing will not exceed 30% of the Company's total assets. However, in
accordance with the Company's Articles of Incorporation, the aggregate maximum
amount the Company may borrow is 300% of Net Assets, unless any borrowing over
such 300% level is approved by 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. In general, Net Assets are the Company's
total assets (other than intangibles), calculated at cost, less total
liabilities. The Company is engaged in preliminary discussions with potential
lenders but has not yet obtained a commitment letter for the Line of Credit or
any Permanent Financing, and may not be able to obtain the Line of Credit or the
Permanent Financing on satisfactory terms. The Company may repay the Line of
Credit with offering proceeds, working capital or with Permanent Financing. The
Line of Credit and Permanent Financing will be used to acquire Assets and are
the only source of funds for making Secured Equipment Leases. The Board of
Directors may elect to encumber Assets in connection with any borrowing.
<PAGE>
The Board of Directors may determine to engage in future offerings of the
Company's common stock ("Common Stock") of up to the number of unissued
authorized shares of Common Stock available following the completion of this
offering. Under the Company's Articles of Incorporation, the Company will
automatically terminate and dissolve on December 31, 2008, unless the shares of
Common Stock of the Company, including the shares offered hereby (the "Shares"),
are listed on a national securities exchange or over-the-counter market
("Listing"), in which event the Company automatically will become a perpetual
life entity. If Listing does not occur by December 31, 2008, the Company will
undertake, outside the ordinary course of business and consistent with its
objective of qualifying as a REIT, the orderly Sale of the Company's assets, the
distribution of Net Sales Proceeds of such Sales to stockholders and the
limitation of its activities to those related to its orderly liquidation, unless
the stockholders owning a majority of the Shares elect to amend the Articles of
Incorporation to extend the duration of the Company. See "Risk Factors - Real
Estate and Financing Risks" for a complete discussion of risks relating to
future disposition of the Company's assets. As a perpetual life entity following
Listing, the Company would not be required to dissolve and return capital to
stockholders. If Listing occurs, in order to liquidate their investment,
stockholders would have to sell their Shares in the market on which the Shares
are traded. Listing is no assurance of liquidity. See "Risk Factors - Investment
Risks" for a discussion of risks associated with the lack of liquidity of the
Shares and with borrowing. In addition, following Listing the Company intends to
reinvest proceeds from Sales of assets rather than distribute such proceeds to
stockholders.
RISK FACTORS
The "Risk Factors" section discusses in detail the more important risks
associated with an investment in the Company, including risks associated with an
investment in a real estate investment trust such as the Company, risks
associated with an investment in real estate such as the Properties, risks
associated with the Mortgage Loans, risks associated with Secured Equipment
Leases, risks associated with borrowing and tax risks. These risks include:
o If the Company raises only $2,500,000 from sales of Shares, the Company
will acquire no more than two medical office buildings or walk-in clinics,
and will have reduced diversification of its investments.
o The Company will rely on the Advisor and the Board of Directors, which
together will have responsibility for the management of the Company and its
investments, subject to the ability of the stockholders to elect the
Directors. The experience of the Advisor and Directors of the Company with
acquiring and leasing Health Care Facilities, mortgage financing and
equipment leasing is limited, which could adversely affect the Company's
business.
o The services to be performed by the Advisor and its Affiliates for the
Company in connection with the offering, the selection and acquisition of
the Properties, the making of Mortgage Loans and Secured Equipment Leases
and the general operation of the Company will result in conflicts of
interest.
o Because the Company currently owns no Properties, stockholders will not
have the opportunity to evaluate the Properties that the Company will
acquire.
o The Board of Directors will have significant flexibility regarding the
Company's operations.
o The Company may make investments that will not appreciate in value over
time, such as building only Properties, with the land owned by a
third-party, and Mortgage Loans.
o Stockholders who must sell their Shares will not be able to sell them
quickly because it is not anticipated that there will be a public market
for the Shares in the near term, and there can be no assurance that Listing
will occur.
o The Company has not obtained a commitment for the Line of Credit or
Permanent Financing, and may be unable to do so on satisfactory terms,
thereby affecting its ability to acquire Properties or make Mortgage Loans
or Secured Equipment Leases.
o The amount of revenues the Company will receive from tenants, lessees and
borrowers cannot be predicted.
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o The Company may incur debt, including debt to make Distributions to
stockholders in order to maintain its status as a REIT.
o The Company may, in connection with any borrowing, encumber Assets.
o Tenants, lessees or borrowers may default resulting in decreased income.
o The vote of stockholders owning at least a majority but less than all of
the Shares will bind all of the stockholders as to matters such as the
election of Directors and amendment of the Company's governing documents.
o Restrictions on ownership of more than 9.8% of the shares of the Company's
Common Stock by any single stockholder or certain related stockholders may
have the effect of inhibiting a change in control of the Company even if
such a change is in the interest of a majority of the stockholders.
o The Company may not qualify or remain qualified as a REIT for federal
income tax purposes, which could result in subjecting the Company to
federal income tax on its taxable income at regular corporate rates,
thereby reducing the amount of funds available for paying Distributions to
stockholders.
ESTIMATED USE OF PROCEEDS
The Company will use the proceeds of the sale of the Shares to acquire
Properties, to make Mortgage Loans, and to pay expenses relating to the
organization of the Company and the sale of the Shares. In light of current
market conditions, management of the Company and the Advisor have estimated a
purchase price of $1,000,000 to $30,000,000 for each Property. See "Business -
General." If only 250,000 Shares ($2,500,000) are sold, the Company will acquire
no more than two medical office buildings or walk-in clinics. If 15,000,000
Shares ($150,000,000) are sold, the Company could own or finance between four
and 126 Properties depending on the types of Properties, and assuming an average
purchase price of $10,000,000 per Property, the Company would acquire or finance
approximately 12 Properties with the net proceeds from this offering. In
addition, the Company has registered (i) an offering of an additional 500,000
Shares ($5,000,000) available only to stockholders who receive a copy of this
Prospectus and who elect to participate in the Company's reinvestment plan (the
"Reinvestment Plan") and (ii) and additional 600,000 shares of Common Stock
issuable upon the exercise, at an exercise price of $12.00 per share, of the
Soliciting Dealer Warrants. See "Estimated Use of Proceeds" and "Business -
General" for a more detailed description of the anticipated use of offering
proceeds. Management cannot estimate the number of Mortgage Loans that may be
entered into. The Company currently expects to provide Mortgage Loans in the
aggregate principal amount of approximately 5% to 10% of the Company's total
assets. The Company may also use the proceeds of the Line of Credit and the
Permanent Financing to acquire Assets. Secured Equipment Leases will be funded
solely from borrowings.
CONFLICTS OF INTEREST
Certain officers and Directors of the Company who are also officers or
directors of the Advisor will experience conflicts of interest in their
management of the Company. These arise principally from their involvement in
other activities that will conflict with those of the Company and include
matters related to (i) allocation of new investments and management time and
services between the Company and various partnerships and other entities, (ii)
the timing and terms of the investment in or sale of an Asset, (iii) development
of Company Properties by Affiliates, (iv) investments with Affiliates of the
Advisor, (v) compensation of the Advisor, (vi) the Company's relationship with
the Managing Dealer, which is an Affiliate of the Company and the Advisor, and
(vii) the fact that the Company's securities and tax counsel also serves as
securities and tax counsel for certain Affiliates of the Company, and that
neither the Company nor the stockholders will have separate counsel.
The Directors of the Company who are independent of the Advisor (the
"Independent Directors") are responsible for monitoring the activities of the
Advisor and must approve all of the Advisor's actions that involve a potential
conflict other than certain such actions specifically permitted by the Articles
of Incorporation. The "Conflicts of
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Interest" section discusses in more detail the more significant of these
potential conflicts of interest, as well as the procedures that have been
established to resolve a number of these potential conflicts.
The Company has established certain conflict resolution procedures relating
to (i) transactions between the Company and the Advisor or its Affiliates, (ii)
certain future offerings, and (iii) allocation of investments among certain
affiliated entities. See "Conflicts of Interest - Certain Conflict Resolution
Procedures."
MANAGEMENT
The Company has retained the Advisor, a Florida corporation organized in
July 1997, to provide management, advisory and administrative services to the
Company. Pursuant to an advisory agreement with the Company, the Advisor will
handle the day-to-day operations of the Company, select the Company's real
estate investments, and administer its Secured Equipment Lease program. The five
members of the Board of Directors will oversee the management of the Company.
Three of the Directors of the Company are independent of the Advisor and have
responsibility for reviewing its performance. The Directors are elected to the
Board of Directors annually by the stockholders.
All of the officers and directors of the Advisor also are officers or
Directors of the Company. The Advisor will have responsibility for (i) selecting
the Properties that the Company will acquire, formulating and evaluating the
terms of each proposed acquisition, and arranging for the acquisition of the
Property by the Company, (ii) identifying potential lessees for the Properties
and potential borrowers for the Mortgage Loans, and formulating, evaluating, and
negotiating the terms of each lease of a Property and each Mortgage Loan, (iii)
locating and identifying potential lessees and formulating, evaluating, and
negotiating the terms of each Secured Equipment Lease, and (iv) negotiating the
terms of any borrowing by the Company, including the Line of Credit and the
Permanent Financing. All of the foregoing actions are subject to approval by the
Board of Directors. The Advisor also will have the authority, subject to
approval by a majority of the Board of Directors, including a majority of the
Independent Directors, to select assets for Sale in keeping with the Company's
investment objectives and based on an analysis of economic conditions both
nationally and in the vicinity of the assets being considered for Sale.
See "Management" and "The Advisor and the Advisory Agreement" for a
description of the business backgrounds of the individuals responsible for the
management of the Company and the Advisor, as well as for a description of the
services that the Advisor will provide.
MANAGEMENT COMPENSATION
The Advisor, the Managing Dealer, and other Affiliates of the Advisor will
receive compensation for services they will perform for the Company and also
will receive expense reimbursements from the Company for expenses they pay on
behalf of the Company. The following paragraphs summarize the more significant
items of compensation and reimbursement. See "Management Compensation" for a
complete description.
In connection with the formation of the Company and the offering of the
Shares, the Managing Dealer will receive Selling Commissions of 7.5% (a maximum
of $11,250,000 if 15,000,000 Shares are sold), and a marketing support and due
diligence expense reimbursement fee of 0.5% (a maximum of $750,000 if 15,000,000
Shares are sold), of the total amount raised from the sale of Shares, computed
at $10.00 per Share sold ("Gross Proceeds"). The Managing Dealer in turn may
reallow Selling Commissions of up to 7% on Shares sold, and all or a portion of
the 0.5% marketing support and due diligence expense reimbursement fee, to
certain Soliciting Dealers who are not Affiliates of the Company, with prior
written approval from, and in the sole discretion of, the Managing Dealer. In
addition, the Company will issue to the Managing Dealer a Soliciting Dealer
Warrant for every 25 Shares sold through this offering, up to a maximum of
600,000 Soliciting Dealer Warrants to purchase an equivalent number of shares of
Common Stock. The Soliciting Dealer Warrants will be issued quarterly commencing
60 days after the date on which the Shares are first sold pursuant to this
offering. All or any part of such Soliciting Dealer Warrants may be reallowed to
certain Soliciting Dealers with prior written approval from, and in the sole
discretion of, the Managing Dealer, unless prohibited by federal or state
securities laws. Each Soliciting Dealer Warrant will entitle the holder to
purchase one share of Common Stock from the Company for $12.00 during the
Exercise Period; provided however, that Soliciting Dealer Warrants will not be
exercisable until one year from the date of issuance.
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Holders of Soliciting Dealer Warrants may not exercise the Soliciting Dealer
Warrants to the extent such exercise would jeopardize the Company's status as a
REIT. See "Summary of Articles of Incorporation and Bylaws Description of
Capital Stock - Soliciting Dealer Warrants."
For identifying the Properties, structuring the terms of the acquisition
and leases of the Properties and structuring the terms of the Mortgage Loans,
the Advisor will receive a fee 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 (collectively, "Total Proceeds")
($6,750,000 if 15,000,000 Shares are sold and up to an additional $2,025,000 if
Permanent Financing equals $45,000,000), payable as Acquisition Fees.
For managing the Properties and the Mortgage Loans, the Advisor will be
entitled to receive a monthly Asset Management Fee of one-twelfth of .60% of the
Company's Real Estate Asset Value (generally, the total amount invested in the
Properties, exclusive of Acquisition Fees and Acquisition Expenses) and the
total outstanding principal amount of the Mortgage Loans, as of the end of the
preceding month.
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor will be entitled to receive from the
Company a one-time Secured Equipment Lease Servicing Fee of 2% of the purchase
price of the Equipment that is the subject of a Secured Equipment Lease.
Prior to Listing, the Advisor may receive a real estate disposition fee of
3% of the gross sales price of one or more Properties for providing substantial
services in connection with the Sale, which will be deferred and subordinated
until the stockholders have received Distributions equal to the sum of an
aggregate, annual, cumulative, noncompounded 8% return on their Invested
Capital, (the "Stockholders' 8% Return") plus 100% of the stockholders'
aggregate Invested Capital. In general, the stockholders' investment in the
Company ("Invested Capital") is the number of shares of Common Stock they own,
multiplied by the offering price per share, reduced by the portion of all prior
Distributions received by stockholders from the sale of assets of the Company
and by any amounts paid by the Company to repurchase shares pursuant to the
redemption plan. 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 an amount equal to the total number of shares of
Common Stock outstanding multiplied by the average closing price of the shares
over a period of 30 days during which the Shares are traded, with such period
beginning 180 days after Listing. See "The Advisor and The Advisory Agreement -
The Advisory Agreement."
A deferred, subordinated share of Net Sales Proceeds will be paid to the
Advisor from the Sale of assets of the Company in an amount equal to 10% of Net
Sales Proceeds. This amount will be subordinated and paid only after the
stockholders have received Distributions equal to the sum of 100% of the
stockholders' aggregate Invested Capital plus the Stockholders' 8% Return.
Payment of certain fees is subject to conditions and restrictions or to
change under certain specified circumstances. The Advisor and its Affiliates
also may receive reimbursement for out-of-pocket expenses that they incur on
behalf of the Company, subject to certain expense limitations, and a
subordinated incentive fee if Listing occurs.
SUMMARY OF REINVESTMENT PLAN
The Company has established the Reinvestment Plan pursuant to which
stockholders may elect to have their cash Distributions from the Company
automatically reinvested in Shares. See "Summary of Reinvestment Plan," "Federal
Income Tax Considerations - Taxation of Stockholders," and the form of
Reinvestment Plan accompanying this Prospectus as Exhibit A for more specific
information about the Reinvestment Plan. Expenses incurred in connection with
the Reinvestment Plan, including Selling Commissions and marketing support and
due diligence expense reimbursement fees, will be paid by the Company. No
Soliciting Dealer Warrants will be issued in connection with Shares issued
pursuant to the Company's Reinvestment Plan. A person who becomes a stockholder
otherwise than by participating in this offering may purchase Shares through the
Reinvestment Plan only after receipt of a separate prospectus relating solely to
the Reinvestment Plan.
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BUSINESS
Properties and Mortgage Loans. The types of Properties which the Company
intends to purchase and lease to third parties are described in the section
entitled "Business." The Properties, which typically will be freestanding and
will be located across the United States, generally will be leased on a
long-term, "triple-net" basis to operators of Health Care Facilities to be
selected by the Advisor and approved by the Board of Directors. The Properties
may consist of both land and building, the land underlying the building with the
building owned by the tenant or a third party, or the building only with the
land owned by a third party. Management intends to structure the Company's
leases to require the tenant to pay base annual rent with (i) automatic fixed
increases in the base rent or (ii) increases in the base rent based on increases
in consumer price indices, over the term of the lease. Management expects to
acquire Properties in part with a view to diversification among operators,
facility types and geographic locations.
The Company may also offer Mortgage Loans to operators of Health Care
Facilities secured by real estate owned by the operators. However, because it
prefers to focus on investing in Properties, which have the potential to
appreciate, the Company currently expects to provide Mortgage Loans in the
aggregate principal amount of approximately 5% to 10% of the Company's total
assets. The Company expects that the interest rate and terms (generally, 10 to
20 years) of the Mortgage Loans will be similar to those of its leases. In
circumstances in which the Company owns the land underlying the building to be
financed and the borrower under the Mortgage Loan also enters into a long-term
ground lease for the underlying land, management believes that the combined
leasing and financing structure will provide the benefit of allowing the Company
to receive the return of its initial investment plus interest on the financed
building, which is generally a depreciating asset, while retaining the ownership
of the underlying land, which may appreciate in value. The Company will not make
Mortgage Loans to Affiliates. See "Risk Factors - Investment Risks - Mortgage
Loans."
As of the date of this Prospectus, the Company had not purchased any
Properties or entered into any arrangements that create a reasonable probability
that the Company will purchase any Properties. The Company has undertaken to
supplement this Prospectus during the offering period to describe the
acquisition of Properties at such time as the Company believes that a reasonable
probability exists that a Property will be acquired by the Company. Based upon
the experience of management of the Company and the Advisor and the proposed
acquisition methods, a reasonable probability that the Company will acquire a
Property normally will occur as of the date on which (i) a commitment letter is
executed by a proposed lessee, (ii) a satisfactory credit underwriting for the
proposed lessee has been completed and (iii) a satisfactory site inspection has
been completed. See "Business - General."
Secured Equipment Leases. The Secured Equipment Leases will be funded
solely from the proceeds of the Line of Credit or Permanent Financing. The
Company expects that the Secured Equipment Leases will be structured so that
they will be treated as loans secured by personal property for federal income
tax purposes. The Company has neither identified any prospective borrowers that
will participate in such financing arrangements nor negotiated any specific
terms of a Secured Equipment Lease. See "Business " General." The aggregate
outstanding principal amount of Secured Equipment Leases is not expected to
exceed 10% of the Company's total assets.
Seniors' Housing and Health Care Industries. According to the U.S. Census
Bureau, the elderly population in the U.S. is projected to more than double
between now and the year 2050, to 80 million. Most of this growth is expected to
occur between 2010 and 2030 when the number of elderly men and women is
projected to grow by an average of 2.8% annually. In addition to the growth in
the number of elderly people, life expectancies are increasing. According to the
Health Care Financing Administration, the remaining life expectancies of males
and females over 65 years old in 1998 are 15.6 and 19.3 years, respectively.
Those 85 and over are the most rapidly growing elderly age group. According to
the U.S. Census Bureau, between 1960 and 1994, this group grew 274%, and today
it is growing at almost three times that of the U.S. population as a whole.
According to the Economic and Statistic Administration of the U.S. Department of
Commerce, all of these trends suggest that "as more people live to the oldest
ages, there may also be more who face chronic, limiting illnesses or conditions.
These conditions result in people becoming dependent on others for help in
performing the activities of daily living." The U.S. General Accounting Office
anticipates that the number of older people needing assistance with activities
of daily living ("ADLs") will increase to 14 million by 2020, from 7 million
currently. In addition to an aging population, according to the U.S. Department
of Commerce, a significant segment of the elderly cohort have the financial
resources to afford seniors' housing products.
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Management believes that other changes and trends in the health care
industry will create opportunities for growth of seniors' housing facilities,
including (i) the growth of operators serving specific health care niches, (ii)
the consolidation of providers and facilities through mergers, integration of
physician practices, and elimination of duplicative services, (iii) the
pressures to reduce the cost of providing quality health care, (iv) more
dual-income and single-parent households leaving fewer family members available
for in-home care of aging parents and necessitating more senior care facilities,
and (v) an anticipated increase in the number of insurance companies and health
care networks offering privately funded long-term care.
According to the National Center for Health Statistics, the health care
industry currently represents over 13.5% of the United States' gross domestic
product ("GDP") with at least $988 billion in annual expenditures. The U.S.
Department of Health and Human Services expects this figure to rise to over 16%
of the GDP by 2005. According to the U.S. Census Bureau, U.S. health care
construction expenditures are estimated to be $14 billion per year and growing.
With regard to housing for seniors, there are three major contributors to growth
and the attraction of capital, according to the National Investment Conference
for the Senior Living and Long Term Care Industries in 1996. They are (i)
demographics, (ii) the limited supply of new product, and (iii) the investment
community's increased understanding of the industry. Although the Company
believes the growth will continue for a long while, overbuilding is unlikely due
to the favorable demographics, the increase in awareness of the industry, the
preference for non-institutional care and the cost savings realized in a
non-institutional environment.
The Company intends to capitalize on the growing real estate needs in the
seniors' housing and health care industries primarily by acquiring Properties
and leasing them to health care operators on a long-term (generally 10 to 20
years, plus renewal options for an additional 10 to 20 years), "triple-net"
basis. The Properties that the Company will acquire and lease are expected to
include one or more of the following types:
o Seniors' Housing, Which Includes Congregate Living and Assisted Living
Facilities. Congregate living communities offer a lifestyle choice,
including residential accommodations with access to services, such as
housekeeping, transportation, dining and social activities, for those who
wish to maintain their lifestyles independently. The fastest growing
segment of the seniors' housing industry is assisted living. While skilled
nursing facilities focus on more intensive care, assisted living facilities
provide housing for seniors that need assistance with activities of daily
living, such as grooming, dressing, bathing, and eating. Assisted living
facilities provide accommodations with quality care available when needed
but do not have an institutional feel. According to the U.S. Department of
Health and Human Services, between 25% and 40% of the patients in nursing
homes could more appropriately be cared for in a less institutional and
more cost effective setting. In addition, seniors' housing facilities
include continuing care retirement communities and life care communities
which provide a full range of long-term care services in one location, such
as congregate living, assisted living and skilled nursing facilities and
home health care.
o Skilled Nursing Facilities. Skilled nursing facilities provide extensive
medical care to patients that may require full time medical observation,
medication monitoring, ventilation and intravenous therapies, sub-acute
care, and Alzheimer's/memory loss care. Throughout much of the U.S., the
supply of new skilled nursing facilities is limited by complex Certificate
of Need Laws or similar state licensing regulations as a result of the
National Health Planning and Resources Development Act of 1974, which
require nursing home providers to obtain prior approval from regulators
before undertaking any major new construction or renovation projects. As a
result, the supply of skilled nursing facilities is growing very slowly.
Demand for skilled nursing facilities is coming from a rapidly growing
population over 75 years of age and the shift of subacute patients to lower
cost formats for treatment. Some states have eliminated Certificate of Need
Laws allowing the market to address the issue of supply and demand. If
trends such as this continue, it is probable that new skilled nursing
facilities will be constructed to meet the demand, thereby providing
potential development and investment opportunities for the Company.
o Medical Office Buildings. Medical office buildings, including doctors'
offices, special purpose facilities, such as diagnostic, cancer treatment
and outpatient centers, and walk-in clinics, also provide investment
opportunities as more small physician practices consolidate to save on the
increasing costs of private practice and single purpose medical facilities
become more common.
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Management estimates that health care facilities in the U.S. have a market
value of approximately $700 billion. According to the National Association of
Real Estate Investment Trusts, existing health care real estate investment
trusts own less than two percent of the nation's health care real estate.
Management believes that this fact, coupled with the health care industry trends
previously discussed, provides a significant investment opportunity for the
Company.
INVESTMENT OBJECTIVES AND POLICIES
The Company's primary investment objectives are:
o to preserve, protect, and enhance the Company's assets.
o to make Distributions commencing in the initial year of Company operations.
o to obtain fixed income through the receipt of base rent, as well as to
increase the Company's income (and Distributions) and provide protection
against inflation through automatic fixed increases in base rent or
increases in the base rent based on increases in consumer price indices,
over the term of the lease, and to obtain fixed income through the receipt
of payments on Mortgage Loans and Secured Equipment Leases.
o to qualify and remain qualified as a REIT for federal income tax purposes.
o to provide stockholders of the Company with liquidity of their investment
within five to ten years after commencement of the offering, although
liquidity cannot be assured thereby, either through (i) Listing, or (ii)
outside the ordinary course of business and consistent with its objective
of qualifying as a REIT, the commencement of the orderly Sale of the
Company's assets and distribution of the proceeds thereof.
The Company intends to meet these objectives by following certain
investment policies discussed herein, as summarized on the preceding pages. See
"Business - General," "Business - Site Selection and Acquisition of Properties,"
"Business - Description of Leases," and "Investment Objectives and Policies" for
a more complete description of the manner in which the structure of the
Company's business will facilitate the Company's ability to meet its investment
objectives. There can be no assurance that these objectives will be met. The
Company's investment objectives are subject to review by the Independent
Directors and may not be changed without the approval of stockholders owning a
majority of the shares of outstanding Common Stock.
DESCRIPTION OF SHARES
A stockholder's investment will be recorded on the books of the Company.
The Company will provide, upon the request of any stockholder wishing to
transfer his or her Shares, a transfer form to be completed and executed by the
stockholder and returned to the Company. The Company will not issue share
certificates other than to stockholders who make a written request to the
Company.
At any time during which the Company is not engaged in a public offering,
any stockholder may request that the Company redeem for cash all or a
significant portion of such stockholder's Shares. The sole source of funds for
any such requested redemption will be the net proceeds available from the sale
of Shares pursuant to the Reinvestment Plan. There can be no assurance that such
net proceeds will be sufficient to permit the Company to redeem all such Shares
presented for redemption. See "Redemption of Shares."
An annual meeting of stockholders will be held each year for the election
of the Directors. Other business matters may be presented at the annual meeting
or at special stockholder meetings. Each Share is entitled to one vote on each
matter to be voted on by stockholders, including the election of the Directors.
Stockholders who do not vote with the majority of Shares entitled to vote on
questions presented nonetheless will be bound by the majority vote.
Stockholder approval is required under Maryland law and the Company's
Articles of Incorporation and Bylaws for certain types of transactions.
Generally, the Articles of Incorporation and Bylaws may be amended upon a
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majority vote of stockholders. Stockholders holding a majority of the Shares
must approve a merger or a sale or other disposition of substantially all of the
Company's assets other than in the ordinary course of business. Stockholders
objecting to the terms of a merger, sale, or other disposition of substantially
all of the Company's assets have the right to petition a court for the appraisal
and payment of the fair value of their Shares in certain instances. The
affirmative vote of a majority of the Shares outstanding and entitled to vote is
required to approve the voluntary dissolution of the Company.
In order to facilitate compliance with certain restrictions imposed on
REITs by the Internal Revenue Code of 1986, as amended (the "Code"), the
Articles of Incorporation generally restrict direct or indirect ownership
(applying certain attribution rules) of more than 9.8% of the outstanding shares
of Common Stock by one Person, as defined in the Articles of Incorporation. See
"Summary of the Articles of Incorporation and Bylaws - Restriction on
Ownership."
For a more complete description of the Shares and the capital structure of
the Company, please refer to the "Summary of the Articles of Incorporation and
Bylaws - Description of Capital Stock" section of the Prospectus.
DISTRIBUTION POLICY
Consistent with the Company's objective of qualifying as a REIT, the
Company expects to calculate and declare Distributions monthly during the
offering period, monthly during any subsequent offering and quarterly otherwise,
and make Distributions quarterly commencing not later than the close of the
first full calendar quarter after the first release of funds from escrow to the
Company. The Board of Directors, in its discretion, will determine the amount of
the Distributions made by the Company, which amount will depend primarily on net
cash from operations. The Company intends to increase Distributions in
accordance with increases in net cash from operations. Consistent with the
Company's objective of qualifying as a REIT, the Company expects to distribute
at least 95% of its real estate investment trust taxable income, although the
Board of Directors, in its discretion, may increase that percentage as it deems
appropriate. If the cash available to the Company is insufficient to make
Distributions, the Company may obtain the needed cash by borrowing funds,
issuing new securities, or selling assets. These methods of obtaining cash could
affect future Distributions by increasing operating costs or reducing income. In
such an event, it is possible that the Company could pay Distributions in excess
of its earnings and profits and, accordingly, that such Distributions could
constitute a return of capital for federal income tax purposes, although such
Distributions would not reduce stockholders' aggregate Invested Capital.
PRIOR PERFORMANCE OF AFFILIATES
The "Prior Performance Information" section of this Prospectus contains a
narrative discussion of the public and private real estate programs sponsored by
Affiliates of the Company and of the Advisor during the past ten years,
including one unlisted public REIT and 18 public limited partnerships formed to
invest in restaurants leased on a "triple-net" basis to operators of restaurant
chains and one unlisted public REIT formed to invest in hotels and restaurants
on a "triple-net" basis. As of June 30, 1997, these entities, which invest in
restaurant properties but do not invest in health care facilities, had purchased
865 fast-food, family-style and casual dining restaurant properties. Based on an
analysis of the operating results of the 88 real estate limited partnerships and
two unlisted public REITs in which principals of the Company have served,
individually or with others, as general partners or officers and directors, the
Company believes that each of such entities has met, or currently is in the
process of meeting, its principal investment objectives. However, none of the
REITs or public or private real estate limited partnerships sponsored by
Affiliates of the Company has invested in properties in the health care
industry. Certain statistical data relating to the two unlisted, public REITs
and the public limited partnerships, the offerings of which became fully
subscribed between July 1992 and June 1997, are contained in Exhibit C - Prior
Performance Tables.
TAX STATUS OF THE COMPANY
The Company will make the election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), to be taxed as a REIT under the
Code beginning with its taxable year ending December 31, 1998. As a REIT for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. Under the
Code, REITs are subject to numerous organizational and operational
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requirements, including a requirement that they distribute at least 95% of their
taxable income, as figured on an annual basis. If the Company fails to qualify
for taxation as a REIT in any taxable year, it will be subject to federal income
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates and will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for four years following the year during
which qualification is lost. See "Risk Factors - Tax Risks" and "Federal Income
Tax Considerations." Even if the Company qualifies as a REIT for federal income
tax purposes, it may be subject to certain federal, state, and local taxes on
its income and property and to federal income and excise taxes on its
undistributed income. See "Federal Income Tax Considerations."
THE OFFERING
A minimum of 250,000 Shares ($2,500,000) and a maximum of 15,000,000
($150,000,000) Shares in the Company will be offered at a price of $10.00 per
Share. The Company also has registered an offering of an additional 500,000
Shares ($5,000,000) that are available only to stockholders who receive a copy
of this Prospectus and elect to participate in the Reinvestment Plan. Any
participation in such plan subsequent to this offering must be made pursuant to
solicitation under a separate prospectus. See "Summary of Reinvestment Plan."
The Board of Directors may determine to engage in future offerings of Common
Stock of up to the number of unissued authorized shares of Common Stock
available following the completion of this offering.
The Shares are being offered by the Managing Dealer and other
broker-dealers that are members of the National Association of Securities
Dealers, Inc. or exempt from broker-dealer registration (the "Soliciting
Dealers") on a "best efforts" basis, which means that no one is guaranteeing
that any minimum number of Shares will be sold. Both the Company and the Advisor
are Affiliates of the Managing Dealer. See "The Offering - Plan of
Distribution."
Until subscription funds for the Company total $2,500,000, the funds will
be held in escrow by SouthTrust Asset Management Company of Florida, N.A., and
interest earned on such funds will accrue to the benefit of subscribers. No
Shares will be sold unless subscriptions for at least 250,000 Shares
($2,500,000) have been obtained within one year after the date of this
Prospectus. Pursuant to the requirements of the Commissioner of Securities of
the State of Pennsylvania, subscriptions from Pennsylvania residents may not be
released from escrow, or included in determining whether the $2,500,000 minimum
for the Company has been reached, until subscriptions for Shares totalling at
least $7,775,000 have been received from all sources. If such minimum amount is
sold, the Company may, in its sole discretion, and without prior notice to the
subscribers, elect to extend the offering for up to an additional one year
thereafter (in states that permit such an extension). See "The Offering."
A minimum investment of 250 Shares ($2,500) is required. IRAs, Keogh
plans, and pension plans must make a minimum investment of at least 100
Shares ($1,000). Following an initial subscription for at least the required
minimum investment, any stockholder may make additional purchases in
increments of one Share. See "The Offering - General," "The Offering -
Subscription Procedures," and "Summary of Reinvestment Plan."
DEFINITIONS
This Prospectus includes simplified terms and definitions to make the
Prospectus easier to understand. These simplified terms and definitions do not
include all of the details of the terms, however, and stockholders therefore
should review the "Definitions" section for a more complete understanding.
RISK FACTORS
The purchase of Shares involves significant risks and therefore is suitable
only for persons who understand the possible consequences of an investment in
the Company and who are able to bear the risk of loss of their investment.
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Prospective stockholders should consider the following risks in addition to
other information describing an investment in the Shares set forth elsewhere in
this Prospectus.
INVESTMENT RISKS
Minimum Offering. The offering is on a best efforts basis and is
conditioned on the sale of at least 250,000 Shares. Because this offering will
be made on a best efforts basis, the potential profitability of the Company and
its ability to diversify its investments, both geographically and by type of
Properties purchased, will be limited by the amount of funds at its disposal.
For example, if minimum Gross Proceeds of $2,500,000 are raised, the Company
will be able to acquire no more than two medical office buildings or walk-in
clinics. There can be no assurance that the Company will sell the maximum number
of Shares.
Lack of Diversification. Based on the estimated purchase price of each
Health Care Facility ranging from $1,000,000 to $30,000,000, the Company
anticipates owning or financing with the net proceeds of this offering, between
four and 126 Properties, depending on the types of Properties. Assuming an
average purchase price of $10,000,000 per Property, the Company would acquire or
finance approximately 12 Properties with the net proceeds from this offering.
Depending on the purchase price of each Health Care Facility, the Company may
not be able to achieve diversification by tenant, facility type or geographic
location.
Limited Experience of Management. None of the prior programs organized by
Affiliates of the Company has invested in Health Care Facilities. Additionally,
only three of the prior programs organized by Affiliates of the Company have
offered Mortgage Loans and only two of the prior programs have offered Secured
Equipment Leases. The limited experience of management in several areas of the
Company's business may adversely affect the Company's results of operations.
Reliance on Management. Stockholders will be relying entirely on the
management ability of the Advisor and on the oversight of the Board of
Directors. Stockholders have no right or power to take part in the management of
the Company, except through the exercise of their stockholder voting rights.
Thus, no prospective stockholder should purchase any of the Shares offered
hereby unless the prospective stockholder is willing to entrust all aspects of
the management of the Company to the Advisor and the Board of Directors.
Reliance on Advisor. The Advisor, with approval from the Board of
Directors, will be responsible for the daily management of the Company,
including all acquisitions, dispositions, and financings. The Advisor may be
terminated by the Board of Directors, with or without cause, but only subject to
payment and release from all guarantees and other obligations incurred in
connection with its role as Advisor. See "Management Compensation." Also see
"Conflicts of Interests" for a discussion of the potential for realization by
the Advisor and its Affiliates of substantial commissions, fees, compensation,
and other income and for a discussion of various other conflicts of interest.
Leverage. The Company may borrow money to acquire Assets, to preserve its
status as a REIT or for other corporate purposes. The Company may encumber one
or more of its Assets in connection with any borrowing. The Board of Directors
anticipates that the Company will obtain a revolving Line of Credit up to
$45,000,000 in order to provide financing for the acquisition of Assets and may
also obtain, in addition to the Line of Credit, Permanent Financing. Permanent
Financing is not expected to exceed 30% of the Company's total assets. The Line
of Credit may be increased at the discretion of the Board of Directors. The
Company may repay the Line of Credit with offering proceeds, working capital or
Permanent Financing. The maximum amount the Company may borrow, however, absent
a satisfactory showing that a higher level of borrowing is appropriate as
approved by the majority of the Independent Directors, is 300% of the Company's
Net Assets. The use of borrowing may present an element of risk in the event
that the cash flow from the Company's real estate and other investments is
insufficient to meet its debt obligations. In addition, lenders to the Company
may seek to impose restrictions on future borrowings, Distributions and
operating policies of the Company. If Assets are mortgaged or pledged as
collateral to secure payment of indebtedness and the Company is unable to meet
its debt obligations, the Assets could be transferred to the lender, with a
consequent loss of income and asset value to the Company.
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Conflicts of Interest. The Company will be subject to conflicts of interest
arising out of its relationship to the Advisor and its Affiliates, including the
material conflicts discussed below. See "Conflicts of Interest" for a further
discussion of the conflicts of interest between the Company and the Advisor and
its Affiliates and the Company's policies to reduce or eliminate certain
potential conflicts.
Competing Demands on Officers and Directors. Officers and Directors of the
Company and officers and directors of the Advisor have management
responsibilities for other entities, including entities that may in the future
invest in the same types of assets in which the Company will invest. For this
reason, the officers and Directors will share their management time and services
among those entities and the Company, will not devote all of their attention to
the Company, and could take actions that are more favorable to such other
entities than to the Company.
Timing of Sales and Acquisitions Impact. Investment or Sale of an Asset by
the Company may result in the immediate realization by the Advisor of
substantial commissions, fees and other compensation. The Board of Directors of
the Company must approve such transactions, but the Advisor's recommendation to
the Board may be affected by the impact of the transaction on the Advisor's
compensation. None of the agreements between the Company and the Advisor
pursuant to which the Advisor will perform services and receive compensation was
the result of arms-length negotiations.
Property Development. Properties acquired by the Company may require
development prior to use of the Property by a tenant. Affiliates of the Company
may serve as developer and if so, the Affiliates would receive the development
fee that would otherwise be paid to an unaffiliated developer. The Board of
Directors, including the Independent Directors, must approve employing an
Affiliate of the Company to serve as a developer. There is a risk, however, that
the Company would acquire Properties that require development so that an
Affiliate would receive the development fee.
The Company May Invest with Affiliates of the Advisor. The Company may
invest in Joint Ventures with another program sponsored by the Advisor or its
Affiliates. The Board of Directors, including the Independent Directors, must
approve the transaction, but the Advisor's recommendation may be affected by its
relationship with one or more of the co-venturers.
No Independent Review of the Company or the Prospectus by Managing Dealer.
The Managing Dealer is an Affiliate of the Company and will not make an
independent review of the Company and the offering. Accordingly, investors do
not have the benefit of such independent review.
No Separate Counsel for the Company, Affiliates and Investors. Each of the
Company, its Affiliates and investors may have interests which conflict with one
another, but none of them currently has the benefit of separate counsel.
Lack of Liquidity of Shares. Stockholders may not be able to sell their
Shares promptly at a desired price; therefore, the Shares should be considered
as a long-term investment only. Currently there is no public market for the
Shares. The Board of Directors, with or without the consent of the stockholders,
may apply for Listing if the Board of Directors (including a majority of
Independent Directors) determines Listing to be in the best interests of the
stockholders. There can be no assurance, however, that the Company will apply
for Listing, that any such application will be made before the passage of a
significant period of time, that any application will be accepted or, even if
accepted, that a public trading market will develop. In any event, the Articles
of Incorporation provide that the Company will not apply for Listing before the
completion or termination of this offering. If Listing occurs, the business of
the Company may continue indefinitely without any specific time limitation by
which the Company must distribute Net Sales Proceeds to the stockholders. In
that case, the stockholders would be dependent upon the sale of their Shares for
the return of their investment in the Company. There can be no assurance that
the price a stockholder would receive in a sale on an exchange or in the
over-the-counter market will be representative of the value of the assets owned
by the Company or that it will equal or exceed the amount a stockholder paid for
the Shares. In the event Listing occurs, Shares may be sold only through the
national securities exchange or the over-the-counter market on which the Shares
are listed.
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Lack of Control by the Company over Joint Ventures. The Independent
Directors of the Company must approve all Joint Venture or general partnership
arrangements to which the Company is a party. Subject to such approval, the
Company may enter into a Joint Venture with an unaffiliated party to purchase a
Property, and the Joint Venture or general partnership agreement relating to
that Joint Venture or partnership may provide that the Company will share
management control of the Joint Venture with the unaffiliated party. In the
event the Joint Venture or general partnership agreement provides that the
Company will have sole management control of the Joint Venture, such agreement
may be ineffective as to a third party who has no notice of the agreement, and
the Company therefore may be unable to control fully the activities of such
Joint Venture. In the event that the Company enters into a Joint Venture with
another program sponsored by an Affiliate, it is anticipated that the Company
will not have sole management control of the Joint Venture.
Lack of Control of Property Management. The Company uses "triple-net"
leases and, therefore, day-to-day management of the Properties will be the
responsibility of the tenants of the Properties. The Company has not yet entered
into any lease arrangements with specific tenants and does not intend to do so
until such time as one or more Properties suitable for purchase by the Company
have been identified. In general, the Company intends to enter into leasing
agreements only with operators having substantial prior experience in the
operation of Health Care Facilities, but there can be no assurance that the
Company will be able to make such arrangements because, as of the date of this
Prospectus, the Company had not entered into any arrangements that create a
reasonable probability that the Company will purchase any Properties.
Mortgage Loans.
Real Estate Market Conditions. To the extent that the Company makes
Mortgage Loans, the results of the Company's operations will be affected, to the
extent there are defaults on such loans, by various factors, many of which are
beyond the control of the Company. The factors include local and other economic
conditions affecting real estate value and interest rate levels. The results of
the Company's operations from making Mortgage Loans would depend on, among other
things, the level of interest income generated by the Mortgage Loans, the market
value of Mortgage Loans and the supply of and demand for Mortgage Loans. No
assurance can be given that the values of the properties securing the Mortgage
Loans will remain at the levels existing on the dates of origination of the
Mortgage Loans.
Interest Rate Fluctuations. Fluctuations in interest rates may adversely
affect the Company to the extent it invests in fixed-rate, long-term Mortgage
Loans. In this situation, if interest rates rise, the Mortgage Loans will yield
a return lower than then-current market rates. If interest rates decrease, the
Company will be adversely affected to the extent that Mortgage Loans are
prepaid, because the Company will not be able to make new Mortgage Loans at the
previously higher interest rate.
Delays in Liquidating Defaulted Mortgage Loans. Even assuming that the
mortgaged properties underlying Mortgage Loans held by the Company provide
adequate security for the Mortgage Loans, substantial delays could be
encountered in connection with the liquidation of defaulted Mortgage Loans, with
corresponding delays in the receipt of related proceeds by the Company. An
action to foreclose on a mortgaged property securing a Mortgage Loan is
regulated by state statutes and rules and is subject to many of the delays and
expenses of other lawsuits if defenses or counterclaims are interposed.
Furthermore, in some states an action to obtain a deficiency judgment is not
permitted following a nonjudicial sale of a mortgaged property. In the event of
default by a mortgagor, these restrictions, among other things, may impede the
ability of the Company to foreclose on or sell the mortgaged property or to
obtain proceeds sufficient to repay all amounts due on the related Mortgage
Loan.
Regulation. The Mortgage Loans may also be subject to regulation by
federal, state and local authorities and subject to various laws and judicial
and administrative decisions. The Company may determine not to make Mortgage
Loans in any jurisdiction in which it believes the Company has not complied in
all material respects with applicable requirements. See "Business - Mortgage
Loans." See also "- Real Estate and Financing Risks."
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Secured Equipment Leases.
Default by Lessee. In the event that a lessee defaults on a Secured
Equipment Lease, the Company may not be able to sell the subject Equipment at a
price that would enable the Company to recover its costs associated with such
Equipment.
Regulation. The Secured Equipment Lease program may also be subject to
regulation by federal, state and local authorities and subject to various laws
and judicial and administrative decisions. The Company may determine not to
operate the Secured Equipment Lease program in any jurisdiction in which it
believes the Company has not complied in all material respects with applicable
requirements.
Tax Risks. In addition, there are certain federal income tax risks
associated with the Secured Equipment Lease program. See "- Tax Risks."
No Operating History. The Company has recently been formed, is in the
development stage and has no previous performance history.
Impact of Inflation. Inflation may impact the value of some of the
Company's investments. For example, a substantial rise in inflation over the
term of an investment in Mortgage Loans and Secured Equipment Leases may reduce
the Company's actual return on those investments, if they do not otherwise
provide for adjustments based upon inflation. Investments in Properties may also
be adversely affected by inflation, although leases with percentage rent
provisions may not be so affected because inflation could cause those provisions
to be triggered earlier than they would otherwise become effective, and leases
with automatic increase in base rent may be sufficient to protect against the
effects of inflation.
Majority Stockholder Vote Binding on All Stockholders. Stockholders may
take certain actions, including approving amendments to the Articles of
Incorporation and Bylaws, by a vote of a majority of the Shares outstanding and
entitled to vote. All actions taken, if approved by the holders of the requisite
number of Shares, would be binding on all stockholders. Certain of these
provisions may discourage or make it more difficult for another party to acquire
control of the Company or to effect a change in the operation of the Company.
Broad Discretion of the Board of Directors in Management of the Company's
Operations. The Board of Directors has overall authority to conduct the
Company's operations. This authority includes significant flexibility. For
example, the Board of Directors can (i) prevent the ownership, transfer, and/or
accumulation of Shares in order to protect the status of the Company as a REIT,
or, as otherwise deemed by the Board of Directors, to be in the best interests
of the stockholders (see "Summary of the Articles of Incorporation and Bylaws -
Restriction of Ownership"); (ii) issue additional Shares without obtaining
stockholder approval, which could result in dilution to existing stockholders;
(iii) change the compensation of the Advisor, and employ and compensate
Affiliates; (iv) direct the Company's investments toward investments that will
not appreciate over time, such as building only Properties, with the land owned
by a third-party, and Mortgage Loans, and (v) change minimum creditworthiness
standards with respect to tenants.
Restrictions on Transfer Relating to REIT Status. The Articles of
Incorporation generally restrict direct or indirect ownership (applying certain
attribution rules) of more than 9.8% of the outstanding Common Stock or 9.8% of
any series of outstanding Preferred Stock by one Person (as defined in the
Articles of Incorporation). See "Summary of the Articles of Incorporation and
Bylaws - Restriction of Ownership."
Limited Liability of Officers and Directors. The Articles of Incorporation
and Bylaws provide that an officer or Director's liability to the Company, its
stockholders, or third parties for monetary damages may be limited. Generally,
the Company is obligated under the Articles of Incorporation and the Bylaws to
indemnify its officers and Directors against certain liabilities incurred in
connection with their services in such capacities. The Company will execute
indemnification agreements with each officer and Director which will indemnify
the officer or Director for any such liabilities that he or she incurs. Such
indemnification agreements could limit the legal remedies available to the
Company and the stockholders against the Directors and officers of the Company.
See "Summary of the Articles of Incorporation and Bylaws - Limitation of
Director and Officer Liability."
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Possible Effect of ERISA. The Company believes that the assets of the
Company will not be deemed, under ERISA, to be "plan assets" of any Plan that
invests in the Shares, although it has not requested an opinion of Counsel to
that effect. If the assets of the Company were deemed to be "plan assets" under
ERISA (i) it is not clear that the exemptions from the "prohibited transaction"
rules under ERISA would be available for the Company's transactions, and (ii)
the prudence standards of ERISA would apply to investments made by the Company
(and might not be met). ERISA makes plan fiduciaries personally responsible for
any losses resulting to the plan from any breach of fiduciary duty and the Code
imposes nondeductible excise taxes on prohibited transactions. If such excise
taxes were imposed on the Company, the amount of funds available to make
Distributions to stockholders would be reduced.
Insufficient Working Capital. There can be no assurance that the Company
will have sufficient working capital. As of December 31, 1997, the Company had
stockholder's equity of $200,000.
Ability to use Leverage to Make Distributions. The Company may incur
indebtedness if necessary to satisfy the requirement that the Company distribute
at least 95% of its real estate investment trust taxable income or otherwise, as
is necessary or advisable to assure that the Company maintains its qualification
as a REIT for federal income tax purposes. In such an event, it is possible that
the Company could make Distributions in excess of its earnings and profits and,
accordingly, that such Distributions could constitute a return of capital for
federal income tax purposes, although such Distributions would not reduce
stockholders' aggregate Invested Capital.
REAL ESTATE AND FINANCING RISKS
An Unspecified Property Offering.
Inability of Potential Investors to Evaluate Properties. The Company
has established certain criteria for evaluating operators and particular
Properties proposed for investment by the Company. See "Business - Standards for
Investment in Properties" and "Business - General" for a description of these
criteria and the types of Properties in which the Company intends to invest. The
Company has not set fixed minimum standards relating to creditworthiness of
tenants and therefore the Board of Directors has flexibility in assessing
potential tenants. In addition, as of the date of this Prospectus, the Company
has not entered into any arrangements that create a reasonable probability that
the Company will purchase any Properties. Accordingly, this is an unspecified
property offering, and prospective investors therefore have no information to
assist them in evaluating the merits of any Property to be purchased or
developed by the Company.
No Limitation on Number of Properties of a Particular Facility Type.
There is no limit on the number of Properties of a particular facility type
which the Company may acquire, and the Company is not obligated to invest in
more than one type of facility. The Board of Directors, however, including a
majority of the Independent Directors, will review the Company's Properties and
potential investments in terms of geographic, facility type or operator
diversification.
No Assurance of Obtaining Suitable Investments. No assurance can be
given that the Company will be successful in obtaining suitable investments on
financially attractive terms or that, if investments are made, the objectives of
the Company will be achieved.
Conflicts of Interest. The Advisor or its Affiliates from time to time
may acquire properties on a temporary basis with the intention of subsequently
transferring the properties to one or more of the CNL Group, Inc. ("CNL")
programs, including the Company, although the Company has adopted guidelines to
minimize such conflicts. See "Conflicts of Interest - Acquisition of
Properties." Potential investors will not have the opportunity to evaluate the
manner in which these conflicts of interest are resolved.
Possible Delays in Investment. To the extent consistent with the
Company's objective of qualifying as a REIT, the offering proceeds may remain
uninvested for up to the later of two years from the initial date of this
Prospectus or one year after termination of the offering, although it is
expected that substantially all net offering proceeds will be invested prior to
the end of such period. See "Prior Performance Information" for a summary
description of the investment experience of Affiliates and the Advisor in prior
CNL programs, which is not necessarily indicative of the rate at which the
proceeds of this offering will be invested.
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An extended offering period and the inability of the Advisor to find
suitable Properties may result in delays in investment of Company funds in
Properties and in the receipt of a return from real property investments.
Revenues received by the Company pending investment in Properties or making
Mortgage Loans will be limited to the rates of return available on short-term,
highly liquid investments with appropriate safety of principal. These rates of
return, which affect the amount of cash available to make Distributions to the
stockholders, are expected to be lower than the Company would receive under its
Property leases or Mortgage Loans. Further, to the extent consistent with the
Company's objective of qualifying as a REIT, any funds of the Company required
to be invested in Properties and Mortgage Loans and not so invested or reserved
for Company purposes within the later of two years from the initial date of this
Prospectus, or one year after the termination of the offering, will be
distributed pro rata to the then stockholders of the Company in accordance with
the Articles of Incorporation.
Lack of Control Over Properties Under Construction. The Company intends to
acquire sites on which a particular Property to be owned by the Company is to be
built as well as existing Properties (including Properties which require
renovation). To the extent that the Company acquires a Property on which
improvements are to be constructed or completed or renovations are to be made,
the Company may be subject to certain risks in connection with the developer's
ability to control construction costs, and the timing of completion of
construction, or to build in conformity with plans, specifications, and
timetables. The Company's agreements with the developer will provide certain
safeguards designed to minimize these risks. Further, in the event of a default
by a developer, the Company generally will have the right to require the tenant
to repurchase the Property that is under development at a pre-established price
designed to reimburse the Company for all costs incurred by the Company in
connection with the acquisition and development of the Property. There can be no
assurance, however, that under such circumstances, the tenant will have
sufficient funds to fulfill its obligations. See "Business - Site Selection and
Acquisition Properties."
Ground Lease Property Risks. If the Company invests in ground lease
Properties, the Company will not own or, except to the extent of rights set
forth in any assignment of lease or tripartite agreement that the Company may
enter into, have a leasehold interest in the underlying land. Thus, with respect
to ground lease Properties, the Company will have no economic interest in the
land or building at the expiration of the lease on the underlying land, although
it generally will retain partial ownership of, and will have the right to
remove, any equipment that the Company may own in the building. The Company will
not share in any appreciation of the land associated with any ground lease
Property. The Company, however, will share in appreciation of the income stream
derived from the lease.
Impasse or Conflicts with Joint Venture Partner.
Impasse with Joint Venture Partner. In the event that the Company
enters into a Joint Venture, there will be a potential risk of impasse in
certain joint venture decisions since the approval of the Company and of each
co-venturer is required for certain decisions. In any Joint Venture with an
affiliated program, however, the Company will have the right to buy the other
co-venturer's interest or to sell its own interest on specified terms and
conditions in the event of an impasse regarding a Sale. Under such
circumstances, it is possible that neither party will have the funds necessary
to consummate the transaction. See "Business - Joint Venture Arrangements." In
addition, the Company may experience difficulty in locating a third party
purchaser for its Joint Venture interest and in obtaining a favorable sale price
for such Joint Venture interest.
Interests of Joint Venture Partner. Investments in Joint Ventures may
involve the risk that the Company's co-venturer may have economic or business
interests or goals which, at a particular time, are inconsistent with the
interests or goals of the Company, that such co-venturer may be in a position to
take action contrary to the Company's instructions, requests, policies or
objectives, or that such co-venturer may experience financial difficulties.
Among other things, actions by a co-venturer might subject property owned by the
Joint Venture to liabilities in excess of those contemplated by the terms of the
joint venture agreement or to other adverse consequences.
Limitations on the Ability of the Company to Liquidate. For the first ten
years after commencement of this offering, the Company intends to use any
proceeds from the Sale of Properties or Mortgage Loans that are not required to
be distributed to stockholders in order to preserve the Company's status as a
REIT for federal income
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tax purposes to acquire additional Properties, make additional Mortgage Loans
and repay outstanding indebtedness. The proceeds from the Sale of Secured
Equipment Leases will be used to fund additional Secured Equipment Leases, or to
reduce the Company's outstanding indebtedness. If Listing occurs, the proceeds
from Sales may be reinvested in other Properties, Mortgage Loans or Secured
Equipment Leases for an indefinite period of time. Unless Listing occurs within
ten years after the commencement of the offering (December 31, 2008), the
Company will undertake, to the extent consistent with the Company's objective of
qualifying as a REIT, the orderly Sale of the Company's assets, the distribution
of the Net Sales Proceeds of such Sales to stockholders, and will engage only in
activities related to its orderly liquidation unless the stockholders elect
otherwise. Neither the Advisor nor the Board of Directors may be able to control
the timing of Sales due to market conditions, and there can be no assurance that
the Company will be able to sell its assets so as to return stockholders'
aggregate Invested Capital, to generate a profit for the stockholders, or to
fully satisfy its debt obligations. Invested Capital, in the aggregate, will be
returned to stockholders upon disposition of the Properties only if the
Properties are sold for more than their original purchase price, although return
of capital, for federal income tax purposes, is not necessarily limited to
stockholder distributions following Sales of Properties. See "Federal Income Tax
Considerations." In the event that a purchase money obligation is taken in
partial payment of the sales price of a Property, the proceeds of the Sale will
be realized over a period of years. Further, entering into Mortgage Loans with
terms of 10 to 20 years and Secured Equipment Leases with terms of seven years
may cause any intended liquidation of the Company to be delayed beyond the time
of disposition of the Properties and until such time as the Mortgage Loans and
Secured Equipment Leases expire or are sold.
Inability to Control the Sale of Certain Properties. Certain tenants are
expected to have the right to purchase the Property from the Company, commencing
a specified number of years after the date of the lease, which may lessen the
ability of the Advisor and the Board of Directors to freely control the Sale of
the Property. The leases also generally provide the tenant with a right of first
refusal on any proposed sale provisions. See "Business Description of Leases -
Right of Tenant to Purchase." A tenant will have no obligation to purchase the
Property it leases.
Real Property Investments.
Lack of Control Over Market and Business Conditions. The value of
Properties such as those to be acquired by the Company, the ability of the
tenants to pay rent on a timely basis, the amount of the rent and the ability of
borrowers to make Mortgage Loan payments on a timely basis may be adversely
affected by certain changes in general or local economic or market conditions,
increased costs of energy, increased costs of food or other products, increased
costs and shortages of labor, competitive factors, fuel shortages, quality of
management, limited alternative uses for the building, changing consumer habits,
condemnation or uninsured losses, changing demographics, changing traffic
patterns, inability to remodel outmoded buildings, voluntary termination by a
tenant of its obligations under a lease, bankruptcy of a tenant or borrower, and
other factors. Neither the Company nor the Board of Directors can control these
factors.
Multiple Property Leases or Mortgage Loans with Individual Tenants or
Borrowers. Tenants may lease more than one Property and borrowers may enter into
more than one Mortgage Loan. Events such as the default or financial failure of
a tenant or borrower therefore could cause one or more Properties to become
vacant under certain circumstances. Vacancies would reduce the cash receipts of
the Company and, at least until the Company is able to re-lease any such
Properties, could decrease their ultimate resale value. The value of the
Company's Properties will depend principally upon the value of the leases of the
Properties. Minor defaults by a tenant or borrower may continue for some time
before the Advisor or Board of Directors determines that it is in the interest
of the Company to evict the tenant or foreclose on the property of the borrower.
Re-leasing of Properties. If a Property becomes vacant, the Company
may be unable either to re-lease the Property for the rent due under the prior
lease or to re-lease the Property without incurring additional expenditures
relating to the Property. The Company could experience delays in enforcing its
rights against, and collecting rents (and, under certain circumstances, real
estate taxes and insurance costs) due from, a defaulting tenant.
-17-
<PAGE>
Lack of Adequate Insurance. If the Company, as lessor, incurs any
liability which is not fully covered by insurance, the Company would be liable
for such amounts, and returns to the stockholders could be reduced. See
"Business - Description of Property Leases - Insurance, Taxes, Maintenance, and
Repairs" for a description of the types of insurance that the leases of the
Properties will require the tenant to obtain.
The inability of tenants to make lease payments or of borrowers to make
Mortgage Loan payments as a result of any of these factors could result in a
decrease in the amount of cash available to make Distributions to the
stockholders.
Health Care Facilities.
Reliance on Government Reimbursement. A significant portion of the revenue
of the Company's tenants and borrowers, particularly those operating skilled
nursing facilities, may be derived from governmentally funded programs, such as
Medicaid and Medicare. Although the Company does not anticipate that lease and
Mortgage Loan payments will be linked to the level of government reimbursement
received by the operators, to the extent that changes in government funding
programs adversely affect the operators or the revenues received by such
operators, such changes could adversely affect the ability of such operators to
make lease and loan payments to the Company and/or the amount of such payments
if and to the extent they are based on gross revenues. Failure of tenants and
borrowers to make their lease and loan payments, and/or reductions in such
payments, would have a direct and material adverse effect on the Company.
Medicaid, which is a medical assistance program for persons with few assets
and minimal income operated by individual states with the financial
participation of the federal government, provides a significant source of
revenue for skilled nursing facilities. The method of reimbursement under
Medicaid varies from state to state, but is typically based on per diem or per
diagnosis rates. The Medicaid program is subject to change and is affected by
state and federal budget shortfalls and funding restrictions which may
materially decrease rates of payment or delay payment. There is no assurance
that Medicaid payments will remain constant or be sufficient to cover costs
allocable to Medicaid patients. While Medicare, the federal health program for
the aged and certain chronically disabled individuals, is not anticipated to be
a major source of revenue for the types of Health Care Facilities in which the
Company expects to invest or make Mortgage Loans, the Company has reserved the
right to invest in or make Mortgage Loans to other types of Health Care
Facilities that are substantially dependent on Medicare funding. Like the
Medicaid program, the Medicare program is highly regulated and subject to
frequent and substantial changes, many of which have resulted in reduced levels
of payment for a substantial portion of health care services. In addition to
pressures from providers of government reimbursement, health care facilities
have experienced increasing pressures from private payors attempting to control
health care costs, and reimbursement from private payors has in many cases
effectively been reduced to levels approaching those of government payors.
Dependence on Attracting Senior Citizens with Ability to Pay. Certain of
the Health Care Facilities which the Company intends to own or finance, in
particular, assisted living facilities, are dependent on their ability to
attract senior citizens with the ability to pay for the services they receive.
While a portion of the fees payable by residents of Health Care Facilities may
be reimbursed by government and private payors, many are substantially dependent
on the ability of the residents and their families to pay directly. In addition,
certain payors, such as Medicare, limit the number of days for which payment
will be made in certain settings, such as skilled nursing facilities, and all
payors limit the types of services for which payment will be made and/or the
amount paid for each particular service. Inflation or other circumstances could
affect the ability of such residents to continue to pay for the services they
receive. Although the Company does not anticipate that base lease and Mortgage
Loan payments to it will be linked to the fees or rates received by the
operators, certain leases and Mortgage Loans may provide that the Company will
receive a percentage of the fees or rates charged by the operator to residents.
To the extent that residents of Health Care Facilities are unable to pay fees
owed to the facilities' operators, such inability could adversely affect the
ability of such operators to make base lease and loan payments and could have a
material adverse impact on the amount of lease and loan payments the Company
receives in excess of base amounts.
Health Care Reform. The health care industry is facing various challenges,
including increased government and private payor pressure on health care
providers to control costs and the vertical and horizontal consolidation of
health care providers. The pressure to control health care costs has intensified
in recent years as a result of the national
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<PAGE>
health care reform debate and has continued as Congress attempts to slow the
rate of growth of federal health care expenditures as part of its effort to
balance the federal budget. Similar debates are ongoing at the state level in
many states. The Company believes that government and private efforts to contain
and reduce health care costs will continue. These trends are likely to lead to
reduced or slower growth in reimbursement for services provided by some of the
Company's tenants and borrowers. The Company cannot predict whether governmental
reforms will be adopted and, if adopted, whether the implementation of these
reforms will have a material adverse effect on the Company's financial condition
or results of operations.
Government Regulation of Health Care Industry. The health care industry is
highly regulated by federal, state and local licensing requirements, facility
inspections, reimbursement policies, regulations concerning capital and other
expenditures, certification requirements and other laws, regulations and rules.
The failure of any tenant or borrower to comply with such laws, requirements and
regulations could affect such tenant's or borrower's ability to operate the
Health Care Facilities owned by the Company or to which the Company makes
Mortgage Loans. Health care operators are subject to federal and state laws and
regulations that govern financial and other arrangements between health care
providers. These laws prohibit certain direct and indirect payments or
fee-splitting arrangements between health care providers that are designed to
induce or encourage the referral of patients to, or the recommendation of, a
particular provider for medical products and services. They also require
compliance with a variety of safety, health and other requirements relating to
the design and conditions of the licensed facility and quality of care provided.
These regulations may also enable the regulatory agency to place liens on the
Property which may be senior to the Company's secured position. Possible
sanctions for violation of these laws and regulations include loss of licensure
or certification, the imposition of civil monetary and criminal penalties and
potential exclusion from the Medicare and Medicaid programs.
Because this area of the law currently is subject to intense scrutiny,
additional laws and regulations may be enacted or adopted that could require
changes in the design of the Properties and certain operations of the Company's
tenants and borrowers. For example, a tenant's loss of licensure or
Medicare/Medicaid certification could result in the Company having to obtain
another tenant for the affected health care facility. In addition, a tenant may
be required to make significant modifications to the Property and may not have
the financial ability to do so. No assurances can be given that the Company
could contract with another tenant on a timely basis or on acceptable terms and
a failure to do so could have an adverse effect on the Company's financial
condition or results of operations.
Limitations on Alternative Uses of Company Properties. The Company
anticipates that some of the Properties in which it invests may be special
purpose Properties that could not be readily converted into general residential,
retail or office use. Transfers of operations of health care facilities often
are subject to regulatory approvals not required for transfers of other types of
commercial operations and other types of real estate. Thus, if the operation of
any of the Company's Properties becomes unprofitable for its operator due to
competition, age of improvements or other factors such that the tenant becomes
unable to meet its obligations under the lease, the liquidation value of the
Property may be substantially less than would be the case if the Property were
readily adaptable to other uses. The receipt of liquidation proceeds could be
delayed by the approval process of any state agency necessary for the transfer
of the Property. Should such events occur, the Company's income and funds
available for distribution could be adversely affected.
Impact of Adverse Trends. The success of the future operations of the
Company's Properties will depend largely on each operator's ability to adapt to
dominant trends in the health care and seniors' housing industry, including
greater competitive pressures, increased consolidation, industry overbuilding,
increased regulation and reform, changing demographics, availability of labor,
price levels, and general economic conditions. See "Business - General" for a
description of the size and nature of the health care and seniors' housing
industry and current trends in the industry.
Certificate of Need Laws in Certain States. Certain states regulate the
supply of certain types of Health Care Facilities, such as skilled nursing
facilities, through Certificate of Need Laws. These restrictions may create
barriers to entry or expansion and may limit the availability of Properties for
acquisition or development by the Company. In addition, the Company may invest
in Properties which cannot be replaced if they become obsolete unless such
replacement is approved or exempt under a Certificate of Need Law.
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<PAGE>
Competition. The Company anticipates that it will compete with other REITs,
real estate partnerships, health care providers and other investors, including,
but not limited to banks and insurance companies, many of which will have
greater financial resources than the Company, in the acquisition, leasing and
financing of Health Care Facilities. The Company may also compete with
Affiliates for Mortgage Loans and borrowers. Further, non-profit entities are
particularly attracted to investments in health care facilities because of their
ability to finance acquisitions through the issuance of tax-exempt bonds,
providing non-profit entities with a relatively lower cost of capital as
compared to for-profit purchasers. In addition, in certain states health care
facilities owned by non-profit entities are exempt from taxes on real property.
There can be no assurance that the Company will be able to identify suitable
investments or that it will be able to consummate investments on commercially
reasonable terms.
In addition, the Health Care Facilities in which the Company will invest
are highly competitive, and it is anticipated that any Property acquired by the
Company will compete with other businesses in the vicinity.
Possible Environmental Liabilities. Under various federal and state
environmental laws and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up certain hazardous or
toxic substances, asbestos-containing materials, or petroleum product releases
affecting the property and surrounding areas, and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by such parties in connection with the
contamination. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. The presence of contamination or the failure
to remediate contaminations may adversely affect the owner's ability to sell or
lease real estate or to borrow using the real estate as collateral. At certain
Properties, such as skilled nursing facilities, medical office buildings and
walk-in clinics, some environmental and bio-medical hazardous wastes and
products will be used and generated in the course of normal operations of the
facility. While the leases will provide that the tenant is solely responsible
for any environmental hazards created during the term of the lease, the owner or
operator of a site may be liable under common law to third parties for damages
and injuries resulting from environmental contamination emanating from the site.
All of the Properties will be acquired by the Company subject to Phase I
environmental assessments or satisfactory Phase II environmental assessments.
The Board of Directors and the Advisor may determine the Company will acquire a
Property in which Phase I or Phase II environmental assessment indicates that a
problem exists and has not been resolved at the time the Property is acquired
provided that the seller has (i) agreed in writing to indemnify the Company
and/or (ii) established in escrow cash funds equal to a predetermined amount
greater than the estimated costs to remediate the problem. There can be no
assurance, however, that any seller will be able to pay under an indemnity
obtained by the Company or that the amount in escrow will be sufficient to pay
all remediation costs. Further, no assurances can be given that all
environmental liabilities have been identified or that no prior owner, operator
or current occupant has created an environmental condition not known to the
Company. Moreover, no assurances can be given that (i) future laws, ordinances
or regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Properties will not be affected by
tenants and occupants of the Properties, by the condition of land or operations
in the vicinity of the Properties or by third parties unrelated to the Company.
The Line of Credit and Permanent Financing. The Company intends to obtain
the Line of Credit and may also obtain Permanent Financing. The Company is
engaged in preliminary discussions with potential lenders but has not yet
obtained a commitment for the Line of Credit or any Permanent Financing, and
there is no assurance that the Company will be able to obtain either the Line of
Credit or any Permanent Financing on satisfactory terms.
Unspecified Secured Equipment Leases. The Company, as of the date of this
Prospectus, has not entered into any arrangements that create a reasonable
probability that the Company will extend a Secured Equipment Lease to a
particular operator, and therefore prospective stockholders have no information
to assist them in evaluating the merits of the Secured Equipment Lease program
or of any Secured Equipment Lease. No assurance can be given that the Company
will be successful in identifying suitable operators or negotiating Secured
Equipment Leases on financially attractive terms or that lessees will fulfill
their obligations under Secured Equipment Leases.
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<PAGE>
TAX RISKS
REIT Qualification. The Company intends to operate so as to qualify and
remain qualified as a REIT for federal income tax purposes, commencing with its
taxable year ending December 31, 1998. A qualified REIT generally is not taxed
at the corporate level on income it currently distributes to its stockholders,
so long as it distributes at least 95% of its real estate investment trust
taxable income. See "Federal Income Tax Considerations - Taxation of the
Company." The Company expects to qualify as a REIT initially, but no assurance
can be given that it will so qualify or that it will continue to qualify in the
future. In this regard, based on certain representations and assumptions, the
Company will receive an opinion of tax counsel to the Company ("Counsel") to the
effect that the Company will be organized in conformity with the requirements
for qualification as a REIT, and that the Company's proposed method of operation
will enable it to meet the requirements for qualification as a REIT for federal
income tax purposes. Qualification as a REIT, however, involves the application
of highly technical and complex Code provisions as to which there are only
limited judicial and administrative interpretations. Certain facts and
circumstances which may be wholly or partially beyond the Company's control may
affect its ability to qualify on an ongoing basis as a REIT. In addition, no
assurance can be given that future legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
(or the application thereof) with respect to qualification as a REIT for federal
income tax purposes or the federal income tax consequences of such
qualification. The opinion of Counsel is not binding on the Internal Revenue
Service ("IRS") or the courts.
Secured Equipment Lease Treatment. In order to qualify as a REIT for
federal income tax purposes, not more than 25% of the Company's total assets may
be represented by personal property, or loans secured by personal property on
certain testing dates. In addition, loans secured by personal property made to
each borrower must represent less than 5% of the Company's total assets on such
testing dates. Counsel is of the opinion, based on certain assumptions, that the
Secured Equipment Leases will be treated as loans secured by personal property
for federal income tax purposes. The Company believes that the value of the
Secured Equipment Leases together with any personal property owned by the
Company, will in the aggregate represent less than 25% of the Company's total
assets and that the value of the Secured Equipment Leases entered into with any
particular lessee will represent less than 5% of the Company's total assets.
Counsel has relied on the representations of the Company regarding such values
in rendering its opinion as to the qualification of the Company as a REIT. If
the Company fails to satisfy the 25% test or the 5% test either at the time of
the offering or on any subsequent testing date, the Company will fail to qualify
(or cease to qualify, as the case may be) as a REIT for federal income tax
purposes. In addition, if, contrary to the opinion of Counsel, the Secured
Equipment Leases are not treated as loans, but are instead treated as leases for
federal income tax purposes, income from the Secured Equipment Leases will
generally not satisfy either the 95% or the 75% gross income tests for REIT
qualification. See "Federal Income Tax Considerations - Taxation of the
Company," and "- Characterization of the Secured Equipment Leases."
Effect of REIT Disqualification. If, in any taxable year, the Company were
to fail to qualify as a REIT for federal income tax purposes, it would not be
allowed a deduction for dividends to stockholders in computing taxable income
and would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. In addition,
unless entitled to relief under certain statutory provisions, the Company would
be disqualified from treatment as a REIT for federal income tax purposes for the
four taxable years following the year during which REIT qualification is lost.
The additional tax liability resulting from the failure to so qualify would
significantly reduce the amount of funds available to make Distributions to
stockholders. Distributions to stockholders generally would be taxable as
ordinary income to the extent of current and accumulated earnings and profits
and, subject to certain limitations, would be eligible for the corporate
dividends received deduction. Although the Company intends to operate in a
manner designed to permit it to qualify as a REIT for federal income tax
purposes, it is possible that future economic, market, legal, tax, or other
events or circumstances could cause it to fail to so qualify. See "Federal
Income Tax Considerations - Taxation of the Company."
Effect of Distribution Requirements. The Company may be required, under
certain circumstances, to accrue as income for tax purposes interest, rent and
other items treated as earned for tax purposes but not yet received. In
addition, the Company may be required not to accrue as expenses for tax purposes
certain items which actually have been paid or certain of the Company's
deductions might be disallowed by the Service. In any such event, the Company
could fail to qualify as a REIT or have taxable income in excess of cash
available for distribution. If the Company has taxable income in excess of cash
available for distribution, the Company could be required to borrow
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<PAGE>
funds or liquidate investments on unfavorable terms in order to meet the
distribution requirement applicable to a REIT. See "Federal Income Tax
Considerations - Taxation of the Company - Distribution Requirements."
Restrictions on Maximum Share Ownership. In order for the Company to
qualify as a REIT, no more than 50% of the value of the outstanding equity
securities may be owned, directly or indirectly (applying certain attribution
rules), by five or fewer individuals (or certain entities) at any time during
the last half of the Company's taxable year. To ensure that the Company will not
fail to qualify as a REIT under this test, the Company's Articles of
Incorporation include certain provisions restricting the accumulation of Shares.
These restrictions may (i) discourage a change of control of the Company; (ii)
deter individuals and entities from making tender offers for Shares, which
offers may be attractive to stockholders; or (iii) limit the opportunity for
stockholders to receive a premium for their Shares in the event a stockholder is
making purchases of Shares in order to acquire a block of Shares.
Other Tax Liabilities. Even if the Company qualifies as a REIT for federal
income tax purposes, it may be subject to certain federal, state and local taxes
on its income and property. See "Federal Income Tax Considerations - State and
Local Taxes."
Changes in Tax Laws. The discussions of the federal income tax aspects of
the offering are based on current law, including the Code, the Regulations
issued thereunder, certain administrative interpretations thereof, and court
decisions. Consequently, future events that modify or otherwise affect those
provisions may result in treatment for federal income tax purposes of the
Company and the stockholders that is materially and adversely different from
that described in this Prospectus, both for taxable years arising before and
after such events. There is no assurance that future legislation and
administrative interpretations will not be retroactive in effect.
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE
SUITABILITY STANDARDS
The Shares offered hereby are suitable only as a long-term investment for
persons of adequate financial means who have no need for liquidity in this
investment. Initially, there is not expected to be any public market for the
Shares, which means that it may be difficult to sell Shares. See "Summary of the
Articles of Incorporation and Bylaws - Restrictions on Ownership" for a
description of the transfer requirements. As a result, the Company has
established suitability standards which require investors to have either (i) a
net worth (exclusive of home, furnishings, and personal automobiles) of at least
$45,000 and an annual gross income of at least $45,000, or (ii) a net worth
(exclusive of home, furnishings, and personal automobiles) of at least $150,000.
The Company's suitability standards also require that a potential investor (i)
can reasonably benefit from an investment in the Company based on such
investor's overall investment objectives and portfolio structuring, (ii) is able
to bear the economic risk of the investment based on the prospective
stockholder's overall financial situation, and (iii) has apparent understanding
of (a) the fundamental risks of the investment, (b) the risk that such investor
may lose the entire investment, (c) the lack of liquidity of the Company's
shares, (d) the background and qualifications of the Advisor, and (e) the tax
consequences of the investment.
The foregoing suitability standards must be met by the investor who
purchases the Shares. If the investment is being made for a fiduciary account
(such as an IRA, Keogh Plan, or corporate pension or profit-sharing plan), the
beneficiary, the fiduciary account, or any donor or grantor that is the
fiduciary of the account who directly or indirectly supplies the investment
funds must meet such suitability standards.
In addition, under the laws of certain states, investors may transfer their
Shares only to persons who meet similar standards, and the Company may require
certain assurances that such standards are met. Investors should read carefully
the requirements in connection with resales of Shares as set forth in the
Articles of Incorporation and as summarized under "Summary of the Articles of
Incorporation and Bylaws - Restrictions of Ownership."
In purchasing Shares, custodians or trustees of employee pension benefit
plans or IRAs may be subject to the fiduciary duties imposed by the Employee
Retirement Income Security Act of 1974 ("ERISA") or other applicable laws and to
the prohibited transaction rules prescribed by ERISA and related provisions of
the Code. See "Federal Income Tax Considerations - Retirement Plan
Stockholders." In addition, prior to purchasing Shares, the trustee or custodian
of an employee pension benefit plan or an IRA should determine that such an
investment would be permissible under the governing instruments of such plan or
account and applicable law. For information regarding "unrelated business
taxable income," see "Federal Income Tax Considerations - Taxation of
Stockholders - TaxExempt Stockholders."
In order to ensure adherence to the suitability standards described above,
requisite suitability standards must be met, as set forth in the Subscription
Agreement in one of the forms attached hereto as Exhibit D. In addition,
Soliciting Dealers who sell Shares have the responsibility to make every
reasonable effort to determine that the purchase of Shares is a suitable and
appropriate investment for an investor. In making this determination, the
Soliciting Dealers will rely on relevant information provided by the investor,
including information as to the investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. See "The Offering -
Subscription Procedures." Executed Subscription Agreements will be maintained in
the Company's records for six years.
HOW TO SUBSCRIBE
An investor who meets the suitability standards described above may
subscribe for Shares by completing and executing the Subscription Agreement and
delivering it to a Soliciting Dealer, together with a check for the full
purchase price of the Shares subscribed for, payable to "SouthTrust Asset
Management Company of Florida, N.A., Escrow Agent." See "The Offering -
Subscription Procedures." Certain Soliciting Dealers who have "net capital," as
defined in the applicable federal securities regulations, of $250,000 or more
may instruct their customers to make their checks for Shares subscribed for
payable directly to the Soliciting Dealer. Care should be taken to ensure that
the Subscription Agreement is filled out correctly and completely. Partnerships,
individual fiduciaries signing on behalf of trusts, estates, and in other
capacities, and persons signing on behalf of corporations and corporate trustees
may be required to obtain additional documents from Soliciting Dealers. Any
subscription may be rejected by the Company in whole or in part, regardless of
whether the subscriber meets the minimum suitability standards.
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Certain Soliciting Dealers may permit investors who meet the suitability
standards described above to subscribe for Shares by telephonic order to the
Soliciting Dealer. This procedure may not be available in certain states. See
"The Offering - Subscription Procedures" and "The Offering - Plan of
Distribution."
A minimum investment of 250 Shares ($2,500) is required. IRAs, Keogh plans,
and pension plans must make a minimum investment of at least 100 Shares
($1,000). Following an initial subscription for at least the required
minimum investment, any investor may make additional purchases in
increments of one Share. See "The Offering - General," "The Offering
Subscription Procedures," and "Summary of Reinvestment Plan."
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<PAGE>
ESTIMATED USE OF PROCEEDS
The table set forth below summarizes certain information relating to the
anticipated use of offering proceeds by the Company, assuming that 250,000
Shares and 15,000,000 Shares are sold. The Company estimates that 84% of Gross
Proceeds will be available for the purchase of Properties and the making of
Mortgage Loans, and approximately 9% of Gross Proceeds will be paid in fees and
expenses to Affiliates of the Company for their services and as reimbursement
for Organizational and Offering Expenses incurred on behalf of the Company.
While the estimated use of proceeds set forth in the table below is believed to
be reasonable, this table should be viewed only as an estimate of the use of
proceeds that may be achieved.
<TABLE>
<CAPTION>
Minimum Offering (1) Maximum Offering (1) (2)
-------------------- -------------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C>
GROSS PROCEEDS TO THE COMPANY (3)......................... $2,500,000 100.0% $150,000,000 100.0%
Less:
Selling Commissions to CNL
Securities Corp. (3)................................. 187,500 7.5% 11,250,000 7.5%
Marketing Support and Due Diligence
Expense Reimbursement Fee to
CNL Securities Corp. (3)............................. 12,500 0.5% 750,000 0.5%
Organizational and Offering Expenses (4)................ 75,000 3.0% 4,500,000 3.0%
---------- ----- ----------- ------
NET PROCEEDS TO THE COMPANY................................ 2,225,000 89.0% 133,500,000 89.0%
Less:
Acquisition Fees to the Advisor (5) .................... 112,500 4.5% 6,750,000 4.5%
Acquisition Expenses (6)................................ 12,500 0.5% 750,000 0.5%
Initial Working Capital Reserve ........................ (7) (7)
-------- ------- ------------ -----
CASH PAYMENT FOR PURCHASE OF PROPERTIES
AND THE MAKING OF MORTGAGE LOANS
BY THE COMPANY (8)...................................... $2,100,000 84.0% $126,000,000 84.0%
========== ===== ============ ======
- -----------------------------------
</TABLE>
FOOTNOTES:
(1) Excludes the purchase of 20,000 shares of Common Stock by the Advisor in
exchange for its $200,000 investment in the Company. The Advisor may, but
is not required to, purchase additional Shares of the Company.
(2) Excludes 500,000 Shares that may be sold pursuant to the Reinvestment Plan
and 600,000 shares that may be sold upon exercise of the Soliciting Dealer
Warrants.
(3) Gross Proceeds of the offering are calculated as if all Shares are sold at
$10.00 per Share and do not take into account any reduction in Selling
Commissions. See "The Offering - Plan of Distribution" for a description
of the circumstances under which Selling Commissions may be reduced,
including commission discounts available for purchases by registered
representatives or principals of the Managing Dealer or Soliciting
Dealers, certain Directors and officers and certain investment advisers.
Selling Commissions are calculated assuming that reduced commissions are
not paid in connection with the purchase of any Shares. The Shares are
being offered to the public through CNL Securities Corp., which will
receive Selling Commissions of 7.5% on all sales of Shares and will act as
Managing Dealer. The Managing Dealer is an Affiliate of the Advisor. Other
broker-dealers may be engaged as Soliciting Dealers to sell Shares and
reallowed Selling Commissions of up to 7%, with respect to Shares which
they sell. In addition, all or a portion of the marketing support and due
diligence expense reimbursement fee may be reallowed to certain Soliciting
Dealers for expenses incurred by them in selling the Shares, including
reimbursement for bona fide expenses incurred in connection with due
diligence activities, with prior written approval from, and in the sole
discretion of, the Managing Dealer. See "The Offering - Plan of
Distribution" for a more complete description of this fee. The Company
also will issue to the Managing Dealer, a Soliciting Dealer Warrant to
purchase one share of Common Stock for every 25 Shares sold, to be
exercised, if at all, during the Exercise Period, at a price of $12.00 per
share. All or any part of such Soliciting Dealer Warrants may be reallowed
to certain Soliciting Dealers with prior written approval of, and in the
sole discretion of, the Managing Dealer, unless prohibited by federal or
state securities laws. See "Summary of Articles of Incorporation and
Bylaws - Description of Capital Stock Soliciting Dealer Warrants" and "The
Offering - Plan of Distribution."
(4) Organizational and Offering Expenses include legal, accounting, printing,
escrow, filing, registration, qualification, and other expenses of the
organization of the Company and the offering of the Shares, but exclude
Selling Commissions and the marketing support and due diligence expense
reimbursement fee. The Advisor will pay all Organizational and Offering
Expenses which exceed 3% of Gross Proceeds. The Organizational and
Offering Expenses paid by the Company in connection with the formation of
the Company, together with the 7.5% Selling Commissions and 0.5% marketing
support and due diligence expense reimbursement fee incurred by the
Company will not exceed 13% of the proceeds raised in connection with this
offering.
(5) Acquisition Fees include all fees and commissions paid by the Company to
any person or entity in connection with the selection or acquisition of
any Property or the making of any Mortgage Loan, including to Affiliates
or nonaffiliates. Acquisition Fees do not include Acquisition Expenses.
(6) Represents Acquisition Expenses that are neither reimbursed to the Company
nor included in the purchase price of the Properties, and on which rent is
not received, but does not include certain expenses associated with
Property acquisitions that are part of the purchase price of the
Properties, that are included in the basis of the Properties, and on which
rent is received. Acquisition Expenses include any and all expenses
incurred by the Company, the Advisor, or any Affiliate of the Advisor in
connection with the selection or acquisition of any Property or the making
of any Mortgage Loan, whether or not acquired or made, including, without
limitation, legal fees and expenses, travel and communication expenses,
costs of appraisals, nonrefundable option payments on property not
acquired, accounting fees and expenses, taxes, and title insurance, but
exclude Acquisition Fees. The expenses that are attributable to the seller
of the Properties and part of the purchase price of the Properties is
anticipated to range between 1% and 2% of Gross Proceeds.
-25-
<PAGE>
(7) Because leases generally will be on a "triple-net" basis, it is not
anticipated that a permanent reserve for maintenance and repairs will be
established. However, to the extent that the Company has insufficient
funds for such purposes, the Advisor may, but is not required to,
contribute to the Company an aggregate amount of up to 1% of the net
offering proceeds available to the Company for maintenance and repairs.
The Advisor also may, but is not required to, establish reserves from
offering proceeds, operating funds, and the available proceeds of any
Sales.
(8) Offering proceeds designated for investment in Properties or the making of
Mortgage Loans temporarily may be invested in short-term, highly liquid
investments with appropriate safety of principal.
MANAGEMENT COMPENSATION
The table below summarizes the types, recipients, methods of computation,
and estimated amounts of all compensation, fees, reimbursements and
distributions to be paid directly or indirectly by the Company to the Advisor
and its Affiliates, exclusive of any distributions to which the Advisor or its
Affiliates may be entitled by reason of their purchase and ownership of Shares.
See "The Advisor and the Advisory Agreement." For information concerning
compensation to the Directors, see "Management."
A maximum of 15,000,000 Shares ($150,000,000) may be sold. An additional
500,000 Shares ($5,000,000) may be sold to stockholders who receive a copy of
this Prospectus and who purchase Shares through the Reinvestment Plan. An
additional 600,000 shares ($7,200,000) of Common Stock also may be sold to the
Managing Dealer or certain Soliciting Dealers who exercise Soliciting Dealer
Warrants at an exercise price of $12.00 per share during the Exercise Period for
such shares.
The following arrangements for compensation and fees to the Advisor and its
Affiliates were not determined by arm's-length negotiations. See "Conflicts of
Interest." There is no item of compensation and no fee that can be paid to the
Advisor or its Affiliates under more than one category.
-26-
<PAGE>
<TABLE>
<CAPTION>
TYPE OF
COMPENSATION ESTIMATED
AND RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
Organizational Stage
<S> <C>
S e l l i n g Selling Commissions of 7.5% per Share on all Selling Commissions of
C o mmissions Shares sold, subject to reduction under $187,500 if 250,000
to Managing certain circumstances as described in "The Shares are sold;
Dealer and Offering - Plan of Distribution." Soliciting $11,250,000 if 15,000,000
S o l iciting Dealers may be reallowed Selling Commissions Shares are sold;
Dealers of up to 7% with respect to Shares they sell. $11,625,000 if 15,500,000
In addition, the Managing Dealer will receive Shares (including 500,000
one Soliciting Dealer Warrant for every 25 Shares offered pursuant
Shares sold, all or a portion of which may be to the Reinvestment Plan)
reallowed to Soliciting Dealers, with prior are sold.
written approval from, and in the sole
discretion of, the Managing Dealer. See
``The Offering - Plan of Distribution.''
M a r k eting Expense allowance of 0.5% of Gross Proceeds $12,500 if 250,000 Shares
support and to the Managing Dealer, all or a portion of are sold; $750,000 if
due diligence which may be reallowed to Soliciting Dealers 15,000,000 Shares are
e x p e n s e with prior written approval from, and in the sold; $775,000 if
reimbursement sole discretion of, the Managing Dealer. The 1 5 , 5 00,000 Shares
f e e to M a naging Dealer will pay all sums (including 500,000 Shares
M a n a g ing attributable to bona fide due diligence offered pursuant to the
Dealer and expenses from this fee, in the Managing Reinvestment Plan) are
S o l iciting Dealer's sole discretion. sold.
Dealers
Reimbursement Actual expenses incurred, except that the A m o u nt is not
t o the Advisor will pay all such expenses in excess determinable at this
Advisor and of 3% of Gross Proceeds. The Organizational time, but will not exceed
its Affili- and Offering Expenses paid by the Company in 3% of Gross Proceeds,
ates for connection with the formation of the Company, $75,000 if 250,000 Shares
Organizationa together with the 7.5% Selling Commissions are sold; $4,500,000 if
l a n d and 0.5% marketing support and due diligence 15,000,000 Shares are
O f f e r ing expense reimbursement fee, incurred by the sold; $4,650,000 if
Expenses Company will not exceed 13% of the proceeds 1 5 , 5 00,000 Shares
raised in connection with this offering. (including 500,000 Shares
offered pursuant to the
Reinvestment Plan) are
sold.
Acquisition Stage
A c quisition 4.5% of Total Proceeds payable to the Advisor $112,500 if 250,000
Fee to the as Acquisition Fees. S h ares are sold plus
Advisor $20,250 if Permanent
F i n a n cing equals
$450,000; $6,750,000 if
15,000,000 Shares are
sold plus $2,025,000 if
P e rmanent Financing
e q uals $45,000,000;
$6,975,000 if 15,500,000
Shares (including 500,000
Shares offered pursuant
to the Reinvestment Plan)
are sold plus $2,227,500
if Permanent Financing
equals $49,500,000.
<PAGE>
<CAPTION>
TYPE OF
COMPENSATION ESTIMATED
AND RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
<S> <C>
O t h e r Any fees paid to Affiliates of the Advisor in A m o u nt is not
A c quisition connection with the financing, development, determinable at this
F e es to construction or renovation of a Property. time.
Affiliates of Such fees are in addition to 4.5% of Total
the Advisor Proceeds payable to the Advisor as
Acquisition Fees, and payment of such fees
will be subject to approval by the Board of
D i rectors, including a majority of the
Independent Directors, not otherwise
interested in the transaction.
Reimbursement R e i m bursement to the Advisor and its Acquisition Expenses,
of Affiliates for expenses actually incurred. which are based on a
A c quisition number of factors,
Expenses to The total of all Acquisition Fees and any including the purchase
the Advisor Acquisition Expenses payable to the Advisor price of the Properties,
a n d its and its Affiliates shall be reasonable and are not determinable at
Affiliates shall not exceed an amount equal to 6% of the this time.
Real Estate Asset Value of a Property, or in
the case of a Mortgage Loan, 6% of the funds
advanced, unless a majority of the Board of
D i rectors, including a majority of the
Independent Directors not otherwise
interested in the transaction, approves fees
i n excess of this limit subject to a
determination that the transaction is
commercially competitive, fair and reasonable
to the Company. 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
c o mmissions are paid by any person in
connection with the transaction. "Real
Estate Asset Value" means the amount actually
paid or allocated to the purchase,
development, construction or improvement of a
Property, exclusive of Acquisition Fees and
Acquisition Expenses.
<PAGE>
<CAPTION>
Operational Stage
TYPE OF
COMPENSATION ESTIMATED
AND RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
<S> <C>
A s s e t A monthly Asset Management Fee in an amount A m o u nt is not
M a n agement equal to one-twelfth of .60% of the Company's determinable at this
Fee to the Real Estate Asset Value and the outstanding time. The amount of the
Advisor principal amount of any Mortgage Loans, as of Asset Management Fee will
t h e end of the preceding month. depend upon, among other
Specifically, Real Estate Asset Value equals things, the cost of the
the amount invested in the Properties wholly Properties and the amount
owned by the Company, determined on the basis invested in Mortgage
of cost, plus, in the case of Properties Loans.
owned by any Joint Venture or partnership in
w h ich 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 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.
Reimbursement Operating Expenses (which, in general, are A m o u nt is not
t o the those expenses relating to administration of determinable at this
Advisor and the Company on an ongoing basis) will be time.
A f f iliates reimbursed by the Company. To the extent
for operating t h a t Operating Expenses payable or
expenses reimbursable by the Company, in any four con-
s e cutive fiscal quarters (the "Expense
Year"), exceed the greater of 2% of Average
Invested Assets or 25% of Net Income (the
"2%/25% Guidelines"), the Advisor shall
reimburse the Company within 60 days after
the end of the Expense Year the amount by
which the total Operating Expenses paid or
incurred by the Company exceed the 2%/25%
Guidelines. "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.
"Net Income" means for any period, the total
revenues applicable to such period, less the
total expenses applicable to such period
e x cluding 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.
<PAGE>
<CAPTION>
TYPE OF
COMPENSATION ESTIMATED
AND RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
<S> <C>
D e f e rred, A deferred, subordinated real estate A m o u nt is not
su bordinated disposition fee, payable upon Sale of one or determinable at this
real estate more Properties, in an amount equal to the time. The amount of this
d i sposition lesser of (i) one-half of a Competitive Real fee, if it becomes
fee payable Estate Commission, or (ii) 3% of the sales payable, will depend upon
t o the p r i ce of such Property or Properties. the price at which
Advisor from Payment of such fee shall be made only if the Properties are sold.
a Sale or Advisor provides a substantial amount of
Sales of a services in connection with the Sale of a
Property not Property or Properties and shall be
i n subordinated to receipt by the stockholders
l i quidation of Distributions equal to the sum of (i)
o f the their aggregate Stockholders' 8% Return and
Company (ii) their aggregate Invested Capital. If,
at the time of a Sale, payment of the
disposition fee is deferred because the
s u b ordination 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
p u rposes 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 of
Common Stock 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.
"Stockholders' 8% Return," as of each date,
means an aggregate amount equal to an 8%
cumulative, noncompounded, annual return on
Invested Capital.
Su bordinated At such time, if any, as Listing occurs, the A m o u nt is not
Incentive Fee A d visor shall be paid the Subordinated determinable at this
payable to Incentive Fee in an amount equal to 10% of time.
the Advisor the amount by which (i) the market value of
at such time, the Company (as defined below) plus the total
if any, as Distributions made to stockholders from the
L i s t i n g Company's inception until the date of Listing
occurs exceeds (ii) the sum of (A) 100% of Invested
Capital and (B) the total Distributions
required to be made 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
30 days during which the shares of Common
Stock are traded with such period beginning
180 days after Listing. 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.
<PAGE>
<CAPTION>
TYPE OF
COMPENSATION ESTIMATED
AND RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
<S> <C>
D e f e rred, A deferred, subordinated share equal to 10% A m o u nt is not
su bordinated of Net Sales Proceeds from Sales of assets of determinable at this
share of Net the Company payable after receipt by the time.
S a l e s stockholders of Distributions equal to the
Proceeds from sum of (i) the Stockholders' 8% Return and
Sales of (ii) 100% of Invested Capital. Following
assets of the Listing, no share of Net Sales Proceeds will
Company not be paid to the Advisor.
i n
l i quidation
o f the
C o m p a n y
payable to
the Advisor
S e c u r e d A fee paid to the Advisor out of the proceeds A m o u nt is not
E q u i pment of the Line of Credit or Permanent Financing determinable at this
L e a s e for negotiating Secured Equipment Leases and time.
Servicing Fee s u pervising the Secured Equipment Lease
t o the program equal to 2% of the purchase price of
Advisor t h e Equipment subject to each Secured
Equipment Lease and paid upon entering into
such lease.
Reimbursement Repayment by the Company of actual expenses Amount not determinable
t o the incurred. at this time.
Advisor and
A f f iliates
for Secured
E q u i pment
L e a s e
s e r v icing
expenses
Liquidation Stage
D e f e rred, A deferred, subordinated real estate A m o u nt is not
su bordinated disposition fee, payable upon Sale of one or determinable at this
real estate more Properties, in an amount equal to the time. The amount of this
d i sposition lesser of (i) one-half of a Competitive Real fee, if it becomes
fee payable Estate Commission, or (ii) 3% of the sales payable, will depend upon
t o the p r i ce of such Property or Properties. the price at which
Advisor from Payment of such fee shall be made only if the Properties are sold.
a Sale or Advisor provides a substantial amount of
Sales in services in connection with the Sale of a
l i quidation Property or Properties and shall be
o f the subordinated to receipt by the stockholders
Company 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 the
disposition fee is deferred because the
s u b ordination conditions have not been
satisfied, then the disposition fee shall be
paid at such later time as the subordination
conditions are satisfied.
<PAGE>
<CAPTION>
TYPE OF
COMPENSATION ESTIMATED
AND RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
<S> <C>
D e f e rred, A deferred, subordinated share equal to 10% A m o u nt is not
su bordinated of Net Sales Proceeds from Sales of assets of determinable at this
share of Net the Company payable after receipt by the time.
S a l e s stockholders of Distributions equal to the
Proceeds from sum of (i) the Stockholders' 8% Return and
Sales of (ii) 100% of Invested Capital. Following
assets of the Listing, no share of Net Sales Proceeds will
Company in be paid to the Advisor.
l i quidation
o f the
C o m p a n y
payable to
the Advisor
</TABLE>
<PAGE>
CONFLICTS OF INTEREST
The Company will be subject to various conflicts of interest arising
out of its relationship to the Advisor and its Affiliates, as described below.
The following chart indicates the relationship between the Advisor and
those Affiliates that will provide services to the Company.
CNL Group, Inc. (1)
Subsidiaries and Strategic Business Units
<TABLE>
<CAPTION>
Capital Markets Retail
<S> <C>
o Commercial Net Lease Realty, Inc.
o CNL Securities Corp. (2) (4)
o CNL Investment Company
Corporate Services Restaurant
o CNL Corporate Services, Inc. (3) o CNL Fund Advisors, Inc.
o CNL Restaurant Services, Inc.
Hospitality
o CNL Real Estate Advisors, Inc.
o CNL Hotel Development
Health Care
o CNL Health Care Advisors, Inc. (5)
o CNL Health Care Development
Financial Services
o CNL Financial Services, Inc.
o CNL Advisory Services, Inc.
Corporate Properties
o CNL Corporate Properties, Inc.
</TABLE>
- --------------------------
(1) James M. Seneff, Jr., Chairman of the Board and Chief Executive Officer
of the Company, shares ownership and voting control of CNL Group, Inc.
with Dayle L. Seneff, his wife.
(2) CNL Securities Corp. (a wholly-owned subsidiary of CNL Group, Inc.) has
served as managing dealer in the offerings for various CNL public and
private real estate programs, including the Company.
(3) CNL Corporate Services, Inc. (a wholly-owned subsidiary of CNL Group,
Inc.) and other Affiliates provide administrative and accounting
services for various CNL entities, including the Company.
(4) Commercial Net Lease Realty, Inc. is a REIT listed on the New York
Stock Exchange ("NNN"). Effective January 1, 1998, CNL Realty Advisors,
Inc. and Commercial Net Lease Realty, Inc. merged, at which time
Commercial Net Lease Realty, Inc. became self advised. James M. Seneff,
Jr. continues to hold the positions of Chief Executive Officer and
Chairman of the Board, and Robert A. Bourne continues to hold the
position of Vice Chairman of the Board of Commercial Net Lease Realty,
Inc.
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<PAGE>
(5) CNL Health Care Advisors, Inc. (a wholly-owned subsidiary of CNL Group,
Inc.) provides management and advisory services to the Company pursuant
to the Advisory Agreement.
PRIOR AND FUTURE PROGRAMS
In the past, Affiliates of the Advisor have organized over 100 other
real estate investments, currently have other real estate holdings, and in the
future expect to form, offer interests in, and manage other real estate programs
in addition to the Company, and make additional real estate investments.
Although neither the Advisor nor its Affiliates currently own, operate, lease or
manage properties that would be suitable for the Company, future real estate
programs may involve Affiliates of the Advisor in the ownership, financing,
operation, leasing, and management of such properties.
Certain public or private real estate programs affiliated with the
Advisor may in the future invest in health care properties, may purchase
properties concurrently with the Company and may lease properties to operators
who also lease or operate certain of the Company's Properties. Such other
programs may offer mortgage or equipment financing to the same or similar
entities as those targeted by the Company, thereby affecting the Company's
Mortgage Loan activities or Secured Equipment Lease program. Such conflicts
between the Company and affiliated programs may affect the value of the
Company's investments as well as its Net Income. The Company believes that the
Advisor has established guidelines to minimize such conflicts. See "Certain
Conflict Resolution Procedures" below.
ACQUISITION OF PROPERTIES AND INVESTMENT IN MORTGAGE LOANS
Affiliates of the Advisor may regularly have opportunities to acquire
health care properties or to invest in mortgage loans of a type suitable for
acquisition or investment by the Company as a result of relationships that may
develop with various operators of Health Care Facilities. See "Business -
General." A purchaser who wishes to acquire one or more of these properties or
invest in one or more mortgage loans may have to do so within a relatively short
period of time, occasionally at a time when the Company (due to insufficient
funds, for example) may be unable to make the acquisition or investment.
In an effort to address these situations and preserve the acquisition
and investment opportunities for the Company (and other entities with which the
Advisor or its Affiliates are affiliated), Affiliates of the Advisor maintain
lines of credit which enable them to acquire properties or make mortgage loans
on an interim basis. These properties and/or mortgage loans generally will be
purchased from Affiliates of the Advisor, at their cost or carrying value, by
one or more existing or future public or private programs formed by Affiliates
of the Advisor.
The Advisor could experience potential conflicts of interest in
connection with the negotiation of the purchase price and other terms of the
acquisition of a Property or investment in a Mortgage Loan, as well as the terms
of the lease of a Property or Mortgage Loan, due to its relationship with its
Affiliates and any business relationship of its Affiliates that may develop with
operators of Health Care Facilities.
The Advisor or its Affiliates also may be subject to potential
conflicts of interest at such time as the Company wishes to acquire a property
or invest in a mortgage loan that also would be suitable for acquisition or
investment by an Affiliate of CNL. Affiliates of the Advisor serve as Directors
of the Company and, in this capacity, have a fiduciary obligation to act in the
best interest of the stockholders of the Company and, as general partners or
directors of CNL Affiliates, to act in the best interests of the investors in
other programs with investments that may be similar to those of the Company and
will use their best efforts to assure that the Company will be treated as
favorably as any such other program. See "Management - Fiduciary Responsibility
of the Board of Directors." The Company has also developed procedures to resolve
potential conflicts of interest in the allocation of properties and mortgage
loans between the Company and certain of its Affiliates. See "Certain Conflict
Resolution Procedures" below.
The Company will supplement this Prospectus during the offering period
to disclose the acquisition of a Property at such time as the Advisor believes
that a reasonable probability exists that the Company will acquire the Property,
including an acquisition from the Advisor or its Affiliates. Based upon the
experience of management of
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<PAGE>
the Company and the Advisor and the proposed acquisition methods, a reasonable
probability that the Company will acquire a Property normally will occur as of
the date on which (i) a commitment letter is executed by a proposed lessee, (ii)
a satisfactory credit underwriting for the proposed lessee has been completed
and (iii) a satisfactory site inspection has been completed.
SALES OF PROPERTIES
A conflict also could arise in connection with the Advisor's
determination as to whether or not to sell a Property, since the interests of
the Advisor and the stockholders may differ as a result of their distinct
financial and tax positions and the compensation to which the Advisor or its
Affiliates may be entitled upon the Sale of a Property. See "Compensation of the
Advisor," below for a description of these compensation arrangements. In order
to resolve this potential conflict, the Board of Directors will be required to
approve each Sale of a Property. In the unlikely event that the Company and
another CNL program attempted to sell similar properties at the same time, a
conflict could arise since the two programs potentially could compete with each
other for a suitable purchaser. In order to resolve this potential conflict, the
Advisor has agreed not to approve the sale of any of the Company's Properties
contemporaneously with the sale of a property owned by another CNL program if
the two properties are operated by the same operator of Health Care Facilities
and are within a three-mile radius of each other, unless the Advisor and the
principals of the other CNL program are able to locate a suitable purchaser for
each property.
JOINT INVESTMENT WITH AN AFFILIATED PROGRAM
The Company may invest in Joint Ventures with another program sponsored
by the Advisor or its Affiliates if a majority of the Directors, including a
majority of the Independent Directors, not otherwise interested in the
transaction, determine that the investment in the Joint Venture is fair and
reasonable to the Company and on substantially the same terms and conditions as
those to be received by the co-venturer or co-venturers.
-34-
<PAGE>
COMPETITION FOR MANAGEMENT TIME
The officers and directors of the Advisor and the officers and
Directors of the Company currently are engaged, and in the future will engage,
in the management of other business entities and properties and in other
business activities. They will devote only as much of their time to the business
of the Company as they, in their judgment, determine is reasonably required,
which will be substantially less than their full time. These officers and
directors of the Advisor and officers and Directors of the Company may
experience conflicts of interest in allocating management time, services, and
functions among the Company and the various entities, investor programs (public
or private), and any other business ventures in which any of them are or may
become involved.
COMPENSATION OF THE ADVISOR
The Advisor will be engaged to perform various services for the Company
and will receive fees and compensation for such services. None of the agreements
for such services were the result of arm's-length negotiations. All such
agreements, including the Advisory Agreement, require approval by a majority of
the Board of Directors, including a majority of the Independent Directors, not
otherwise interested in such transactions, as being fair and reasonable to the
Company and on terms and conditions no less favorable than those which could be
obtained from unaffiliated entities. The timing and nature of fees and
compensation to the Advisor could create a conflict between the interests of the
Advisor and those of the stockholders. A transaction involving the purchase,
lease, or Sale of any Property, or the entering into or Sale of a Mortgage Loan
or a Secured Equipment Lease by the Company may result in the immediate
realization by the Advisor and its Affiliates of substantial commissions, fees,
compensation, and other income. Although the Advisory Agreement authorizes the
Advisor to take primary responsibility for all decisions relating to any such
transaction, the Board of Directors must approve all of the Company's
acquisitions and Sales of Properties and the entering into and Sales of Mortgage
Loans or Secured Equipment Leases. Potential conflicts may arise in connection
with the determination by the Advisor on behalf of the Company of whether to
hold or sell a Property, Mortgage Loan, or Secured Equipment Leases as such
determination could impact the timing and amount of fees payable to the Advisor.
See "The Advisor and the Advisory Agreement."
RELATIONSHIP WITH MANAGING DEALER
The Managing Dealer is CNL Securities Corp., an Affiliate of the
Company. Certain of the officers and Directors of the Company are also officers,
directors, and registered principals of the Managing Dealer. This relationship
may create conflicts in connection with the fulfillment by the Managing Dealer
of its due diligence obligations under the federal securities laws. Although the
Managing Dealer will examine the information in the Prospectus for accuracy and
completeness, the Managing Dealer is an Affiliate of the Company and will not
make an independent review of the Company and the offering. Accordingly, the
investors do not have the benefit of such independent review. Certain of the
Soliciting Dealers have made, or are expected to make, their own independent due
diligence investigations. The Managing Dealer is not prohibited from acting in
any capacity in connection with the offer and sale of securities offered by
entities that may have some or all investment objectives similar to those of the
Company and is expected to participate in other offerings sponsored by one or
more of the officers or Directors of the Company.
LEGAL REPRESENTATION
Shaw Pittman Potts & Trowbridge, which serves as securities and tax
counsel to the Company in this offering, also serves as securities and tax
counsel for certain of its Affiliates, including other real estate programs, in
connection with other matters. In addition, certain members of the firm of Shaw
Pittman Potts & Trowbridge have invested as limited partners or stockholders in
prior programs sponsored by Affiliates of the Advisor in aggregate amounts which
do not exceed one percent of the amounts sold by any of these programs, and
members of the firm also may invest in the Company. Neither the Company nor the
stockholders will have separate counsel. In the event any controversy arises
following the termination of this offering in which the interests of the Company
appear to be in conflict with those of the Advisor or its Affiliates, other
counsel may be retained for one or both parties.
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CERTAIN CONFLICT RESOLUTION PROCEDURES
In order to reduce or eliminate certain potential conflicts of
interest, the Articles of Incorporation contain a number of restrictions
relating to (i) transactions between the Company and the Advisor or its
Affiliates, (ii) certain future offerings, and (iii) allocation of properties,
mortgage loans and secured equipment leases among certain affiliated entities.
These restrictions include the following:
1. 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 the
Articles of Incorporation which provides that a majority of the Directors
(including a majority of the Independent Directors) not otherwise interested in
such transactions must 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 and not less favorable than those
available from the Advisor or its Affiliates in transactions with unaffiliated
third parties.
2. The Company will not purchase or lease Properties in which the
Advisor or its Affiliates has an interest without the determination, by a
majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in such transaction, that such transaction is
competitive and commercially reasonable to the Company and at a price to the
Company no greater than the cost of the asset to the Advisor or its Affiliate
unless there is substantial justification for any amount that exceeds such cost
and such excess amount is determined to be reasonable. In no event shall the
Company acquire any such asset at an amount in excess of its appraised value.
The Company will not sell or lease Properties to the Advisor or its Affiliates
unless a majority of the Directors (including a majority of the Independent
Directors) not interested in the transaction determine the transaction is fair
and reasonable to the Company.
3. 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 the 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. It is anticipated that the Advisor or 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 the 2%/25% Guidelines (2% of Average
Invested Assets or 25% of Net Income) described under "The Advisor and the
Advisory Agreement - The Advisory Agreement."
4. Until completion of this offering, 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 (i) invest, on a cash and/or leveraged basis, in a diversified
portfolio of health care properties to be leased on a "triple-net" basis to
operators of Health Care Facilities, (ii) offer mortgage loans and (iii) 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 health care properties
to be leased on a "triple-net" basis to operators of Health Care Facilities
until substantially all (generally, 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.) The Advisor or its Affiliates in the
future may offer interests in one or more public or 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.
5. The Board of Directors and the Advisor have agreed that, 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 longest period of time elapse since it
was offered an investment opportunity will first be offered the
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investment opportunity. An investment opportunity will not be considered
suitable for a program if the requirements of Item 4 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
and its Affiliates 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 health care facilities
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.
6. With respect to Shares owned by the Advisor, the Directors, or any
Affiliate, neither the Advisor, nor the Directors nor such Affiliate may vote or
consent on matters submitted to the stockholders regarding the removal of the
Advisor, Directors, or any Affiliate 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 Affiliate
may not vote or consent, any Shares owned by any of them shall not be included.
Additional conflict resolution procedures are identified under "- Sales
of Properties," "- Joint Investment With An Affiliated Program," and "- Legal
Representation."
SUMMARY OF REINVESTMENT PLAN
The Company has adopted the Reinvestment Plan pursuant to which
stockholders may elect to have the full amount of their cash Distributions from
the Company reinvested in additional Shares of the Company. Each prospective
investor who wishes to participate in the Reinvestment Plan should consult with
such investor's Soliciting Dealer as to the Soliciting Dealer's position
regarding participation in the Reinvestment Plan. The following discussion
summarizes the principal terms of the Reinvestment Plan. The Reinvestment Plan
is attached hereto as Exhibit A.
GENERAL
An independent agent (the "Reinvestment Agent"), which currently is MMS
Escrow and Transfer Agency, Inc., will act on behalf of the participants in the
Reinvestment Plan (the "Participants"). At any time that the Company is engaged
in an offering, including the offering described herein, the Reinvestment Agent
will invest all Distributions attributable to Shares owned by Participants in
Shares of the Company at the public offering price per Share, which currently is
$10.00 per Share. At anytime that the Company is not engaged in an offering, and
until Listing, the price per Share will be determined by (i) quarterly appraisal
updates performed by the Company based on a review of the existing appraisal and
lease of each Property, focusing on a re-examination of the capitalization rate
applied to the rental stream to be derived from that Property; and (ii) a review
of the outstanding Mortgage Loans and Secured Equipment Leases focusing on a
determination of present value by a re-examination of the capitalization rate
applied to the stream of payments due under the terms of each Mortgage Loan and
Secured Equipment Lease. The capitalization rate used by the Company and, as a
result, the price per Share paid by the Participants in the Reinvestment Plan
prior to Listing will be determined by the Advisor in its sole discretion. The
factors that the Advisor will use to determine the capitalization rate include
(i) its experience in selecting, acquiring and managing properties similar to
the Properties; (ii) an examination of the conditions in the market; and (iii)
capitalization rates in use by private appraisers, to the extent that the
Advisor deems such factors appropriate, as well as any other factors that the
Advisor deems relevant or appropriate in making its determination. The Company's
internal accountants will then convert the most recent quarterly balance sheet
of the Company from a "GAAP" balance sheet to a "fair market value" balance
sheet. Based on the "fair market value" balance sheet, the internal accountants
will then assume a sale of the Company's assets and the liquidation of the
Company in accordance with its constitutive documents and applicable law and
compute the appropriate method of distributing the cash available after payment
of reasonable liquidation expenses, including closing costs typically associated
with the sale of assets and shared by the buyer and seller, and the creation of
reasonable reserves to provide for the
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payment of any contingent liabilities. All Shares available for purchase under
the Reinvestment Plan either are registered pursuant to this Prospectus or will
be registered under the Securities Act of 1933 through a separate prospectus
relating solely to the Reinvestment Plan. Until this offering has terminated,
Shares will be available for purchase out of the additional 500,000 Shares
registered with the Securities and Exchange Commission (the "Commission") in
connection with this offering. See "The Offering - Plan of Distribution." After
the offering has terminated, shares will be available from any additional shares
(not expected to exceed 500,000 Shares at any one time) which the Company elects
to register with the Commission for the Reinvestment Plan. The Reinvestment Plan
may be amended or supplemented by an agreement between the Reinvestment Agent
and the Company at any time, including but not limited to an amendment to the
Reinvestment Plan to add a voluntary cash contribution feature or to substitute
a new Reinvestment Agent to act as agent for the Participants or to increase the
administrative charge payable to the Reinvestment Agent, by mailing an
appropriate notice at least 30 days prior to the effective date thereof to each
Participant at his or her last address of record; provided, that any such
amendment must be approved by a majority of the Independent Directors of the
Company. Such amendment or supplement shall be deemed conclusively accepted by
each Participant except those Participants from whom the Company receives
written notice of termination prior to the effective date thereof.
Stockholders who have received a copy of this Prospectus and
participate in this offering can elect to participate in and purchase Shares
through the Reinvestment Plan at any time and would not need to receive a
separate prospectus relating solely to the Reinvestment Plan. A person who
becomes a stockholder otherwise than by participating in this offering may
purchase shares through the Reinvestment Plan only after receipt of a separate
prospectus relating solely to the Reinvestment Plan.
At any time that the Company is not engaged in an offering, the price
per Share purchased pursuant to the Reinvestment Plan shall be the fair market
value of the Shares based on quarterly appraisal updates of the Company's assets
until such time, if any, as Listing occurs. Upon Listing, the Shares to be
acquired for the Reinvestment Plan may be acquired either through such market or
directly from the Company pursuant to a registration statement relating to the
Reinvestment Plan, in either case at a per-Share price equal to the
then-prevailing market price on the national securities exchange or
over-the-counter market on which the Shares are listed at the date of purchase.
The Company is unable to predict the effect which such a proposed listing would
have on the price of the Shares acquired through the Reinvestment Plan.
INVESTMENT OF DISTRIBUTIONS
Distributions will be used by the Reinvestment Agent, promptly
following the payment date with respect to such Distributions, to purchase
Shares on behalf of the Participants from the Company. All such Distributions
shall be invested in Shares within 30 days after such payment date. Any
Distributions not so invested will be returned to Participants.
At this time, Participants will not have the option to make voluntary
contributions to the Reinvestment Plan to purchase Shares in excess of the
amount of Shares that can be purchased with their Distributions. The Board of
Directors reserves the right, however, to amend the Reinvestment Plan in the
future to permit voluntary contributions to the Reinvestment Plan by
Participants, to the extent consistent with the Company's objective of
qualifying as a REIT.
PARTICIPANT ACCOUNTS, FEES, AND ALLOCATION OF SHARES
For each Participant, the Reinvestment Agent will maintain a record
which shall reflect for each fiscal quarter the Distributions received by the
Reinvestment Agent on behalf of such Participant. The Company shall be
responsible for all administrative charges and expenses charged by the
Reinvestment Agent. Any interest earned on such Distributions will be paid to
the Company to defray certain costs relating to the Reinvestment Plan. The
administrative charge for each fiscal quarter will be the lesser of 5% of the
amount reinvested for the Participant or $2.50, with a minimum charge of $0.50.
The maximum annual charge is $10.00.
The Reinvestment Agent will use the aggregate amount of Distributions
to all Participants for each fiscal quarter to purchase Shares for the
Participants. If the aggregate amount of Distributions to Participants exceeds
the
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amount required to purchase all Shares then available for purchase, the
Reinvestment Agent will purchase all available Shares and will return all
remaining Distributions to the Participants within 30 days after the date such
Distributions are made. The purchased Shares will be allocated among the
Participants based on the portion of the aggregate Distributions received by the
Reinvestment Agent on behalf of each Participant, as reflected in the records
maintained by the Reinvestment Agent. The ownership of the Shares purchased
pursuant to the Reinvestment Plan shall be reflected on the books of the
Company.
Subject to the provisions of the Articles of Incorporation relating to
certain restrictions on and the effective dates of transfer, Shares acquired
pursuant to the Reinvestment Plan will entitle the Participant to the same
rights and to be treated in the same manner as those purchased by the
Participants in the offering. Accordingly, the Company will pay the Managing
Dealer Selling Commissions of 7.5% (subject to reduction under the circumstances
provided under "The Offering - Plan of Distribution") and a marketing support
and due diligence fee of 0.5%. The Company will also pay the Advisor Acquisition
Fees of 4.5% of the purchase price of the Shares sold pursuant to the
Reinvestment Plan until the termination of the offering. Thereafter, Acquisition
Fees will be paid by the Company only in the event that proceeds of the sale of
Shares are used to acquire Properties or to invest in Mortgage Loans. As a
result, aggregate fees payable to Affiliates of the Company will total between
8.0% and 12.5% of the proceeds of reinvested Distributions, up to 7.5% of which
may be reallowed to Soliciting Dealers.
The allocation of Shares among Participants may result in the ownership
of fractional Shares, computed to four decimal places.
REPORTS TO PARTICIPANTS
Within 60 days after the end of each fiscal quarter, the Reinvestment
Agent will mail to each Participant a statement of account describing, as to
such Participant, the Distributions reinvested during the quarter, the number of
Shares purchased during the quarter, the per Share purchase price for such
Shares, the total administrative charge paid by the Company on behalf of each
Participant (see "Participant Accounts, Fees, and Allocation of Shares" above),
and the total number of Shares purchased on behalf of the Participant pursuant
to the Reinvestment Plan. Until such time, if any, as Listing occurs, the
statement of account also will report the most recent fair market value of the
Shares, determined as described above. See "General" above.
Tax information for income earned on Shares under the Reinvestment Plan
will be sent to each participant by the Company or the Reinvestment Agent at
least annually.
ELECTION TO PARTICIPATE OR TERMINATE PARTICIPATION
Stockholders of the Company who purchase Shares in this offering may
become Participants in the Reinvestment Plan by making a written election to
participate on their Subscription Agreements at the time they subscribe for
Shares. Any other stockholder who receives a copy of this Prospectus or a
separate prospectus relating solely to the Reinvestment Plan and who has not
previously elected to participate in the Reinvestment Plan may so elect at any
time by written notice to the Board of Directors of such stockholder's desire to
participate in the Reinvestment Plan. Participation in the Reinvestment Plan
will commence with the next Distribution made after receipt of the Participant's
notice, provided it is received at least ten days prior to the record date for
such Distribution. Subject to the preceding sentence, the election to
participate in the Reinvestment Plan will apply to all Distributions
attributable to the fiscal quarter in which the stockholder made such written
election to participate in the Reinvestment Plan and to all fiscal quarters
thereafter, whether made (i) upon subscription or subsequently for stockholders
who participate in this offering, or (ii) upon receipt of a separate prospectus
relating solely to the Reinvestment Plan for stockholders who do not participate
in this offering. Participants will be able to terminate their participation in
the Reinvestment Plan at any time without penalty by delivering written notice
to the Board of Directors ten business days before the end of a fiscal quarter.
A Participant who chooses to terminate participation in the
Reinvestment Plan must terminate his or her entire participation in the
Reinvestment Plan and will not be allowed to terminate in part. If a Participant
terminates his or her participation the Reinvestment Agent will send him or her
a check in payment for any fractional Shares in his or her account based on the
then market price of the Shares and the record books of the Company will be
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revised to reflect the ownership records of his or her whole Shares. There are
no fees associated with a Participant's terminating his or her interest in the
Reinvestment Plan. A Participant in the Reinvestment Plan who terminates his or
her interest in the Reinvestment Plan will be allowed to participate in the
Reinvestment Plan again by notifying the Reinvestment Agent and completing any
required forms.
The Board of Directors reserves the right to prohibit Qualified Plans
from participating in the Reinvestment Plan if such participation would cause
the underlying assets of the Company to constitute "plan assets" of Qualified
Plans. See "The Offering - ERISA Considerations."
FEDERAL INCOME TAX CONSIDERATIONS
Stockholders subject to federal taxation who elect to participate in
the Reinvestment Plan will incur a tax liability for Distributions allocated to
them even though they have elected not to receive their Distributions in cash
but rather to have their Distributions held pursuant to the Reinvestment Plan.
Specifically, stockholders will be treated as if they have received the
Distribution from the Company and then applied such Distribution to purchase
Shares in the Reinvestment Plan. A stockholder designating a Distribution for
reinvestment will be taxed on the amount of such Distribution as ordinary income
to the extent such Distribution is from current or accumulated earnings and
profits, unless the Company has designated all or a portion of the Distribution
as a capital gain dividend. In such case, such designated portion of the
Distribution will be taxed as long-term capital gain.
AMENDMENTS AND TERMINATION
The Company reserves the right to renew, extend, or amend any aspect of
the Reinvestment Plan without the consent of stockholders, provided that notice
of the amendment is sent to Participants at least 30 days prior to the effective
date thereof. The Company also reserves the right to terminate the Reinvestment
Plan for any reason at any time by ten days' prior written notice of termination
to all Participants.
REDEMPTION OF SHARES
At any time during which the Company is not engaged in a public
offering and prior to such time, if any, as Listing occurs, any stockholder who
purchases Shares in this offering or otherwise from the Company or who has held
Shares for not less than one year (other than the Advisor) may present all or
any portion equal to at least 25% of such Shares to the Company for redemption
at any time, in accordance with the procedures outlined herein. At such time,
the Company may, at its option, subject to the conditions described below,
redeem such Shares presented for redemption for cash to the extent it has
sufficient net proceeds ("Reinvestment Proceeds") from the sale of Shares under
the Reinvestment Plan. There is no assurance that there will be Reinvestment
Proceeds available for redemption and, accordingly, a stockholder's Shares may
not be redeemed. The full amount of Reinvestment Proceeds attributable to any
quarter will be used to redeem Shares presented for redemption during such
quarter. If the full amount of Reinvestment Proceeds available for any given
quarter exceeds the amount necessary for such redemptions, the remaining amount
shall be held for subsequent redemptions unless such amount is sufficient to
acquire an additional Property (directly or through a Joint Venture) or to
invest in additional Mortgage Loans, or is used to repay outstanding
indebtedness. In that event, the Company may use all or a portion of such amount
to acquire one or more additional Properties, to invest in one or more
additional Mortgage Loans or to repay such outstanding indebtedness, provided
that the Company (or, if applicable, the Joint Venture) enters into a binding
contract to purchase such Property or Properties or invests in such Mortgage
Loan or Mortgage Loans, or uses such amount to repay outstanding indebtedness,
prior to payment of the next Distribution and the Company's receipt of requests
for redemption of Shares. If the full amount of Reinvestment Proceeds for any
given quarter is insufficient to fund all of the requested redemptions, the
Company will redeem the Shares presented for redemption in order of receipt.
A stockholder (other than a resident of Nebraska) who wishes to have
his or her Shares redeemed must mail or deliver a written request on a form
provided by the Company and executed by the stockholder, its trustee or
authorized agent, to the Company. Nebraska stockholders must deliver the same
type of request to a broker-dealer registered in Nebraska and must have his or
her Shares redeemed through such broker-dealer, who will communicate directly
with the Company. Within 30 days following the Company's receipt of the
stockholder's request, the
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Company will forward to such stockholder the documents necessary to effect the
redemption, including any signature guarantee the Company may require. The
Company will effect such redemption for the calendar quarter provided that the
Company receives the properly completed redemption documents relating to the
Shares to be redeemed from the stockholder at least one calendar month prior to
the last day of the current calendar quarter and has sufficient Reinvestment
Proceeds to redeem such Shares. The effective date of any redemption will be the
last date during a quarter during which the Company receives the properly
completed redemption documents. As a result, the Company anticipates that,
assuming sufficient Reinvestment Proceeds, the effective date of redemptions
will be no later than thirty days after the quarterly determination of the
availability of Reinvestment Proceeds.
Upon the Company's receipt of notice for redemption of Shares, the
redemption price will be on such terms as the Reinvestment Agent shall
determine. It is not anticipated that there will be a market for the Shares
before Listing occurs (although liquidity is not assured thereby). The
redemption plan will terminate, and the Company no longer shall accept Shares
for redemption, if and when Listing occurs. See "Risk Factors - Investment Risks
Lack of Liquidity of Shares." Accordingly, in determining the "market price" of
the Shares for this purpose, it is expected that the purchase price for Shares
purchased from stockholders will be determined by reference to the following
factors, as well as any others deemed relevant or appropriate by the
Reinvestment Agent: (i) the price at which Shares have been purchased by
stockholders, either pursuant to the Reinvestment Plan or outside of the
Reinvestment Plan (to the extent the Company has information regarding the
prices paid for Shares purchased outside the Reinvestment Plan), (ii) the annual
statement of Share valuation provided to certain stockholders (see "Reports to
Stockholders"), and (iii) the price at which stockholders are willing to sell
their Shares. Shares purchased during any particular period of time therefore
may be purchased at varying prices. The Board of Directors will announce any
price adjustment and the time period of its effectiveness as part of its regular
communications with stockholders. Any Shares acquired pursuant to a redemption
will be retired and no longer available for issuance by the Company.
A stockholder may present fewer than all his or her Shares to the
Company for redemption, provided, however, that (i) the minimum number of Shares
which must be presented for redemption shall be at least 25% of his or her
Shares, and (ii) if such stockholder retains any Shares, he or she must retain
at least 250 Shares (100 Shares for an IRA, Keogh Plan or pension plan).
The Directors, in their sole discretion, may amend or suspend the
redemption plan at any time they determine that such amendment or suspension is
in the best interest of the Company. The Directors may suspend the redemption of
Shares if (i) they determine, in their sole discretion, that such redemption
impairs the capital or the operations of the Company; (ii) they determine, in
their sole discretion, that an emergency makes such redemption not reasonably
practical; (iii) any governmental or regulatory agency with jurisdiction over
the Company so demands for the protection of the stockholders; (iv) they
determine, in their sole discretion, that such redemption would be unlawful; (v)
they determine, in their sole discretion, that such redemption, when considered
with all other redemptions, sales, assignments, transfers and exchanges of
Shares in the Company, could cause direct or indirect ownership of Shares of the
Company to become concentrated to an extent which would prevent the Company from
qualifying as a REIT under the Code; or (vi) such other reasons as the
Directors, in their sole discretion, deem to be in the best interest of the
Company. For a discussion of the tax treatment of such redemptions, see "Federal
Income Tax Considerations - Taxation of Stockholders."
BUSINESS
GENERAL
The Company has been formed primarily to acquire Properties related to
Health Care Facilities located across the United States. The Health Care
Facilities may include, but will not be limited to, congregate living, assisted
living and skilled nursing facilities for seniors, continuing care retirement
communities and life care communities, and medical office buildings and walk-in
clinics. The Properties will be leased on a long-term (generally, 10 to 20
years, plus renewal options for an additional 10 to 20 years), "triple-net"
basis to operators of Health Care Facilities. "Triple-net" means that the tenant
generally will be responsible for repairs, maintenance, property taxes,
utilities, and insurance. The Properties may consist of land and building, the
land underlying the building with the building owned by the tenant or a third
party, and the building only with the land owned by a third party. The Company
may provide Mortgage Loans to operators of Health Care Facilities secured by
real estate
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owned by the operators. To a lesser extent, the Company also intends to offer
Secured Equipment Leases to operators of Health Care Facilities pursuant to
which the Company will finance, through loans or direct financing leases, the
Equipment.
The Properties, which typically will be freestanding and will be
located across the United States, will be leased to operators of Health Care
Facilities to be selected by the Advisor and approved by the Board of Directors.
Each Property acquisition and Mortgage Loan will be submitted to the Board of
Directors for approval. The Company has not specified any percentage of Net
Offering Proceeds to be invested in any particular type of Health Care Facility.
It is anticipated that the Health Care Facilities will be leased to selected
national and regional operators.
The Company believes that demographic trends are significant when
looking at the potential for future growth in the health care industry.
According to the U.S. Census Bureau, the elderly population is projected to more
than double between now and the year 2050, to 80 million. As illustrated below,
most of this growth is expected to occur between 2010 and 2030 when the number
of elderly is projected to grow by an average of 2.8% annually.
Elderly Population Estimates
<TABLE>
<CAPTION>
Date Over 85 Population (000) Over 65 Population (000)
---- ------------------------ ------------------------
<S> <C>
July 1, 1996 3,747 33,872
July 1, 2000 4,259 34,709
July 1, 2005 4,899 36,166
July 1, 2010 5,671 39,408
July 1, 2015 6,193 45,567
July 1, 2020 6,460 53,220
July 1, 2025 7,046 61,952
July 1, 2030 8,455 69,379
July 1, 2035 10,910 73,434
July 1, 2040 13,552 75,233
July 1, 2045 16,285 76,521
July 1, 2050 18,223 78,859
</TABLE>
Source: U.S. Bureau of Census
In addition to the growth in the number of elderly people, life
expectancies are increasing. According to the Health Care Financing
Administration, the remaining life expectancies of males and females over 65
years old in 1998 are 15.6 and 19.3 years, respectively. Those 85 and over are
the most rapidly growing elderly age group. Between 1960 and 1994, this group
grew 274%, and today this group is growing at almost three times that of the
U.S. population as a whole. According to the Economic and Statistic
Administration of the U.S. Department of Commerce, all of these trends suggest
that "as more people live to the oldest ages, there may also be more who face
chronic, limiting illnesses or conditions. These conditions result in people
becoming dependent on others for help in performing the activities of daily
living." The U.S. General Accounting Office anticipates that the number of older
people needing assistance with activities of daily living will increase to 14
million by 2020, from 7 million currently.
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Percent of Persons Needing Assistance with
Activities of Daily Living (ADLs)
Years of Age Percentage
------------ -----------
65-74 10%
75-84 20%
85+ 45%
Source: U.S. Bureau of Census
In addition to an aging population, according to the U.S. Department of
Commerce, a significant segment of the elderly cohort have the financial
resources to afford seniors' housing products. Management believes that other
changes and trends in the health care industry will create opportunities for
growth of seniors' housing facilities, including (i) the growth of operators
serving specific health care niches, (ii) the consolidation of providers and
facilities through mergers, integration of physician practices, and elimination
of duplicative services, (iii) the pressures to reduce the cost of providing
quality health care, (iv) more dual-income and single-parent households leaving
fewer family members available for in-home care of aging parents and
necessitating more senior care facilities, and (v) an anticipated increase in
the number of insurance companies and health care networks offering privately
funded long-term care.
According to the National Center for Health Statistics, the health care
industry currently represents over 13.5% of the United States' gross domestic
product ("GDP") with at least $988 billion in annual expenditures. The U.S.
Department of Health and Human Services expects this figure to rise to over 16%
of the GDP by 2005. According to the U.S. Census Bureau, U.S. health care
construction expenditures are estimated to be $14 billion per year and growing.
With regard to housing for seniors, there are three major contributors to growth
and the attraction of capital, according to the National Investment Conference
for the Senior Living and Long Term Care Industries in 1996. They are (i)
demographics, (ii) the limited supply of new product, and (iii) the investment
community's increased understanding of the industry. Although the Company
believes the growth will continue for a long while, overbuilding is unlikely due
to the favorable demographics, the increase in awareness of the industry, the
preference for non-institutional care and the cost savings realized in a
non-institutional environment advantages.
Estimate of Effective Demand for Seniors' Housing Categories
Elderly Population with Income Over $25k
Thousands of Beds
<TABLE>
<CAPTION>
Base Independent Living Assisted Living Skilled Nursing
- ---- ------------------ --------------- ---------------
<S> <C>
1996 826 427 524
2000 849 457 567
2005 887 492 619
2010 963 537 681
2015 1,108 597 752
2020 1,292 671 834
2025 1,507 778 957
2030 1,694 903 1,120
</TABLE>
Source: National Investment Conference on Seniors' Housing, 1997.
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<PAGE>
The Company intends to capitalize on the growing real estate needs in
the seniors' housing and health care industries primarily by acquiring
Properties and leasing them to health care operators on a long-term (generally
10 to 20 years, plus renewal options for an additional 10 to 20 years),
"triple-net" basis. The Properties that the Company will acquire and lease are
expected to include one or more of the following types:
o Seniors' Housing, Which Includes Congregate Living and Assisted Living
Facilities. Congregate living communities offer a lifestyle choice,
including residential accommodations with access to services, such as
housekeeping, transportation, dining and social activities, for those
who wish to maintain their lifestyles independently. The fastest
growing segment of the seniors' housing industry is assisted living.
While skilled nursing facilities focus on more intensive care, assisted
living facilities provide housing for seniors that need assistance with
activities of daily living, such as grooming, dressing, bathing, and
eating. Assisted living facilities provide accommodations with quality
care available when needed but do not have an institutional feel.
According to the U.S. Department of Health and Human Services, between
25% and 40% of the patients in nursing homes could more appropriately
be cared for in a less institutional and more cost effective setting.
In addition, seniors' housing facilities include continuing care
retirement communities and life care communities which provide a full
range of long-term care services in one location, such as congregate
living, assisted living and skilled nursing facilities and home health
care.
o Skilled Nursing Facilities. Skilled nursing facilities provide
extensive medical care to patients that may require full time medical
observation, medication monitoring, ventilation and intravenous
therapies, sub- acute care, and Alzheimer's/memory loss care.
Throughout much of the U.S., the supply of new skilled nursing
facilities is limited by complex Certificate of Need Laws or similar
state licensing regulations as a result of the National Health Planning
and Resources Development Act of 1974, which require nursing home
providers to obtain prior approval from regulators before undertaking
any major new construction or renovation projects. As a result, the
supply of skilled nursing facilities is growing very slowly. Demand
for skilled nursing facilities is coming from a rapidly growing
population over 75 years of age and the shift of sub-acute patients to
lower cost formats for treatment. Some states have eliminated
Certificate of Need Laws allowing the market to address the issue of
supply and demand. If trends such as this continue, it is probable
that new skilled nursing facilities will be constructed to meet the
demand, thereby providing potential development and investment
opportunities for the Company.
o Medical Office Buildings. Medical office buildings, including doctors'
offices, special purpose facilities, such as diagnostic, cancer
treatment and outpatient centers, and walk-in clinics also provide
investment opportunities as more small physician practices consolidate
to save on the increasing costs of private practice and single purpose
medical facilities become more common.
Continuum of long-term care facilities*
<TABLE>
<CAPTION>
Retirement/Congregate
Living Assisted Living Skilled Nursing Facility Acute Care Hospitals
--------------------- ----------------- ------------------------- --------------------
<S> <C>
Informal concierge, 24-hour supervision, 24-hour medical care and Short-term acute medical
emergency call system, personal assistance as protective oversight, care
housekeeping & needed, emergency medication management,
maintenance, some group response system, social emergency response
activities, food service activities, housekeeping system, 3 meals per day,
and transportation and maintenance, 3 assistance with ADLs
meals per day,
transportation, assistance
with medication and
shopping
</TABLE>
* Interspersed throughout the continuum are visits to physicians offices,
physical therapy, occupational therapy, and other short-term necessary
health care services.
Management estimates that health care facilities in the U.S. have a market
value of approximately $700 billion. According to the National Association of
Real Estate Investment Trusts, existing health care real estate
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<PAGE>
investment trusts own less than two percent of the nation's health care real
estate. Management believes that this fact, coupled with the health care
industry trends previously discussed, provides a significant investment
opportunity for the Company.
Health Care Property Ownership
(Value in U.S. dollars)
Health Care Property Ownership by REITs $12 Billion
Non-REIT Ownership in Health Care Properties $688 Billion
Management intends to structure the Company's leases to require the
tenant to pay base annual rent with (i) automatic fixed increases in the base
rent or (ii) increases in the base rent based on increases in consumer price
indices, over the term of the lease. In an effort to provide regular cash flow
to the Company, the Company intends generally to structure its leases to provide
a minimum level of rent, with automatic increases in the minimum rent, which is
payable regardless of the amount of gross revenues at a particular Property. The
Company also will endeavor to maximize growth and minimize risks associated with
ownership and leasing of real estate that operates in this industry segment
through careful selection and screening of its tenants (as described in
"Standards for Investment" below) in order to reduce risks of default;
monitoring statistics relating to operators of Health Care Facilities and
continuing to develop relationships in the industry in order to reduce certain
risks associated with investment in real estate. See "Standards for Investment"
below for a description of the standards which the Board of Directors will
employ in selecting operators and particular Properties for investment.
Management expects to acquire Properties in part with a view to
diversification among facility type and in the geographic location of the
Properties. There are no restrictions on the types of Health Care Facilities in
which the Company may invest. In addition, there are no restrictions on the
geographic area or areas within the United States in which Properties acquired
by the Company may be located. It is anticipated that the Properties acquired by
the Company will be located in various states and regions within the United
States.
The Company intends to provide Mortgage Loans to operators of Health
Care Facilities, or their affiliates, to enable them to acquire the land, land
and buildings or buildings. The Mortgage Loans will be secured by property owned
by the borrower. The Company expects that the interest rate and terms
(generally, 10 to 20 years) of the Mortgage Loans will be similar to those of
its leases.
To a lesser extent, the Company also intends to offer Secured Equipment
Leases to operators of Health Care Facilities. The Secured Equipment Leases will
consist primarily of leases of, and loans for the purchase of, Equipment. As of
the date of this Prospectus, the Company has neither identified any prospective
operators that will participate in such financing arrangements nor negotiated
any specific terms of a Secured Equipment Lease. The Company cannot predict
terms and conditions of the Secured Equipment Leases, although the Company
expects that the Secured Equipment Leases will (i) have terms that equal or
exceed the useful life of the subject Equipment (although such terms will not
exceed 7 years), (ii) in the case of the leases, include an option for the
lessee to acquire the subject Equipment at the end of the lease term for a
nominal fee, (iii) include a stated interest rate, and (iv) in the case of the
leases, provide that the Company and the lessees will each treat the Secured
Equipment Leases as loans secured by personal property for federal income tax
purposes. See "Federal Income Tax Considerations Characterization of Secured
Equipment Leases." In addition, the Company expects that each of the Secured
Equipment Leases will be secured by the Equipment to which it relates. Payments
received from lessees under Secured Equipment Leases will be treated as payments
of principal and interest. All Secured Equipment Leases will be negotiated by
the Advisor and approved by the Board of Directors including a majority of the
Independent Directors.
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<PAGE>
The Company will borrow money to acquire Assets and to pay certain
fees. The Company intends to encumber Assets in connection with the borrowing.
The Company plans to obtain a revolving Line of Credit initially in an amount up
to $45,000,000, and may, in addition obtain Permanent Financing. The Line of
Credit may be increased at the discretion of the Board of Directors. The Board
of Directors anticipates that the aggregate amount of any Permanent Financing,
if obtained, shall not exceed 30% of the Company's total assets. The Permanent
Financing would be used to acquire Assets and pay a fee of 4.5% of any Permanent
Financing, excluding amounts to fund Secured Equipment Leases, as Acquisition
Fees, to the Advisor. The Line of Credit may be repaid with offering proceeds,
working capital or Permanent Financing. The Line of Credit and Permanent
Financing are the only source of funds for making Secured Equipment Leases and
for paying the Secured Equipment Lease Servicing Fee. The Company has engaged in
preliminary discussions with potential lenders but has not yet received a
commitment for the Line of Credit or any Permanent Financing and there is no
assurance that the Company will obtain the Line of Credit or any Permanent
Financing on satisfactory terms.
As of the date of this Prospectus, the Company had not entered into any
arrangements that create a reasonable probability that the Company will purchase
any Property or enter into any Mortgage Loan or Secured Equipment Lease.
Moreover, no Properties have been definitively selected for acquisition nor have
any Mortgage Loan borrowers or Secured Equipment Lease lessees or borrowers been
specifically identified.
The Company has undertaken to supplement this Prospectus during the
offering period to disclose the acquisition of Properties at such time as the
Company believes that a reasonable probability exists that any such Property
will be acquired by the Company. Based upon the experience and acquisition
methods of the Affiliates of the Company and the Advisor this normally will
occur, with regard to acquisition of Properties, as of the date on which (i) a
commitment letter is executed by a proposed lessee, (ii) a satisfactory credit
underwriting for the proposed lessee has been completed, and (iii) a
satisfactory site inspection has been completed. The initial disclosure of any
proposed acquisition, however, cannot be relied upon as an assurance that the
Company ultimately will consummate such proposed acquisition or that the
information provided concerning the proposed acquisition will not change between
the date of such supplement and the actual purchase or extension of financing.
The terms of any borrowing by the Company will also be disclosed by supplement
following receipt by the Company of an acceptable commitment letter from a
potential lender.
If the minimum number of 250,000 Shares ($2,500,000 in Gross Proceeds)
is sold, the Company will acquire no more than two medical office buildings or
walk-in clinics and will have reduced diversification of its investments.
Acquisition of a Property for a Health Care Facility generally involves an
investment in land and building ranging from approximately $1,000,000 to
$30,000,000, although higher or lower amounts for individual Properties are
possible. In light of current market conditions, if the maximum number of Shares
is sold, the Company could invest in approximately four to 126 Properties
depending on the types of Properties, and assuming an average purchase price of
$10,000,000 per Property, the Company would acquire or finance approximately 12
Properties with the net proceeds from this offering. In certain cases, the
Company may become a co-venturer in a Joint Venture that will own the Property.
In each such case, the Company's cost to purchase an interest in such Property
will be less than the total purchase price and the Company therefore will be
able to acquire interests in a greater number of Properties. The Company may
also borrow to acquire Assets. See "Business - Borrowing." Management estimates
that 15% to 25% of the Company's investment will be for the cost of land and 75%
to 85% for the cost of buildings. See "Joint Venture Arrangements" below and
"Risk Factors - Investment Risks - Possible Lack of Diversification." Management
cannot estimate the number of Mortgage Loans that may be entered into. The
Company may also borrow money to make Mortgage Loans.
Although management cannot estimate the number of Secured Equipment
Leases that may be entered into, it expects to fund the Secured Equipment Lease
program from the proceeds of the Line of Credit or Permanent Financing in an
amount not to exceed 10% of the Company's total assets and management has
undertaken, consistent with its objective of qualifying as a REIT for federal
income tax purposes, to ensure that the total value of all Secured Equipment
Leases will not exceed 25% of the Company's total assets, and that Secured
Equipment Leases to a single lessee, in the aggregate, will not exceed 5% of
total assets.
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<PAGE>
SITE SELECTION AND ACQUISITION OF PROPERTIES
General. It is anticipated that the operators of Health Care Facilities
selected by the Advisor, and as approved by the Board of Directors, will have
personnel engaged in site selection and evaluation. In addition, due to rapid
expansion, some operators may outsource their site selection process to
consultants or developers for review or may rely on third party analyses. The
operators of Health Care Facilities and other parties generally conduct studies
which typically include such factors as population trends, hospital or other
medical facilities development, residential development, per capita or household
median income, per capita or household median age, and other factors. The
operators of the Health Care Facilities are expected to make their site
evaluations and analyses available to the Company.
The Board of Directors, on behalf of the Company, will elect to
purchase and lease Properties based principally on an examination and evaluation
by the Advisor of the potential value of the site, the financial condition and
business history of the proposed tenant, the demographics of the area in which
the property is located or to be located, the proposed purchase price and
proposed lease terms, geographic and market diversification, and potential
revenues expected to be generated by the business located on the property. The
Advisor also will perform an independent break-even analysis of the potential
profitability of a property using historical data and other data developed by
the Company and provided by the operator.
The Board of Directors will exercise its own judgment as to, and will
be solely responsible for, the ultimate selection of both tenants and
Properties. Therefore, some of the properties proposed and approved by an
operator may not be purchased by the Company.
In each Property acquisition, it is anticipated that the Advisor will
negotiate the lease agreement with the tenant. In certain instances, the Advisor
may negotiate an assignment of an existing lease, in which case the terms of the
lease may vary substantially from the Company's standard lease terms, if the
Board of Directors, based on the recommendation of the Advisor, determines that
the terms of an acquisition and lease of a Property, taken as a whole, are
favorable to the Company. It is expected that the structure of the long-term
"triple-net" lease agreements, which generally provide for monthly rental
payments with automatic fixed increases in base rent at specified times during
the lease terms or increases in the base rent based on increases in consumer
price indices over the term of the leases, will increase the value of the
Properties and provide an inflation hedge. See "Description of Leases" below for
a discussion of the anticipated terms of the Company's leases. In connection
with a Property acquisition, in the event the tenant does not enter into a
Secured Equipment Lease with the Company, the tenant will provide at its own
expense all Equipment necessary to operate the Company's Property as a Health
Care Facility. Generally, a tenant either pays cash or obtains a loan from a
third party to purchase such items. If the tenant obtains such a loan, the
tenant will own this personal property subject to the tenant's obligations under
its loan. In the experience of the Affiliates of the Company and the Advisor,
there may be rare circumstances in which a tenant defaults under such a loan, in
which event the lender may attempt to remove the personal property from the
building, resulting in the Property becoming inoperable until new Equipment can
be purchased and installed. In order to prevent repossession of this personal
property by the lender, and only on an interim basis in order to preserve the
value of a Property, the Company may elect (but only to the extent consistent
with the Company's objective of qualifying as a REIT) to use Company reserves to
purchase this personal property from the lender, generally at a discount for the
remaining unpaid balance under the tenant's loan. The Company then would expect,
consistent with the Company's objective of qualifying as a REIT, to resell the
personal property to a new tenant in connection with the transfer of the lease
to that tenant.
Some lease agreements will be negotiated to provide the tenant with the
opportunity to purchase the Property under certain conditions, generally either
at a price not less than fair market value (determined by appraisal or
otherwise) or through a right of first refusal to purchase the Property. In
either case, the lease agreements will provide that the tenant may exercise
these rights only to the extent consistent with the Company's objective of
qualifying as a REIT. See "Sale of Properties, Mortgage Loans and Secured
Equipment Leases" below and "Federal Income Tax Considerations -
Characterization of Leases."
The purchase of each Property will be supported by an appraisal of the
real estate prepared by an independent appraiser. The Advisor, however, will
rely on its own independent analysis and not on such appraisals in determining
whether or not to recommend that the Company acquire a particular property. The
purchase price of each such Property, plus any Acquisition Fees paid by the
Company in connection with such purchase, will not
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<PAGE>
exceed the Property's appraised value. (In connection with the acquisition of a
Property which is to be constructed or renovated, the comparison of the purchase
price and the appraised value of such Property ordinarily will be based on the
"when constructed" price and value of such Property.) It should be noted that
appraisals are estimates of value and should not be relied upon as measures of
true worth or realizable value. Each appraisal will be maintained in the
Company's records for at least five years and will be available for inspection
and duplication by any stockholder.
The titles to Properties purchased by the Company will be insured by
appropriate title insurance policies and/or abstract opinions consistent with
normal practices in the jurisdictions in which the Properties are located.
Construction and Renovation. In some cases, construction or renovation
will be required after the purchase contract has been entered into, but before
the total purchase price has been paid. In connection with the acquisition of
Properties that are to be constructed or renovated and as to which the Company
will own both the land and the building or building only, the Company generally
will advance funds for construction or renovation costs, as they are incurred,
pursuant to a development agreement with the developer. The developer may be the
tenant or an Affiliate of the Company. An Affiliate may serve as a developer and
enter into the development agreement with the Company if the transaction is
approved by a majority of the Directors, including a majority of the Independent
Directors. The Company believes that the ability to have an Affiliate capable of
serving as the developer provides the Company an advantage by enhancing its
relationship with key tenants and by giving it access to tenant opportunities at
an earlier stage of the development cycle. As a result, the Company believes it
has a greater number of opportunities for investment presented to it than it
might otherwise have and it is able to obtain better terms by negotiating the
terms of its investment at an earlier stage in the development cycle when there
are fewer competitive alternatives to the tenant.
The developer will enter into all construction contracts and will
arrange for and coordinate all aspects of the construction or renovation of the
Property improvements. The developer will be responsible for the construction or
renovation of the building improvements, although it may employ co-developers or
sub-agents in fulfilling its responsibilities under the development agreement.
All general contractors performing work in connection with such building
improvements must provide a payment and performance bond or other satisfactory
form of guarantee of performance. All construction and renovation will be
performed or supervised by persons or entities acceptable to the Advisor. The
Company will be obligated, as construction or renovation costs are incurred, to
make the remaining payments due as part of the purchase price for the
Properties, provided that the construction or renovation conforms to definitive
plans, specifications, and costs approved by the Advisor and the Board of
Directors and embodied in the construction contract.
Under the terms of the development agreement, the Company generally
will advance its funds on a monthly basis to meet the construction draw requests
of the developer. The Company, in general, only will advance its funds to meet
the developer's draw requests upon receipt of an inspection report and a
certification of draw requests from an inspecting architect or engineer suitable
to the Company, and the Company may retain a portion of any advance until
satisfactory completion of the project. The certification generally must be
supported by color photographs showing the construction work completed as of the
date of inspection. The total amount of the funds advanced to the developer
(including the purchase price of the land plus closing costs and certain other
costs) generally will not exceed the maximum amount specified in the development
agreement. Such maximum amount will be based on the Company's estimate of the
costs of such construction or renovation.
In some cases, construction or renovation will be required before the
Company has acquired the Property. In this situation, the Company may have made
a deposit on the Property in cash or by means of a letter of credit. The
renovation or construction may be made by an Affiliate or a third party. The
Company may permit the proposed developer to arrange for a bank or another
lender, including an Affiliate, to provide construction financing to the
developer. In such cases, the lender may seek assurance from the Company that it
has sufficient funds to pay to the developer the full purchase price of the
Property upon completion of the construction or renovation. In the event that
the Company segregates funds as assurance to the lender of its ability to
purchase the Property, the funds will remain the property of the Company, and
the lender will have no rights with respect to such funds upon any default by
the developer under the development agreement or under the loan agreement with
such lender, or if the closing
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<PAGE>
of the purchase of the Property by the Company does not occur for any reason,
unless the transaction is supported by a letter of credit in favor of the
lender.
Under the development agreement, the developer generally will be
obligated to complete the construction or renovation of the building
improvements within a specified period of time from the date of the development
agreement, which generally will be between eight to 12 months. If the
construction or renovation is not completed within that time and the developer
fails to remedy this default within 10 days after notice from the Company, the
Company will have the option to grant the developer additional time to complete
the construction, to take over construction or renovation of the building
improvements, or to terminate the development agreement and require the
developer to purchase the Property at a price equal to the sum of (i) the
Company's purchase price of the land, including all fees, costs, and expenses
paid by the Company in connection with its purchase of the land, (ii) all fees,
costs, and expenses disbursed by the Company pursuant to the development
agreement for construction of the building improvements, and (iii) the Company's
"construction financing costs." The "construction financing costs" of the
Company is an amount equal to a return, at the annual percentage rate used in
calculating the minimum annual rent under the lease, on all Company payments and
disbursements described in clauses (i) and (ii) above.
The Company also generally will enter into an indemnification and put
agreement (the "Indemnity Agreement") with the developer. The Indemnity
Agreement will provide for certain additional rights to the Company unless
certain conditions are met. In general, these conditions are (i) the developer's
acquisition of all permits, approvals, and consents necessary to permit
commencement of construction or renovation of the building improvements within a
specified period of time after the date of the Indemnity Agreement (normally, 60
days), or (ii) the completion of construction or renovation of the building as
evidenced by the issuance of a certificate of occupancy, within a specified
period of time after the date of the Indemnity Agreement. If such conditions are
not met, the Company will have the right to grant the developer additional time
to satisfy the conditions or to require the developer to purchase the Property
from the Company at a purchase price equal to the total amount disbursed by the
Company in connection with the acquisition and construction or renovation of the
Property (including closing costs), plus an amount equal to the return described
in item (iii) of the preceding paragraph. Failure of the developer to purchase
the Property from the Company upon demand by the Company under the circumstances
specified above will entitle the Company to declare the developer in default
under the lease and to declare each guarantor in default under any guarantee of
the developer's obligations to the Company.
In certain situations where construction or renovation is required for
a Property, the Company will pay a negotiated maximum amount upon completion of
construction or renovation rather than providing financing to the developer,
with such amount to be based on the developer's actual costs of such
construction or renovation.
Affiliates of the Company also may provide construction financing to
the developer of a Property. In addition, the Company may purchase from an
Affiliate of the Company a Property that has been constructed or renovated by
the Affiliate. Any fees paid to Affiliates of the Company in connection with the
financing, construction or renovation of a Property acquired by the Company will
be considered Acquisition Fees and will be subject to approval by a majority of
the Board of Directors, including a majority of the Independent Directors, not
otherwise interested in the transaction. See "Management Compensation" and
"Conflicts of Interest - Certain Conflict Resolution Procedures." Any such fees
will be included in the cost of the Property and, therefore, will be included in
the calculation of base rent.
In all situations where construction or renovation of a Property is
required, the Company also will have the right to review the developer's books,
records, and agreements during and following completion of construction to
verify actual costs.
Interim Acquisitions. The Affiliates of the Advisor regularly may have
opportunities to acquire properties of a type suitable for acquisition by the
Company as a result of their relationships with various operators. See "General"
above. These acquisitions often must be made within a relatively short period of
time, occasionally at a time when the Company may be unable to make the
acquisition. In an effort to address these situations and preserve the
acquisition opportunities of the Company (and other entities with which the
Company is affiliated), the Advisor and its Affiliates maintain lines of credit
which enable them to acquire these properties on an interim basis and
temporarily own them for the purpose of facilitating their acquisition by the
Company (or other entities with
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which the Company is affiliated). At such time as a Property acquired on an
interim basis is determined to be suitable for acquisition by the Company, the
interim owner of the Property will sell its interest in the Property to the
Company at a price equal to the lesser of its cost (which includes carrying
costs and, in instances in which an Affiliate of the Company has provided real
estate brokerage services in connection with the initial purchase of the
Property, indirectly includes fees paid to an Affiliate of the Company) to
purchase such interest in the Property or the Property's appraised value,
provided that a majority of Directors, including a majority of the Independent
Directors, determine that the acquisition is fair and reasonable to the Company.
See "Conflicts of Interest - Certain Conflict Resolution Procedures." Appraisals
of Properties acquired from such interim owners will be obtained in all cases.
Acquisition Services. Acquisition services performed by the Advisor may
include, but are not limited to, site selection and/or approval; review and
selection of tenants and negotiation of lease agreements and related documents;
monitoring Property acquisitions; and the processing of all final documents
and/or procedures to complete the acquisition of Properties and the commencement
of tenant occupancy and lease payments.
The Company will pay the Advisor a fee of 4.5% of the Total Proceeds as
Acquisition Fees. See "Management Compensation." The total of all Acquisition
Fees and Acquisition Expenses shall be reasonable and shall not exceed an amount
equal to 6% of the Real Estate Asset Value of a Property, or in the case of a
Mortgage Loan, 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 transaction approves fees in excess of these limits subject to
a determination that the transaction is commercially competitive, fair and
reasonable to the Company. The total of all Acquisition Fees payable to all
persons or entities will not exceed the compensation customarily charged in
arm's-length transactions by others rendering similar services as an ongoing
activity in the same geographical location and for comparable types of
properties.
The Advisor engages counsel to perform legal services, and such counsel
also may provide legal services to the Company in connection with the
acquisition of Properties. The legal fees payable to such counsel by the Company
will not exceed those generally charged for similar services.
STANDARDS FOR INVESTMENT IN PROPERTIES
Selection of Operators of Health Care Facilities. The selection of
operators of Health Care Facilities by the Advisor, as approved by the Board of
Directors, will be based on a number of factors which may include: an evaluation
of the operations of their health care facilities, the number of health care
facilities operated, the relationship of average revenue per available unit (or
bed) to the average capital cost per unit (or bed) for each health care facility
operated, the relative competitive position among the same types of health care
facilities offering similar services, market penetration, the relative financial
success of the operator in the geographic area in which the Property is located,
overall historical financial performance of the operator, and the management
capability of the operator. The operators of the Health Care Facilities are not
expected to be affiliated with the Advisor, the Company or any Affiliate.
Selection of Properties. In making investments in Properties, the
Advisor will consider relevant real property and financial factors, including
the condition, use, and location of the Property, income-producing capacity, and
the prospects for long-term appreciation. The Company will obtain an independent
appraisal for each Property it purchases. The proper location, design and
amenities are important to the success of a Property.
In selecting specific Properties, the Advisor, as approved by the Board
of Directors, will apply the following minimum standards.
1. Each Property will be in what the Advisor believes is a prime
location for that type of Property.
2. Base (or minimum) annual rent will provide a specified minimum
return on the Company's cost of purchasing and, if applicable, developing the
Property, and the lease also will generally provide for automatic fixed
increases in base rent at specified times during the lease term or increases in
the base rent based on increases in consumer price indices over the term of the
lease.
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3. The initial lease term typically will be at least 10 to 20
years.
4. In general, the Company will not acquire a Property if the Board of
Directors, including a majority of the Independent Directors, determines that
the acquisition would adversely affect the Company in terms of geographic,
property type or chain diversification.
DESCRIPTION OF PROPERTIES
Although the Advisor has not yet selected any Properties for
investment, it is expected that any Properties purchased by the Company will
conform generally to the following specifications of size, cost, and type of
land and buildings. The Company anticipates acquiring Properties related to
Health Care Facilities which may include, but will not be limited to, the
following types:
Congregate Living Facilities. Congregate living facilities are
primarily apartment buildings which contain a significant amount of common space
to accommodate dining, recreation, activities and other support services for
senior citizens. These properties range in size from 100 to 500 units with an
average size of approximately 225 units. Units include studios and one and two
bedrooms ranging in size from 450 square feet to over 1,500 square feet.
Residents generally pay a base rent for their housing which includes a meal
program. In addition, a menu of other services is provided at an additional
charge. The cost of congregate living facilities generally ranges from
$10,000,000 to $30,000,000.
Assisted Living Facilities. Assisted living facilities provide a
special combination of housing, supportive services, personalized assistance and
health care to their residents in a manner which is designed to respond to
individual needs. These facilities offer a lower-cost alternative to skilled
nursing facilities for those who do not require intensive nursing care. Industry
standards suggest that a person is suitable for an assisted living facility when
he or she needs assistance with three or fewer ADLs on a daily basis. ADLs are
activities such as eating, dressing, walking, bathing, and bathroom use.
Assisted living facilities also provide assistance with instrumental activities
of daily living ("IADLs"), such as shopping, telephone use and money management.
The level of care provided by assisted living facilities has increased in recent
years. With an increase in demand for the lower-cost services they provide,
assisted living facilities have begun to provide care for an increasing number
of physical disabilities, certain non-ambulatory conditions and early stages of
specific diseases, such as Alzheimer's disease, where intensive medical
treatment is not required.
Current industry practice generally is to build freestanding assisted
living facilities with an average of between 40 and 100 units, depending on such
factors as market forces, site constraints and program orientation. Current
economics place the size of the private living space of a unit in the range of
300 gross square feet for an efficiency unit to 750 square feet for a large one
bedroom unit. Units are typically private, allowing residents the same general
level of control over their units as residents of a rental apartment would
typically have. Common areas on the most recently developed assisted living
facilities may total as much as 30 to 40 percent of the gross square footage of
a facility. The cost of assisted living facilities generally ranges from
$8,000,000 to $15,000,000.
Skilled Nursing Facilities. In addition to housing, meals,
transportation, housekeeping, ADL and IADL care, skilled nursing facilities
provide comprehensive nursing and long term care to their residents. Skilled
nursing facilities accommodate persons who require varying levels of care. Many
skilled nursing facilities are capable of serving residents with intensive
needs. Some skilled nursing facilities specialize in certain types of disease
care, such as Alzheimer's or Dementia care. The cost of the care provided in
skilled nursing facilities is among the most expensive in the senior care
segment of the health care industry, providing potential for substantial revenue
generation. Based on discussions with executives with senior living/housing
firms and studies performed by health care industry associations, Price
Waterhouse, in a 1996 study it developed for institutional investors, estimated
that the total monthly cost per resident of a skilled nursing facility is
between $2,880 and $4,000. According to a 1997 study developed by NatWest
Securities for certain of its investors, the high demand for beds in skilled
nursing facilities, along with a restricted supply of new beds, has resulted in
high occupancy rates and minimal skilled nursing facility lease and mortgage
default rates.
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Skilled nursing facilities are also generally freestanding, but are
typically more institutional in nature, allowing for efficient cleaning and
sterilization. The rooms in skilled nursing facilities are equipped with patient
monitoring devices and emergency call systems. Oxygen systems may also be
present. Both multiple floor and single floor designs are common. Individual
rooms in skilled nursing facilities may be as small as 100 square feet, with
common areas varying greatly in size. Skilled nursing facilities historically
have been located in close proximity to hospitals to facilitate doctors' visits.
Today, the location of these facilities is less important where rotational
visiting systems are in place and where more highly skilled nursing staffs are
responsible for functions that used to be handled by doctors. The cost of
skilled nursing facilities generally ranges from $5,000,000 to $10,000,000.
Continuing Care Retirement Communities. Congregate living facilities
sometimes have assisted living and/or skilled nursing facilities attached or
adjacent to their locations. When this occurs, the projects are often referred
to as continuing care retirement communities or life care communities. The
intent of continuing care retirement communities or life care communities is to
provide a continuum of care to the residents. In other words, as residents age
and their health care needs increase, they can receive the care they need
without having to move away from the "community" which has become their home.
Continuing care retirement communities typically operate on a fee-for-service
basis and the units are rented on a monthly basis to residents, while life care
centers generally charge an entrance fee that is partially refundable and covers
the cost of all of the residents' health carerelated services, plus a monthly
maintenance fee. Continuing care retirement communities and life care
communities are the most expensive seniors' housing accommodations today with
prices for each facility generally ranging from $40,000,000 to over
$100,000,000.
Medical Office Buildings. Medical office buildings, including walk-in
clinics, are conventional office buildings with additional plumbing, mechanical
and electrical service amenities, which facilitate physicians and medical
delivery companies in the practice of medicine and delivery of health care
services. These facilities can range in size from 3,000 square feet (walk-in
clinic) up to 100,000 square feet (medical office building), with costs
generally ranging from $1,000,000 to $10,000,000. It is common for medical
office buildings to be located in close proximity to hospitals where physicians
have practice privileges. Walk-in clinics are normally placed in
retail/commercial locations to make accessibility convenient for patients and to
provide medical services in areas which are not close or convenient to hospitals
and larger physician practices.
Either before or after construction or renovation, the Properties to be
acquired by the Company will be one of a Health Care Facility operator's
approved designs. Prior to purchase of all Properties, other than those
purchased prior to completion of construction, the Company will receive a copy
of the certificate of occupancy issued by the local building inspector or other
governmental authority and all other governmental certificates or permits which
permit the use of the Property as a Health Care Facility, and shall receive a
certificate from the operator of the Health Care Facility to the effect that (i)
the Property is operational and in compliance with all required governmental
permits and certificates and (ii) the Property is in compliance with all of the
Health Care Facility operator's requirements, including, but not limited to,
building plans and specifications approved by the operator. The Company also
will receive a certificate of occupancy and all other required governmental
permits or certificates for each Property for which construction has not been
completed at the time of purchase, prior to the Company's payment of the final
installment of the purchase price for the Property.
Generally, Properties to be acquired by the Company will consist of
both land and building, although in a number of cases the Company may acquire
only the land underlying the building with the building owned by the tenant or a
third party, and also may acquire the building only with the land owned by a
third party. In general, the Properties will be freestanding and surrounded by
paved parking areas and landscaping. Although, buildings may be suitable for
conversion to various uses through modifications, some Properties, may not be
economically convertible to other uses.
A tenant generally will be required by the lease agreement to make such
capital expenditures as may be reasonably necessary to refurbish buildings,
premises, signs, and equipment and maintain the leasehold in a manner that
allows operation for its intended purpose. These capital expenditures generally
will be paid by the tenant during the term of the lease.
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DESCRIPTION OF PROPERTY LEASES
The terms and conditions of any lease entered into by the Company with
regard to a Property may vary from those described below. The Advisor in all
cases will use its best efforts to obtain terms at least as favorable as those
described below. If the Board of Directors determines, based on the
recommendation of the Advisor, that the terms of an acquisition and lease of a
Property, taken as a whole, are favorable to the Company, the Board of Directors
may, in its sole discretion, cause the Company to enter into leases with terms
which are substantially different than the terms described below, but only to
the extent consistent with the Company's objective of qualifying as a REIT. In
making such determination, the Advisor will consider such factors as the type
and location of the Property, the creditworthiness of the tenant, the purchase
price of the Property, the prior performance of the tenant, and the prior
business experience of management of the Company and the Company's Affiliates
with the operator.
General. In general, the leases are expected to be "triple-net" leases,
which means that the tenants generally will be required to pay for all repairs,
maintenance, property taxes, utilities, and insurance. The tenants also will be
required to pay for special assessments, sales and use taxes, and the cost of
any renovations permitted under the leases. The Company will be the lessor under
each lease except in certain circumstances in which it may be a party to a Joint
Venture which will own the Property. In those cases, the Joint Venture, rather
than the Company, will be lessor, and all references in this section to the
Company as lessor therefore should be read accordingly. See "Joint Venture
Arrangements" below.
Term of Leases. It presently is anticipated that Properties will be
leased for an initial term of 10 to 20 years with up to four, five-year renewal
options. The minimum rental payment under the renewal option generally is
expected to be greater than that due for the final lease year of the initial
term of the lease. Upon termination of the lease, the tenant will surrender
possession of the Property to the Company, together with any improvements made
to the Property during the term of the lease, except that for Properties in
which the Company owns only the building and not the underlying land, the owner
of the land may assume ownership of the building.
Computation of Lease Payments. During the initial term of the lease,
the tenant will pay the Company, as lessor, minimum annual rent equal to a
specified percentage of the Company's cost of purchasing the Property.
Typically, the leases will provide for automatic fixed increases in the minimum
annual rent or increases in the base rent based on increases in consumer price
indices at predetermined intervals during the term of the lease. In the case of
acquisition of Properties that are to be constructed or renovated pursuant to a
development agreement, the Company's costs of purchasing the Property will
include the purchase price of the land, including all fees, costs, and expenses
paid by the Company in connection with its purchase of the land, and all fees,
costs, and expenses disbursed by the Company for construction of building
improvements. See "Site Selection and Acquisition of Properties - Construction
and Renovation" above.
In the case of Properties in which the Company owns only the building,
the Company will structure its leases to have recovered its investment in the
building by the expiration of the lease.
Assignment and Sublease. In general, it is expected that no lease may
be assigned or subleased without the Company's prior written consent (which may
not be unreasonably withheld). A tenant may, however, assign or sublease a lease
to its corporate affiliate or subsidiary or to its successor by merger or
acquisition, if such assignee or subtenant agrees to operate the same type of
Health Care Facility on the premises, but only to the extent consistent with the
Company's objective of qualifying as a REIT. The leases will set forth certain
factors (such as the financial condition of the proposed tenant or subtenant)
that are deemed to be a reasonable basis for the Company's refusal to consent to
an assignment or sublease. In addition, the Company may refuse to permit any
assignment or sublease that would jeopardize the Company's continued
qualification as a REIT. The original tenant generally will remain fully liable,
however, for the performance of all tenant obligations under the lease following
any such assignment or sublease unless the Company agrees in writing to release
the original tenant from its lease obligations.
Alterations to Premises. A tenant generally will have the right,
without the prior written consent of the Company and at the tenant's own
expense, to make certain improvements, alterations or modifications to the
Property. Under certain leases, the tenant, at its own expense, may make certain
immaterial structural improvements (with a cost of up to $10,000) without the
prior consent of the Company. Certain leases may require the tenant to post a
payment and performance bond for any structural alterations with a cost in
excess of a specified amount.
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Right of Tenant to Purchase. It is anticipated that if the Company
wishes at any time to sell a Property pursuant to a bona fide offer from a third
party, the tenant of that Property will have the right to purchase the Property
for the same price, and on the same terms and conditions, as contained in the
offer. In certain cases, the tenant also may have a right to purchase the
Property seven to 20 years after commencement of the lease at a purchase price
equal to the greater of (i) the Property's appraised value at the time of the
tenant's purchase, or (ii) a specified amount, generally equal to the Company's
purchase price of the Property, plus a predetermined percentage (generally, 15%
to 20%) of such purchase price. See "Federal Income Tax Considerations -
Characterization of Leases."
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Substitution of Properties. Under certain leases, the tenant of a
Property, at its own expense and with the Company's prior written consent, may
be entitled to operate another form of approved Health Care Facility on the
Property as long as such approved Health Care Facility has an operating history
which reflects an ability to generate gross revenues and potential revenue
growth equal to or greater than that experienced by the tenant in operating the
original Health Care Facility.
In addition, it is anticipated that certain Property leases will
provide the tenant with the right, to the extent consistent with the Company's
objective of qualifying as a REIT, to offer the substitution of another property
selected by the tenant in the event that the tenant determines that the Health
Care Facility has become uneconomic (other than as a result of an insured
casualty loss or condemnation) for the tenant's continued use and occupancy in
its business operation and the tenant's board of directors has determined to
close and discontinue use of the Health Care Facility. The tenant's
determination that a Health Care Facility has become uneconomic is to be made in
good faith based on the tenant's reasonable business judgment after comparing
the results of operations of the Health Care Facility to the results of
operations at the majority of other health care facilities then operated by the
tenant. If either of these events occurs, the tenant will have the right to
offer the Company the opportunity to exchange the Property for another property
(the "Substituted Property") with a total cost for land and improvements thereon
(including overhead, construction interest, and other related charges) equal to
or greater than the cost of the Property to the Company.
Generally, the Company will have 30 days following receipt of the
tenant's offer for exchange of the Property to accept or reject such offer. In
the event that the Company requests an appraisal of the Substituted Property, it
will have at least ten days following receipt of the appraisal to accept or
reject the offer. If the Company accepts such offer, (i) the Substituted
Property will be exchanged for the Property in a transaction designed and
intended to qualify as a "like-kind exchange" within the meaning of section 1031
of the Code with respect to the Company and (ii) the lease of the Property will
be amended to (a) provide for minimum rent in an amount equal to the sum
determined by multiplying the cost of the Substituted Property by the Property
lease rate and (b) provide for lease renewal options sufficient to permit the
tenant, at its option, to continue its occupancy of the Substituted Property a
specified number of years from the date on which the exchange is made. The
Company will pay the tenant the excess, if any, of the cost of the Substituted
Property over the cost of the Property. If the substitution does not take place
within a specified period of time after the tenant makes the offer to exchange
the Property for the Substituted Property, either party thereafter will have the
right not to proceed with the substitution. If the Company rejects the
Substituted Property offered by the tenant, the tenant is generally required to
offer at least three additional alternative properties for the Company's
acceptance or rejection. If the Company rejects all Substituted Properties
offered to it pursuant to the lease, or otherwise fails or refuses to consummate
a substitution for any reason other than the tenant's failure to fulfill the
conditions precedent to the exchange, then the tenant will be entitled to
terminate the lease on the date scheduled for such exchange by purchasing the
Property from the Company for a price equal to the then-fair market value of the
Property.
Neither the tenant nor any of its subsidiaries, licensees, or
sublicensees or any other affiliate will be permitted to use the original
Property as a health care facility or other business of the same type for at
least one year after the closing of the original Property. In addition, in the
event the tenant or any of its affiliates sells the Property within twelve
months after the Company acquires the Substituted Property, the Company will
receive, to the extent consistent with its objective of qualifying as a REIT,
from the proceeds of the sale the amount by which the selling price exceeds the
cost of the Property to the Company.
Special Conditions. Certain leases may provide that the Company will
not be permitted to own or operate, directly or indirectly, another Property of
the same or similar type as the leased Property that is or will be located
within a specified distance of the leased Property.
Insurance, Taxes, Maintenance, and Repairs. Tenants of Properties will
be required, under the terms of the leases, to maintain, for the benefit of the
Company and the tenant, insurance that is commercially reasonable given the
size, location and nature of the Property. All tenants, other than those tenants
with a substantial net worth, generally also will be required to obtain "rental
value" or "business interruption" insurance to cover losses due to the
occurrence of an insured event for a specified period, generally six to twelve
months. Additionally, all tenants will be required to maintain liability
coverage, including, where applicable, professional liability insurance. In
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general, no lease will be entered into unless, in the opinion of the Advisor, as
approved by the Board of Directors, the insurance required by the lease
adequately insures the Property.
The leases are expected to require that the tenant pay all taxes and
assessments, maintenance, repair, utility, and insurance costs applicable to the
real estate and permanent improvements. Tenants will be required to maintain
such Properties in good order and repair. Such tenants generally will be
required to maintain the Property and repair any damage to the Property, except
damage occurring during the last 24 to 48 months of the lease term (as
extended), which in the opinion of the tenant renders the Property unsuitable
for occupancy, in which case the tenant will have the right instead to pay the
insurance proceeds to the Company and terminate the lease.
The tenant generally will be required to repair the Property in the
event that less than a material portion of the Property (for example, more than
20% of the building or more than 40% of the land) is taken for public or
quasi-public use. The Company's leases generally will provide that, in the event
of any condemnation of the Property that does not give rise to an option to
terminate the lease or in the event of any condemnation which does give rise to
an option to terminate the lease and the tenant elects not to terminate, the
Company will remit to the tenant the award from such condemnation and the tenant
will be required to repair and restore the Property. To the extent that the
award exceeds the estimated costs of restoring or repairing the Property, the
tenant is required to deposit such excess amount with the Company. Until a
specified time (generally, ten days) after the tenant has restored the premises
and all improvements thereon to the same condition as existed immediately prior
to such condemnation insofar as is reasonably possible, a "just and
proportionate" amount of the minimum annual rent will be abated from the date of
such condemnation. In addition, the minimum annual rent will be reduced in
proportion to the reduction in the then rental value of the premises or the fair
market value of the premises after the condemnation in comparison with the
rental value or fair market value prior to such condemnation.
Events of Default. The leases generally are expected to provide that
the following events, among others, will constitute a default under the lease:
(i) the insolvency or bankruptcy of the tenant, provided that the tenant may
have the right, under certain circumstances, to cure such default, (ii) the
failure of the tenant to make timely payment of rent or other charges due and
payable under the lease, if such failure continues for a specified period of
time (generally, five to 30 days) after notice from the Company of such failure,
(iii) the failure of the tenant to comply with any of its other obligations
under the lease (for example, the discontinuance of operations of the leased
Property) if such failure continues for a specified period of time (generally,
ten to 45 days), (iv) in cases where the Company enters into a development
agreement relating to the construction or renovation of a building, a default
under the development agreement or the Indemnity Agreement or the failure to
establish the minimum annual rent at the end of the development period, (v) in
cases where the Company has entered into other leases with the same tenant, a
default under such lease, (vi) loss of licensure, (vii) loss of Medicare or
Medicaid Certification and (viii) the forced removal of more than a specified
number of patients as a result of deficiencies in the care provided at or
physical condition of the facility.
Upon default by the tenant, the Company generally will have the right
under the lease and under most state laws to evict the tenant, re-lease the
Property to others, and hold the tenant responsible for any deficiency in the
minimum lease payments. Similarly, if the Company determined not to re-lease the
Property, it could sell the Property. (Unless required to do so by the lease or
its investment objectives, however, the Company does not intend to sell any
Property prior to five to ten years after the commencement of the lease on such
Property. See "Right of Tenant to Purchase" above.) In the event that a lease
requires the tenant to make a security deposit, the Company will have the right
under the lease to apply the security deposit, upon default by the tenant,
towards any payments due from the defaulting tenant. In general, the tenant will
remain liable for all amounts due under the lease to the extent not paid from a
security deposit or by a new tenant.
In the event that a tenant defaults under a lease with the Company, the
Company either will attempt to locate a replacement operator or will discontinue
operation of the Health Care Facility, the latter of which would require the
Company or the defaulting operator to arrange for an orderly transfer of the
residents to another qualified health care facility. The Company will have no
obligation to operate the Health Care Facilities and no operator of a Health
Care Facility will be obligated to permit the Company or a replacement operator
to operate the Health Care Facility.
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JOINT VENTURE ARRANGEMENTS
The Company may enter into a Joint Venture to own and operate a
Property with various unaffiliated persons or entities or with another program
formed by the principals of the Company or the Advisor or their Affiliates, if a
majority of the Directors, including a majority of the Independent Directors,
not otherwise interested in the transaction determine that the investment in the
Joint Venture is fair and reasonable to the Company and on substantially the
same terms and conditions as those to be received by the co-venturer or
co-venturers. The Company may take more or less than a 50% interest in any Joint
Venture, subject to obtaining the requisite approval of the Directors. See "Risk
Factors - Real Estate and Financing Risks - Impasse or Conflicts with Joint
Venture Partner."
Under the terms of each Joint Venture agreement, the Company and each
joint venture partner will be jointly and severally liable for all debts,
obligations, and other liabilities of the Joint Venture, and the Company and
each joint venture partner will have the power to bind each other with any
actions they take within the scope of the Joint Venture's business. In addition,
it is expected that the Advisor or its Affiliates will be entitled to
reimbursement, at cost, for actual expenses incurred by the Advisor or its
Affiliates on behalf of the Joint Venture. Joint Ventures entered into to
purchase and hold a Property for investment generally will have an initial term
of 10 to 20 years (generally the same term as the initial term of the lease for
the Property in which the Joint Venture invests), and, after the expiration of
the initial term, will continue in existence from year to year unless terminated
at the option of either joint venturer or unless terminated by an event of
dissolution. Events of dissolution will include the bankruptcy, insolvency, or
termination of any co-venturer, sale of the Property owned by the Joint Venture,
mutual agreement of the Company and its joint venture partner to dissolve the
Joint Venture, and the expiration of the term of the Joint Venture. The Joint
Venture agreement typically will restrict each venturer's ability to sell,
transfer, or assign its joint venture interest without first offering it for
sale to its co-venturer. In addition, in any Joint Venture with another program
sponsored by the Advisor or its Affiliates, where such arrangements are entered
into for the purpose of purchasing and holding Properties for investment, in the
event that one party desires to sell the Property and the other party does not
desire to sell, either party will have the right to trigger dissolution of the
Joint Venture by sending a notice to the other party. The notice will establish
the price and terms for the sale or purchase of the other party's interest in
the Joint Venture to the other party. The Joint Venture agreement will grant the
receiving party the right to elect either to purchase the other party's interest
on the terms set forth in the notice or to sell its own interest on such terms.
The following paragraphs describe the allocations and distributions
under the expected terms of the joint venture agreement for any Joint Venture in
which the Company and its co-venturer each have a 50% ownership interest. In any
other case, the allocations and distributions are expected to be similar to
those described below, except that allocations and distributions which are
described below as being made 50% to each co-venturer will instead be made in
proportion to each co-venturer's respective ownership interest.
Under the terms of each joint venture agreement, operating profits and
losses generally will be allocated 50% to each co-venturer. Profits from the
sale or other disposition of Joint Venture property first will be allocated to
any co-venturers with negative capital account balances in proportion to such
balances until such capital accounts equal zero, and thereafter 50% to each
co-venturer. Similarly, losses from the sale or other disposition of Joint
Venture property first will be allocated to joint venture partners with positive
capital account balances in proportion to such balances until such capital
accounts equal zero, and thereafter 50% to each co-venturer. Notwithstanding any
other provisions in the Joint Venture agreement, income, gain, loss, and
deductions with respect to any contributed property will be shared in a manner
which takes into account the variation between the basis of such property and
its fair market value at the time of contribution in accordance with section
704(c) of the Code.
Net cash flow from operations of the Joint Venture generally will be
distributed 50% to each joint venture partner. Any liquidation proceeds, after
paying joint venture debts and liabilities and funding reserves for contingent
liabilities, will be distributed first to the joint venture partners with
positive capital account balances in proportion to such balances until such
balances equal zero, and thereafter 50% to each joint venture partner.
In order that the allocations of Joint Venture income, gain, loss, and
deduction provided in Joint Venture agreements may be respected for federal
income tax purposes, it is expected that any Joint Venture agreement (i) will
contain a "qualified income offset" provision, (ii) will prohibit allocations of
loss or deductions to the extent such
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allocation would cause or increase an "Adjusted Capital Account Deficit," and
(iii) will require (a) that capital accounts be maintained for each joint
venture partner in a manner which complies with Treasury Regulation ss.1.704-
1(b)(2)(iv) and (b) that distributions of proceeds from the liquidation of a
partner's interest in the Joint Venture (whether or not in connection with the
liquidation of the Joint Venture) be made in accordance with the partner's
positive capital account balance. See "Federal Income Tax Considerations -
Investment in Joint Ventures."
Prior to entering into any Joint Venture arrangement with any
unaffiliated co-venturer (or the principals of any unaffiliated co-venturer),
the Company will confirm that such person or entity has demonstrated to the
satisfaction of the Company that requisite financial qualifications are met.
The Company may acquire Properties from time to time by entering into a
limited partnership with sellers of such Properties pursuant to which the
seller, as owner, would receive partnership interests convertible at a later
date into Common Stock of the Company. The Company would be the general partner
of such a partnership. This structure would enable a property owner to transfer
property without incurring immediate tax liability, and therefore could allow
the Company to acquire Properties on more favorable terms than otherwise.
MORTGAGE LOANS
The Company may provide Mortgage Loans to operators of the Health Care
Facilities to enable them to acquire the land, buildings and land, or buildings.
The Mortgage Loans will be secured by such property.
Generally, management believes the interest rate and terms of these
transactions will be substantially the same as those of the Company's Property
leases. The borrower will be responsible for all of the expenses of owning the
property, as with the "triple-net" leases, including expenses for insurance and
repairs and maintenance. Management expects the Mortgage Loans will be fully
amortizing loans over a period of 10 to 20 years (generally, the same term as
the initial term of the Property leases), with payments of principal and
interest due monthly. In addition, management expects the interest rate charged
under the terms of the Mortgage Loan will be fixed over the term of the loan and
generally will be comparable to, or slightly lower than, lease rates charged to
tenants for the Properties.
The Company may combine leasing and financing in connection with a
Property. For example, it may make a Mortgage Loan with respect to the building
and lease the underlying land to the borrower. Management believes that the
combined leasing and financing structure provides the benefit of allowing the
Company to receive, on a fixed income basis, the return of its initial
investment in each financed building, which is generally a depreciating asset,
plus interest. At the same time, the Company retains ownership of the underlying
land, which may appreciate in value, thus providing an opportunity for a capital
gain on the sale of the land. In such cases, in which the borrower is also the
tenant under a Property lease for the underlying land, if the borrower does not
elect to exercise its purchase option to acquire the Property under the terms of
the lease, the building and improvements on the Property will revert to the
Company at the end of term of the lease, including any renewal periods. If the
borrower does elect to exercise its purchase option as the tenant of the
underlying land, the Company will generally have the option of selling the
Property at the greater of fair market value or cost plus a specified
percentage.
The Company will not make or invest in Mortgage Loans unless an
appraisal is obtained concerning the property that secures the Mortgage Loan.
Mortgage indebtedness on any property shall not exceed such property's appraised
value. In cases in which the majority of the Independent Directors so determine,
and in all cases in which the Mortgage Loan involves the Advisor, Directors, or
Affiliates, such appraisal must be obtained from an independent expert
concerning the underlying property. Such appraisal shall be maintained in the
Company's records for at least five 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.
Management believes that the criteria for investing in such Mortgage
Loans are substantially the same as those involved in the Company's investments
in Properties; therefore, the Company will use the same underwriting criteria as
described above in "Business - Standards for Investment in Properties." In
addition, the Company will not make or invest in Mortgage Loans on any one
property if the aggregate amount of all mortgage loans outstanding
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on the property, including the loans of the Company, would exceed an amount
equal to 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 limitation, 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 5% per annum of the principal
balance of the loan.
Further, the Company will 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 Affiliates of the Company. The Company currently
expects to provide Mortgage Loans in the aggregate principal amount of
approximately 5% to 10% of the Company's total assets.
MANAGEMENT SERVICES
The Advisor will provide management services relating to the Company,
the Properties, the Mortgage Loans, and the Secured Equipment Lease program
pursuant to an Advisory Agreement between it and the Company. Under this
agreement, the Advisor will be responsible for assisting the Company in
negotiating leases, Mortgage Loans and Secured Equipment Leases, collecting
rental, Mortgage Loan and Secured Equipment Lease payments, inspecting the
Properties and the tenants' books and records, and responding to tenant
inquiries and notices. The Advisor also will provide information to the Company
about the status of the leases, the Properties, the Mortgage Loans, the Line of
Credit, the Permanent Financing and the Secured Equipment Leases. In exchange
for these services, the Advisor will be entitled to receive certain fees from
the Company. For supervision of the Properties and Mortgage Loans, the Advisor
will receive the Asset Management Fee, which, generally, is payable monthly in
an amount equal to one-twelfth of .60% of Real Estate Asset Value and the
outstanding principal amount of the Mortgage Loans, as of the end of the
preceding month. For negotiating Secured Equipment Leases and supervising the
Secured Equipment Lease program, the Advisor will receive, upon entering into
each lease, a Secured Equipment Lease Servicing Fee, payable out of the proceeds
of the borrowings, equal to 2% of the purchase price of the Equipment subject to
each Secured Equipment Lease. See "Management Compensation."
BORROWING
The Company will borrow money to acquire Assets and to pay certain
related fees. The Company intends to encumber Assets in connection with the
borrowing. The Company plans to obtain a revolving Line of Credit initially in
an amount up to $45,000,000, and may, in addition, also obtain Permanent
Financing. The Line of Credit may be increased at the discretion of the Board of
Directors and may be repaid with proceeds of the offering, working capital or
Permanent Financing. The Line of Credit and Permanent Financing are the only
source of funds for making Secured Equipment Leases and for paying the Secured
Equipment Lease Servicing Fee. The Company has engaged in preliminary
discussions with potential lenders but has not yet received a commitment for the
Line of Credit or any Permanent Financing and there is no assurance that the
Company will obtain the Line of Credit or any Permanent Financing on
satisfactory terms.
Management believes that any financing obtained during the offering
period, will allow the Company to make investments in Assets that the Company
otherwise would be forced to delay until it raised a sufficient amount of
proceeds from the sale of Shares. By eliminating this delay the Company will
also eliminate the risk that these investments will no longer be available, or
the terms of the investment will be less favorable, when the Company has raised
sufficient offering proceeds. Alternatively, Affiliates of the Advisor could
make such investments, pending receipt by the Company of sufficient offering
proceeds, in order to preserve the investment opportunities for the Company.
However, Assets acquired by the Company in this manner would be subject to
closing costs both on the original purchase by the Affiliate and on the
subsequent purchase by the Company, which would increase the amount of expenses
associated with the acquisition of Assets and reduce the amount of offering
proceeds available for investment in income-producing assets. Management
believes that the use of borrowings will enable the Company to reduce or
eliminate the instances in which the Company will be required to pay duplicate
closing costs, which may be substantial in certain states.
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Similarly, management believes that the borrowings, if obtained, will
benefit the Company by allowing it to take advantage of its ability to borrow at
favorable interest rates. Specifically, the Company intends to structure the
terms of any financing so that the lease rates for Properties acquired and the
interest rates for Mortgage Loans and Secured Equipment Leases made with the
loan proceeds will exceed the interest rate payable on the financing. To the
extent that the Company is able to structure the financing on these terms, the
Company will increase its net revenues. In addition, the use of financing will
increase the diversification of the Company's portfolio by allowing it to
acquire more Assets than would be possible using only the Gross Proceeds from
the offering.
As a result of existing relationships between Affiliates of the Advisor
and certain financing sources, the Company may have the opportunity to obtain
financing at more favorable interest rates than the Company could otherwise
obtain. In connection with any financing obtained by the Company as a result of
any such relationship, the Company will pay a loan origination fee to the
Affiliate. In addition, certain lenders may require, as a condition of providing
financing to the Company, that the Affiliate with which the lender has an
existing relationship act as a loan servicing agent. In connection with any such
arrangement the Company will pay a loan servicing fee to the Affiliate. Any loan
origination fee or loan servicing fee paid to an Affiliate of the Company is
subject to the approval by a majority of the Board of Directors (including a
majority of the Independent Directors) not otherwise interested in the
transaction as fair and reasonable to the Company and on terms not less
favorable to the Company than those available from unaffiliated third parties
and not less favorable than those available from the Advisor or its Affiliates
in transactions with unaffiliated third parties. See "Conflicts of Interest -
Certain Conflict Resolution Procedures."
The Company may also borrow funds for the purpose of preserving its
status as a REIT. For example, the Company may borrow to the extent necessary to
permit the Company to make Distributions required in order to enable the Company
to qualify as a REIT for federal income tax purposes; however, the Company will
not borrow for the purpose of returning Invested Capital to the stockholders
unless necessary to eliminate corporate-level tax to the Company. The aggregate
borrowing of the Company, secured and unsecured, shall be reasonable in relation
to Net Assets of the Company and shall be reviewed by the Board of Directors at
least quarterly. The Board of Directors anticipates that the Line of Credit
initially will be in the amount of $45,000,000 and that the aggregate amount of
the Permanent Financing will not exceed 30% of the Company's total assets.
However, in accordance with the Company's Articles of Incorporation, the maximum
amount of borrowing in relation to Net Assets, in the absence of a satisfactory
showing that a higher level of borrowing is appropriate, shall not exceed 300%
of Net Assets. Any excess in borrowing over such 300% level shall occur only
with approval by a majority of the Independent Directors and will be disclosed
and explained to stockholders in the first quarterly report of the Company
prepared after such approval occurs.
SALE OF PROPERTIES, MORTGAGE LOANS AND SECURED EQUIPMENT LEASES
For the first five to ten years after the commencement of the offering,
the Company intends, to the extent consistent with the Company's objective of
qualifying as a REIT, to reinvest in additional Properties or Mortgage Loans any
proceeds of the Sale of a Property or a Mortgage Loan that are not required to
be distributed to stockholders in order to preserve the Company's REIT status
for federal income tax purposes. The Company may also use such proceeds to
reduce its outstanding indebtedness. Similarly, and to the extent consistent
with REIT qualification, the Company plans to use the proceeds of the Sale of a
Secured Equipment Lease to fund additional Secured Equipment Leases, or to
reduce its outstanding indebtedness on the borrowings. At or prior to the end of
such ten-year period (December 31, 2008), the Company intends to provide
stockholders of the Company with liquidity of their investment, either in whole
or in part, through Listing (although liquidity cannot be assured thereby) or by
commencing the orderly Sale of the Company's assets. If Listing occurs, the
Company intends to use any Net Sales Proceeds not required to be distributed to
stockholders in order to preserve the Company's status as a REIT to reinvest in
additional Properties, Mortgage Loans and Secured Equipment Leases or to repay
outstanding indebtedness. If Listing does not occur within ten years after the
commencement of the offering, the Company thereafter will undertake the orderly
liquidation of the Company and the Sale of the Company's assets and will
distribute any Net Sales Proceeds to stockholders. In addition, the Company will
not sell any assets if such Sale would not be consistent with the Company's
objective of qualifying as a REIT.
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In deciding the precise timing and terms of Property Sales, the Advisor
will consider factors such as national and local market conditions, potential
capital appreciation, cash flows, and federal income tax considerations. The
terms of certain leases, however, may require the Company to sell a Property at
an earlier time if the tenant exercises its option to purchase a Property after
a specified portion of the lease term has elapsed. See "Business - Description
of Leases - Right of Tenant to Purchase." The Company will have no obligation to
sell all or any portion of a Property at any particular time, except as may be
required under property or joint venture purchase options granted to certain
tenants. In connection with Sales of Properties by the Company, purchase money
obligations may be taken by the Company as part payment of the sales price. The
terms of payment will be affected by custom in the area in which the Property is
located and by prevailing economic conditions. When a purchase money obligation
is accepted in lieu of cash upon the Sale of a Property, the Company will
continue to have a mortgage on the Property and the proceeds of the Sale will be
realized over a period of years rather than at closing of the Sale.
The Company does not anticipate selling the Secured Equipment Leases
prior to expiration of the lease term, except in the event that the Company
undertakes orderly liquidation of its assets. In addition, the Company does not
anticipate selling any Mortgage Loans prior to the expiration of the loan term,
except in the event (i) the Company owns the Property (land only) underlying the
building improvements which secure the Mortgage Loan and the Sale of the
Property occurs, or (ii) the Company undertakes an orderly Sale of its assets.
COMPETITION
The Company anticipates that it will compete with other REITs, real
estate partnerships, health care providers and other investors, including, but
not limited to banks and insurance companies, many of which will have greater
financial resources than the Company, in the acquisition, leasing and financing
of Health Care Facilities. Further, non-profit entities are particularly
attracted to investments in senior care facilities because of their ability to
finance acquisitions through the issuance of tax-exempt bonds, providing
non-profit entities with a relatively lower cost of capital as compared to
for-profit purchasers. In addition, in certain states health care facilities
owned by non-profit entities are exempt from taxes on real property. As
profitability increases for investors in health care Properties, competition
among investors likely will become increasingly intense.
REGULATION OF MORTGAGE LOANS AND SECURED EQUIPMENT LEASES
The Mortgage Loan and Secured Equipment Lease programs may be subject
to regulation by federal, state and local authorities and subject to various
laws and judicial and administrative decisions imposing various requirements and
restrictions, including among other things, regulating credit granting
activities, establishing maximum interest rates and finance charges, requiring
disclosures to customers, governing secured transactions and setting collection,
repossession, claims handling procedures and other trade practices. In addition,
certain states have enacted legislation requiring the licensing of mortgage
bankers or other lenders and these requirements may affect the Company's ability
to effectuate its Mortgage Loan and Secured Equipment Lease program.
Commencement of operations into these or other jurisdictions may be dependent
upon a finding of financial responsibility, character and fitness of the
Company. The Company may determine not to make Mortgage Loans or enter into
Secured Equipment Leases in any jurisdiction in which it believes the Company
has not complied in all material respects with applicable requirements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE COMPANY
The Company has been formed recently and has no operating history.
Since leases generally will be entered into on a "triple-net" basis, the Company
does not expect, although it has the right, to maintain a reserve for operating
expenses. The Company's Properties, Mortgage Loans and Secured Equipment Leases
will not be readily marketable and their values may be affected by general
market conditions. Nevertheless, management believes that capital and revenues
of the Company will be sufficient to fund the Company's anticipated investments,
proposed operations, and cash Distributions to the stockholders.
Until the Company sells a minimum of 250,000 Shares ($2,500,000), all
proceeds of the offering of its Shares will be held in escrow. After the sale of
the minimum number of Shares of the Company, the proceeds will
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be deposited in the Company's general accounts, and, thereafter, the Company
intends to commence its acquisition of suitable Properties and its investment in
Mortgage Loans.
Pending investment in suitable Properties and Mortgage Loans, Company
funds will be invested in short-term, highly liquid U.S. Government securities
or in other short-term, highly liquid investments with appropriate safety of
principal. In addition, it is anticipated that the proceeds of the Line of
Credit and Permanent Financing will be obtained from lenders from time to time
as funds are needed to purchase Assets. Management anticipates that after the
Company has invested in Assets, Company revenues sufficient to pay operating
expenses, provide cash Distributions to the stockholders and service debt will
be derived from the lease and mortgage payments paid to the Company by the
tenants and borrowers.
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 fixed increases in
base rent or increases in the base rent based on increases in consumer price
indices, over the term of the lease, and obtaining fixed income through the
receipt of payments from 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 to ten years after commencement of the offering, either
in whole or in part, through (a) Listing, or (b) the commencement of the orderly
Sale of the Company's assets, and distribution of the proceeds thereof (outside
the ordinary course of business and consistent with its objective of qualifying
as a REIT).
LIQUIDITY AND CAPITAL RESOURCES
The Company will use Net Offering Proceeds (Gross Proceeds less fees
and expenses of the offering) from this offering to purchase Properties and to
invest in Mortgage Loans. See "Investment Objectives and Policies." In addition,
the Company intends to borrow money to acquire Assets and to pay certain related
fees. The Company intends to encumber Assets in connection with such borrowing.
The Company plans to obtain a revolving Line of Credit initially in an amount up
to $45,000,000, and may, in addition, also obtain Permanent Financing. The Line
of Credit may be increased at the discretion of the Board of Directors and may
be repaid with offering proceeds, working capital or Permanent Financing.
Although the Board of Directors anticipates that the Line of Credit initially
will be in the amount of $45,000,000 and the aggregate amount of any Permanent
Financing shall not exceed 30% of the Company's total assets, the maximum amount
the Company may borrow, absent a satisfactory showing that a higher level of
borrowing is appropriate as approved by a majority of the Independent Directors,
is 300% of the Company's Net Assets. The Company has engaged in preliminary
discussions with potential lenders but has not yet received a commitment for the
Line of Credit or any Permanent Financing and there is no assurance that the
Company will obtain the Line of Credit or any Permanent Financing on
satisfactory terms.
As of the date of this Prospectus, the Company had not entered into any
arrangements creating a reasonable probability that a Property would be acquired
by the Company or that a particular Mortgage Loan or Secured Equipment Lease
would be funded. The number of Properties to be acquired and the number of
Mortgage Loans to be invested in by the Company will depend upon the amount of
Net Offering Proceeds available and the amount of funds borrowed to acquire
Properties and make Mortgage Loans. The number of Secured Equipment Leases to be
offered is currently undetermined, but the Company will fund the Secured
Equipment Leases with the proceeds from the Line of Credit or Permanent
Financing, and the Company has undertaken, consistent with its objective of
qualifying as a REIT for federal income tax purposes, to ensure that the value
of the Secured Equipment Leases, in the aggregate, will not exceed 25% of the
Company's total assets and that the value of the Secured Equipment Leases to a
single lessee, in the aggregate, will not exceed 5% of the Company's total
assets. Management is not aware of any material trends, favorable or
unfavorable, in either capital resources or the outlook for long-term cash
generation, nor does management expect any material changes in the availability
and relative cost of such capital resources, other than as referred to in this
Prospectus.
Management expects that the cash to be generated from operations will
be adequate to pay operating expenses and to make Distributions to stockholders.
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RESULTS OF OPERATIONS
As of the initial date of this Prospectus, no significant operations
had commenced because the Company was in its development stage. No operations
will commence until such time as the Company has sold at least 250,000 Shares
($2,500,000). Management is not aware of any known trends or uncertainties,
other than national economic conditions, which may reasonably be expected to
have a material impact, favorable or unfavorable, on revenues or income from the
acquisition and operations of real properties, other than those Properties
referred to in this Prospectus.
There currently are no material changes being considered in the
objectives and policies of the Company as set forth in this Prospectus.
MANAGEMENT
GENERAL
The Company will operate under the direction of the Board of Directors,
the members of which are accountable to the Company as fiduciaries. As required
by applicable regulations, a majority of the Independent Directors and a
majority of the Directors have reviewed and ratified the Articles of
Incorporation and have adopted the Bylaws.
The Company currently has five Directors; it may have no fewer than
three Directors and no more than 15. Directors will be elected annually, and
each Director will hold office until the next annual meeting of stockholders or
until his successor has been duly elected and qualified. There is no limit on
the number of times that a Director may be elected to office. Although the
number of Directors may be increased or decreased as discussed above, a decrease
shall not have the effect of shortening the term of any incumbent Director.
Any Director may resign at any time and may be removed with or without
cause by the stockholders upon the affirmative vote of at least a majority of
all the Shares outstanding and entitled to vote at a meeting called for this
purpose. The notice of such meeting shall indicate that the purpose, or one of
the purposes, of such meeting is to determine if a Director shall be removed.
FIDUCIARY RESPONSIBILITY OF THE BOARD OF DIRECTORS
The Board of Directors will be responsible for the management and
control of the affairs of the Company; however, the Board of Directors will
retain the Advisor to manage the Company's day-to-day affairs and the
acquisition and disposition of investments, subject to the supervision of the
Board of Directors.
The Directors are not required to devote all of their time to the
Company and are only required to devote such of their time to the affairs of the
Company as their duties require. The Board of Directors will meet quarterly in
person or by telephone, or more frequently if necessary. It is not expected that
the Directors will be required to devote a substantial portion of their time to
discharge their duties as directors. Consequently, in the exercise of their
fiduciary responsibilities, the Directors will rely heavily on the Advisor. In
this regard, the Advisor, in addition to the Directors, will have a fiduciary
duty to the Company.
The Directors will establish written policies on investments and
borrowings and will monitor the administrative procedures, investment
operations, and performance of the Company and the Advisor to assure that such
policies are in the best interest of the stockholders and are fulfilled. Until
modified by the Directors, the Company will follow the policies on investments
set forth in this Prospectus. See "Investment Objectives and Policies."
The Independent Directors are responsible for reviewing the fees and
expenses of the Company at least annually or with sufficient frequency to
determine that the total fees and expenses of the Company are reasonable in
light of the Company's investment performance, Net Assets, Net Income, and the
fees and expenses of other comparable unaffiliated real estate investment
trusts. For purposes of this determination, Net Assets are the
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Company's total assets (other than intangibles), calculated at cost before
deducting depreciation or other non-cash reserves, less total liabilities, and
computed at least quarterly on a basis consistently applied. Such determination
will be reflected in the minutes of the meetings of the Board of Directors. 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. The Board of Directors also will be responsible
for reviewing and evaluating the performance of the Advisor before entering into
or renewing an advisory agreement. The Independent Directors shall determine
from time to time and at least annually that compensation to be paid to the
Advisor is reasonable in relation to the nature and quality of services to be
performed and shall supervise the performance of the Advisor and the
compensation paid to it by the Company to determine that the provisions of the
Advisory Agreement are being carried out. Specifically, the Independent
Directors will consider factors such as the amount of the fee paid to the
Advisor in relation to the size, composition and performance of the Company's
investments, the success of the Advisor in generating appropriate investment
opportunities, rates charged to other comparable REITs and other investors by
advisors performing 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 business, the
quality and extent of service and advice furnished by the Advisor, the
performance of the investment portfolio of the Company and the quality of the
portfolio of the Company relative to the investments generated by the Advisor
for its own account. Such review and evaluation will be reflected in the minutes
of the meetings of the Board of Directors. The Board of Directors shall
determine that any successor Advisor possesses sufficient qualifications to (i)
perform the advisory function for the Company and (ii) justify the compensation
provided for in its contract with the Company.
The liability of the officers and Directors while serving in such
capacity is limited in accordance with the Articles of Incorporation and
applicable law. See "Summary of the Articles of Incorporation and Bylaws
Limitation of Director and Officer Liability."
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are listed below:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C>
James M. Seneff, Jr. 51 Director, Chairman of the Board, and Chief Executive Officer
Robert A. Bourne 50 Director and President
[Director to be named] Independent Director
[Director to be named] Independent Director
[Director to be named] Independent Director
Curtis B. McWilliams 42 Executive Vice President
Jeanne A. Wall 39 Executive Vice President
Lynn E. Rose 49 Secretary and Treasurer
</TABLE>
James M. Seneff, Jr. Director, Chairman of the Board, and Chief Executive
Officer. Mr. Seneff currently holds the position of Chairman of the Board, Chief
Executive Officer and director of CNL Health Care Advisors, Inc., the Advisor to
the Company. Mr. Seneff also serves as Chairman of the Board, Chief Executive
Officer and a director of CNL American Properties Fund, Inc., CNL American
Realty Fund, Inc., CNL Fund Advisors, Inc. and CNL Real Estate Advisors, Inc.
Mr. Seneff is a principal stockholder of CNL Group, Inc., a diversified real
estate company, and has served as its Chairman of the Board of Directors,
director, and Chief Executive Officer since its formation in 1980. CNL Group,
Inc. is the parent company of CNL Securities Corp., which is acting as the
Managing Dealer in this offering, CNL Investment Company, CNL Health Care
Advisors, Inc., CNL Fund Advisors, Inc. and CNL Real Estate Advisors, Inc. Mr.
Seneff has been Chief Executive Officer, a director and registered principal of
CNL Securities Corp. since its formation in 1979. Mr. Seneff also has held the
position of President and a director of CNL Management Company, a registered
investment advisor, since its formation in 1976, has served as Chief Executive
Officer and Chairman of the Board of CNL Investment Company, and Chief Executive
Officer and Chairman of the Board of Commercial Net Lease Realty, Inc. since
1992, served as Chief Executive Officer and Chairman of the Board of CNL Realty
Advisors, Inc. from its inception in 1991 through 1997 at which time such
company merged with Commercial Net Lease Realty, Inc., and has held the position
of Chief Executive
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Officer and a director of CNL Institutional Advisors, Inc., a registered
investment advisor, since its inception in 1990. Mr. Seneff previously served on
the Florida State Commission on Ethics and is a former member and past Chairman
of the State of Florida Investment Advisory Council, which recommends to the
Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
joint venturer in over 100 real estate ventures involved in the financing,
acquisition, construction, and rental of restaurants, office buildings,
apartment complexes, hotels, and other real estate. Included in these real
estate ventures are approximately 65 privately offered real estate limited
partnerships with investment objectives similar to one or more of the Company's
investment objectives, in which Mr. Seneff, directly or through an affiliated
entity, serves or has served as a general partner. Mr. Seneff received his
degree in Business Administration from Florida State University in 1968.
Robert A. Bourne. Director and President. Mr. Bourne currently holds the
position of President and director of CNL Health Care Advisors, Inc., the
Advisor to the Company. Mr. Bourne also serves as President and a director of
CNL American Properties Fund, Inc., CNL American Realty Fund, Inc. and CNL Real
Estate Advisors, Inc. Mr. Bourne currently holds the position of Vice Chairman
of the Board of Directors, director and Treasurer of CNL Fund Advisors, Inc. Mr.
Bourne served as President of CNL Fund Advisors, Inc. from the date of its
inception through June 30, 1997. Mr. Bourne is President and Treasurer of CNL
Group, Inc., President, a director, and a registered principal of CNL Securities
Corp. (the Managing Dealer of this offering), President and a director of CNL
Investment Company, and Chief Investment Officer, Vice Chairman of the Board of
Directors, a director and Treasurer of CNL Institutional Advisors, Inc., a
registered investment advisor. Mr. Bourne served as President of CNL
Institutional Advisors, Inc. from the date of its inception through June 30,
1997. Mr. Bourne also has served as President and a director from July 1992 to
February 1996, served as Secretary and Treasurer from February 1996 through
December 1997, and has served as Vice Chairman of the Board of Directors since
February 1996, of Commercial Net Lease Realty, Inc. In addition, Mr. Bourne
served as President of CNL Realty Advisors, Inc. from 1991 to February 1996, and
served as a director of CNL Realty Advisors, Inc. from its inception in 1991,
and as Treasurer and Vice Chairman from February 1996 through 1997 at which time
such Company merged with Commercial Net Lease Realty, Inc. Upon graduation from
Florida State University in 1970, where he received a B.A. in Accounting, with
honors, Mr. Bourne worked as a certified public accountant and, from September
1971 through December 1978 was employed by Coopers & Lybrand, Certified Public
Accountants, where he held the position of tax manager beginning in 1975. From
January 1979 until June 1982, Mr. Bourne was a partner in the accounting firm of
Cross & Bourne and from July 1982 through January 1987 he was a partner in the
accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Mr.
Bourne, who joined CNL Securities Corp. in 1979, has participated as a general
partner or joint venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and rental of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Included in these
real estate ventures are approximately 64 privately offered real estate limited
partnerships with investment objectives similar to one or more of the Company's
investment objectives, in which Mr. Bourne, directly or through an affiliated
entity, serves or has served as a general partner.
Curtis B. McWilliams. Executive Vice President. Mr. McWilliams serves as
Executive Vice President of CNL Health Care Advisors, Inc., the Advisor to the
Company. Mr. McWilliams joined CNL Fund Advisors, Inc. in April 1997 and
currently serves as its President. In addition, Mr. McWilliams serves as
Executive Vice President of CNL Group, Inc., as Executive Vice President of CNL
American Properties Fund, Inc., and as President of CNL Financial Services, Inc.
and certain other subsidiaries of CNL Group, Inc. From September 1983 through
March 1997, Mr. McWilliams was employed by Merrill Lynch. From January 1991 to
August 1996, Mr. McWilliams was a managing director in the corporate banking
group of Merrill Lynch's investment banking division. During this time, he was a
senior relationship manager with Merrill Lynch and as such was responsible for a
number of the firm's larger clients. From February 1990 to February 1993, he
also served as co-head of one of the Industrial Banking Groups within Merrill
Lynch's investment banking division and had administrative responsibility for a
group of bankers and client relationships, including the firm's transportation
group. From September 1996 to March 1997, Mr. McWilliams served as Chairman of
Merrill Lynch's Private Advisory Services. Mr. McWilliams received a B.S.E. in
Chemical Engineering from Princeton University in 1977 and a Masters of Business
Administration with a concentration in finance from the University of Chicago in
1983.
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Jeanne A. Wall. Executive Vice President. Ms. Wall serves as Executive Vice
President of CNL Health Care Advisors, Inc., the Advisor to the Company. Ms.
Wall is also Executive Vice President of CNL American Properties Fund, Inc., CNL
American Realty Fund, Inc., CNL Fund Advisors, Inc. and CNL Real Estate
Advisors, Inc. Ms. Wall has served as Chief Operating Officer of CNL Investment
Company and of CNL Securities Corp. since November 1994 and previously served as
Executive Vice President of CNL Investment Company since January 1991. In 1984,
Ms. Wall joined CNL Securities Corp. In 1985, Ms. Wall became Vice President of
CNL Securities Corp. and, in 1987, she became a Senior Vice President of CNL
Securities Corp. In this capacity, Ms. Wall serves as national marketing and
sales director and oversees the national marketing plan for the CNL investment
programs. In addition, Ms. Wall oversees product development, partnership
administration and investor services for programs offered through participating
brokers, and corporate communications for CNL Group, Inc. and Affiliates. Ms.
Wall also has served as Senior Vice President of CNL Institutional Advisors,
Inc., a registered investment advisor, from 1990 to 1993, as Vice President of
CNL Realty Advisors, Inc. from its inception in 1991 through 1997, and as Vice
President of Commercial Net Lease Realty, Inc. from 1992 through 1997. Ms. Wall
holds a B.A. in Business Administration from Linfield College and is a
registered principal of CNL Securities Corp. Ms. Wall currently serves as a
trustee on the Board of the Investment Program Association and on the Direct
Participation Program committee for the National Association of Securities
Dealers.
Lynn E. Rose. Secretary and Treasurer. Ms. Rose serves as Secretary,
Treasurer and a director of CNL Health Care Advisors, Inc., the Advisor to the
Company. Ms. Rose is also Secretary and Treasurer of CNL American Properties
Fund, Inc. and CNL American Realty Fund, Inc. and is Secretary, Treasurer and a
director of CNL Real Estate Advisors, Inc. Ms. Rose serves as Secretary and a
director of CNL Fund Advisors, Inc. Ms. Rose served as Treasurer of CNL Fund
Advisors, Inc. from the date of its inception through June 30, 1997. Ms. Rose, a
certified public accountant, has served as Secretary of CNL Group, Inc. since
1987, as Chief Financial Officer of CNL Group, Inc., since December 1993, and
served as Controller of CNL Group, Inc. from 1987 until December 1993. In
addition, Ms. Rose has served as Chief Financial Officer and Secretary of CNL
Securities Corp. since July 1994. She has served as Chief Operating Officer,
Vice President and Secretary of CNL Corporate Services, Inc. since November
1994. Ms. Rose also has served as Chief Financial Officer and Secretary of CNL
Institutional Advisors, Inc. since its inception in 1990, as Secretary and a
director of CNL Realty Advisors, Inc. from its inception in 1991 through 1997,
and as Treasurer of CNL Realty Advisors, Inc. from 1991 to February 1996. In
addition, Ms. Rose served as Secretary and Treasurer of Commercial Net Lease
Realty, Inc. from 1992 to February 1996. Ms. Rose also currently serves as
Secretary for approximately 50 additional corporations. Ms. Rose oversees the
management information services, administration, legal compliance, accounting,
tenant compliance, and reporting for over 250 corporations, partnerships and
joint ventures. Prior to joining CNL, Ms. Rose was a partner with Robert A.
Bourne in the accounting firm of Bourne & Rose, P.A., Certified Public
Accountants. Ms. Rose holds a B.A. in Sociology from the University of Central
Florida. She was licensed as a certified public accountant in 1979.
[Independent Directors biographies to be added.]
INDEPENDENT DIRECTORS
Under the Articles of Incorporation, a majority of the Board of Directors
must consist of Independent Directors, except for a period of 90 days after the
death, removal or resignation of an Independent Director. The Independent
Directors shall nominate replacements for vacancies in the Independent Director
positions. An Independent Director may not, directly or indirectly (including
through a member of his immediately family), own any interest in, be employed
by, have any present business or professional relationship with, serve as an
officer or director of the Advisor or its Affiliates, or serve as a director of
more than three REITs organized by the Advisor or its Affiliates. Except to
carry out the responsibilities of a Director, an Independent Director may not
perform material services for the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Audit Committee, the members of which are
selected by the full Board of Directors each year. The Audit Committee makes
recommendations to the Board of Directors in accordance with
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<PAGE>
those of the independent accountants of the Company. The Board of Directors
shall review with such accounting firm the scope of the audit and the results of
the audit upon its completion.
At such time, if any, as the Shares are listed on a national securities
exchange or over-the-counter market, the Company will form a Compensation
Committee, the members of which will be selected by the full Board of Directors
each year.
At least a majority of the members of each committee of the Company's Board
of Directors must be Independent Directors.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Each Director is entitled to receive $6,000 annually for serving on the
Board of Directors, as well as fees of $750 per meeting attended ($375 for each
telephonic meeting in which the Director participates), including committee
meetings. No executive officer or Director of the Company has received a bonus
from the Company. The Company will not pay any compensation to the officers and
Directors of the Company who also serve as officers and directors of the
Advisor.
MANAGEMENT COMPENSATION
For a description of the types, recipients, methods of computation, and
estimated amounts of all compensation, fees, and distributions to be paid
directly or indirectly by the Company to the Advisor, Managing Dealer, and their
Affiliates, see "Management Compensation."
THE ADVISOR AND THE ADVISORY AGREEMENT
THE ADVISOR
CNL Health Care Advisors, Inc. is a Florida corporation organized in July
1997 to provide management, advisory and administrative services. The Company
entered into the Advisory Agreement with the Advisor effective ____________,
1998. CNL Health Care Advisors, Inc., as Advisor, has a fiduciary responsibility
to the Company and the stockholders.
<TABLE>
<CAPTION>
The directors and officers of the Advisor are as follows:
<S> <C>
James M. Seneff, Jr. Chairman of the Board, Chief Executive Officer, and Director
Robert A. Bourne President and Director
Curtis B. McWilliams Executive Vice President
Jeanne A. Wall Executive Vice President
Lynn E. Rose Secretary, Treasurer and Director
</TABLE>
The backgrounds of these individuals are described above under "Management
- - Directors and Executive Officers."
The Advisor employs personnel, in addition to the directors and executive
officers listed above, who have extensive experience in selecting and managing
properties, although such personnel have limited experience in selecting and
managing Health Care Facilities.
The Advisor currently owns 20,000 shares of Common Stock. The Advisor may
not sell these shares of Common Stock while the Advisory Agreement is in effect,
although the Advisor may transfer such shares to Affiliates. Neither the
Advisor, a Director, or any Affiliate may vote or consent on matters submitted
to the stockholders regarding 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 of Common Stock
necessary to approve a matter on which the Advisor, Directors, and any Affiliate
may not vote or consent, any shares owned by any of them will not be included.
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<PAGE>
THE ADVISORY AGREEMENT
Under the terms of the Advisory Agreement, the Advisor has responsibility
for the day-to-day operations of the Company, administers the Company's
bookkeeping and accounting functions, serves as the Company's consultant in
connection with policy decisions to be made by the Board of Directors, manages
the Company's Properties and Mortgage Loans, administers the Company's Secured
Equipment Lease program and renders other services as the Board of Directors
deems appropriate. The Advisor is subject to the supervision of the Company's
Board of Directors and has only such functions as are delegated to it.
The Company will reimburse the Advisor for all of the costs it incurs in
connection with the services it provides to the Company, including, but not
limited to: (i) Organizational and Offering Expenses, which are defined to
include expenses attributable to preparing the documents relating to this
offering, the formation and organization of the Company, qualification of the
Shares for sale in the states, escrow arrangements, filing fees and expenses
attributable to selling the Shares, (ii) Selling Commissions, advertising
expenses, expense reimbursements, and legal and accounting fees, (iii) the
actual cost of goods and materials used by the Company and obtained from
entities not affiliated with the Advisor, including brokerage fees paid in
connection with the purchase and sale of securities, (iv) administrative
services (including personnel costs; provided, however, that no reimbursement
shall be made for costs of personnel to the extent that such personnel perform
services in transactions for which the Advisor receives a separate fee, at the
lesser of actual cost or 90% of the competitive rate charged by unaffiliated
persons providing similar goods and services in the same geographic location),
(v) Acquisition Expenses, which are defined to include expenses related to the
selection and acquisition of Properties, for goods and services provided by the
Advisor at the lesser of actual cost or 90% of the competitive rate charged by
unaffiliated persons providing similar goods and services in the same geographic
location), and (vi) expenses related to negotiating and servicing the Mortgage
Loans and Secured Equipment Leases.
The Company shall not reimburse the Advisor at the end of any fiscal
quarter 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.
The Company will not reimburse the Advisor or its Affiliates for services
for which the Advisor or its Affiliates are entitled to compensation in the form
of a separate fee.
Pursuant to the Advisory Agreement, the Advisor is entitled to receive
certain fees and reimbursements, as listed in "Management - Management
Compensation." The Subordinated Incentive Fee payable to the Advisor under
certain circumstances if Listing occurs may be paid, at the option of the
Company, in cash, in Shares, by delivery of a promissory note payable to the
Advisor, or by any combination thereof. In the event the Subordinated Incentive
Fee is paid to the Advisor following Listing, no Performance Fee, as described
below, will be paid to the Advisor under the Advisory Agreement nor will any
additional share of Net Sales Proceeds be paid to the Advisor. The total of all
Acquisition Fees and any Acquisition Expenses payable to the Advisor and its
Affiliates shall be reasonable and shall not exceed an amount equal to 6% of the
Real Estate Asset Value of a Property, or in the case of a Mortgage Loan, 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
transaction, approves fees in excess of this limit subject to a determination
that the transaction is commercially competitive, fair and reasonable to the
Company. The Acquisition Fees payable in connection with the selection or
acquisition of any Property shall be reduced to the extent that, and if
necessary to limit, the total compensation paid to all persons involved in the
acquisition of such Property to the amount customarily charged in arm's-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.
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<PAGE>
If the Advisor or a CNL Affiliate performs services that are outside of the
scope of the Advisory Agreement, compensation is at such rates and in such
amounts as are agreed to by the Advisor and the Independent Directors of the
Company.
Further, if Listing occurs, the Company automatically will become a
perpetual life entity. At such time, 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, Mortgage Loan and Secured Equipment Lease
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.
The Advisory Agreement, which was entered into by the Company with the
unanimous approval of the Board of Directors, including the Independent
Directors, expires one year after the date of execution, on ______, 1999,
subject to successive one-year renewals upon mutual consent of the parties. In
the event that a new Advisor is retained, the previous Advisor will cooperate
with the Company and the Directors in effecting an orderly transition of the
advisory functions. The Board of Directors (including a majority of the
Independent Directors) shall approve a successor Advisor only upon a
determination that the Advisor possesses sufficient qualifications to perform
the advisory functions for the Company and that the compensation to be received
by the new Advisor pursuant to the new Advisory Agreement is justified.
The Advisory Agreement may be terminated without cause or penalty by either
party, or by the mutual consent of the parties (by a majority of the Independent
Directors of the Company or a majority of the directors of the Advisor, as the
case may be), upon 60 days' prior written notice. At that time, the Advisor
shall be entitled to receive the Performance Fee if performance standards
satisfactory to a majority of the Board of Directors, including a majority of
the Independent Directors, when 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 10% of the amount, if any, by
which (i) the appraised value of the assets of the Company on the date of
termination of the Advisory Agreement (the "Termination Date"), less the amount
of all indebtedness secured by the assets of the Company, plus the total
Distributions made 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 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 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. If Listing
occurs, 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.
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<PAGE>
The Advisor has the right to assign the Advisory Agreement to an Affiliate
subject to approval by the Independent Directors of the Company. The Company has
the right to assign the Advisory Agreement to any successor to all of its
assets, rights, and obligations.
The Advisor will not be liable to the Company or its stockholders or
others, except by reason of acts constituting bad faith, fraud, misconduct, or
negligence, and will not be responsible for any action of the Board of Directors
in following or declining to follow any advice or recommendation given by it.
The Company has agreed to indemnify the Advisor with respect to acts or
omissions of the Advisor undertaken in good faith, in accordance with the
foregoing standards and pursuant to the authority set forth in the Advisory
Agreement. Any indemnification made to the Advisor may be made only out of the
net assets of the Company and not from stockholders.
PRIOR PERFORMANCE INFORMATION
The information presented in this section represents the historical
experience of certain real estate programs organized by certain officers and
directors of the Advisor. PRIOR PUBLIC PROGRAMS HAVE INVESTED ONLY IN RESTAURANT
PROPERTIES AND HAVE NOT INVESTED IN HEALTH CARE FACILITIES. INVESTORS IN THE
COMPANY SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE
TO THOSE EXPERIENCED BY INVESTORS IN SUCH PRIOR PUBLIC REAL ESTATE PROGRAMS.
INVESTORS WHO PURCHASE SHARES IN THE COMPANY WILL NOT THEREBY ACQUIRE ANY
OWNERSHIP INTEREST IN ANY PARTNERSHIPS OR CORPORATIONS TO WHICH THE FOLLOWING
INFORMATION RELATES.
Two Directors of the Company, Robert A. Bourne and James M. Seneff, Jr.,
individually or with others have served as general partners of 85 and 86 real
estate limited partnerships, respectively, including the 18 publicly offered CNL
Income Fund partnerships, and as directors and officers of CNL American
Properties Fund, Inc. and CNL American Realty Fund, Inc. listed in the table
below. None of these limited partnerships or unlisted REITs has been audited by
the IRS. Of course, there is no guarantee that the Company will not be audited.
Based on an analysis of the operating results of the prior programs, Messrs.
Bourne and Seneff believe that each of such programs has met or is meeting its
principal investment objectives in a timely manner.
CNL Realty Corporation, which was organized as a Florida corporation in
November 1985 and whose sole stockholders are Messrs. Bourne and Seneff,
currently serves as the corporate general partner with Messrs. Bourne and Seneff
as individual general partners of 18 CNL Income Fund limited partnerships, all
of which were organized to invest in fast-food, family-style and, in the case of
two of the partnerships, casual dining restaurant properties and have investment
objectives similar to those of the Company. Messrs. Bourne and Seneff also
currently serve as directors and officers of CNL American Properties Fund, Inc.
and CNL American Realty Fund, Inc., unlisted public REITs, which also were
organized to invest in fast-food, family-style and casual dining restaurant
properties, mortgage loans and secured equipment leases (and also hotel
properties in the case of CNL American Realty Fund, Inc.) and have investment
objectives similar to those of the Company. As of June 30, 1997, the 18
partnerships and the two unlisted public REITs had raised a total of
$826,052,689 from a total of 59,630 investors, and had invested in 865
fast-food, family-style and casual dining restaurant properties. None of the 18
public partnerships or the two unlisted public REITs has invested in Health Care
Facilities. Certain additional information relating to the offerings and
investment history of the 18 public partnerships and the two unlisted public
REITs is set forth below.
<TABLE>
<CAPTION>
Number of Date 90% of Net
Limited Proceeds Fully
Maximum Partnership Invested or
Name of Offering Units or Committed to
Entity Amount (1) Date Closed Shares Sold Investment (2)
- ------ ---------- ----------- ----------- --------------
<S> <C>
CNL Income $15,000,000 December 31, 1986 30,000 December 1986
Fund, Ltd. (30,000 units)
CNL Income $25,000,000 August 21, 1987 50,000 November 1987
Fund II, Ltd. (50,000 units)
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<PAGE>
CNL Income $25,000,000 April 29, 1988 50,000 June 1988
Fund III, Ltd. (50,000 units)
CNL Income $30,000,000 December 6, 1988 60,000 February 1989
Fund IV, Ltd. (60,000 units)
CNL Income $25,000,000 June 7, 1989 50,000 December 1989
Fund V, Ltd. (50,000 units)
CNL Income $35,000,000 January 19, 1990 70,000 May 1990
Fund VI, Ltd. (70,000 units)
CNL Income $30,000,000 August 1, 1990 30,000,000 January 1991
Fund VII, Ltd. (30,000,000 units)
CNL Income $35,000,000 March 7, 1991 35,000,000 September 1991
Fund VIII, Ltd. (35,000,000 units)
CNL Income $35,000,000 September 6, 1991 3,500,000 November 1991
Fund IX, Ltd. (3,500,000 units)
CNL Income $40,000,000 March 18, 1992 4,000,000 June 1992
Fund X, Ltd. (4,000,000 units)
CNL Income $40,000,000 September 28, 1992 4,000,000 September 1992
Fund XI, Ltd. (4,000,000 units)
CNL Income $45,000,000 March 15, 1993 4,500,000 July 1993
Fund XII, Ltd. (4,500,000 units)
CNL Income $40,000,000 August 26, 1993 4,000,000 August 1993
Fund XIII, Ltd. (4,000,000 units)
CNL Income $45,000,000 February 22, 1994 4,500,000 May 1994
Fund XIV, Ltd. (4,500,000 units)
CNL Income $40,000,000 September 1, 1994 4,000,000 December 1994
Fund XV, Ltd. (4,000,000 units)
CNL Income $45,000,000 June 12, 1995 4,500,000 August 1995
Fund XVI, Ltd. (4,500,000 units)
CNL Income $30,000,000 September 19, 1996 3,000,000 December 1996
Fund XVII, Ltd. (3,000,000 units)
CNL Income $35,000,000 (3) (3) (3)
Fund XVIII, Ltd (3,500,000 units)
CNL American $425,000,000 (4) (4) (4)
Properties Fund, Inc. (42,500,000 shares)
CNL American $165,000,000 (5) (5) (5)
Realty Fund, Inc. (16,500,000 shares)
</TABLE>
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<PAGE>
- ---------------------
(1) The amount stated includes the exercise by the general partners of each
partnership of their option to increase by $5,000,000 the maximum size of
the offering of CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income
Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VIII, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XII, Ltd.,
CNL Income Fund XIV, Ltd., CNL Income Fund XVI, Ltd. and CNL Income Fund
XVIII, Ltd.
(2) For a description of the property acquisitions by these programs, see the
table set forth on the following page.
(3) As of June 30, 1997, CNL Income Fund XVIII, Ltd, which is offering a
maximum of 3,500,000 limited partnership units ($35,000,000), had received
subscriptions totalling $22,192,212 (2,219,221 units). As of such date, CNL
Income Fund XVIII, Ltd.
had purchased 17 properties.
(4) In April 1995, CNL American Properties Fund, Inc., commenced an offering of
a maximum of 15,000,000 shares of common stock ($150,000,000), excluding
1,500,000 shares ($15,000,000) available to investors participating in the
reinvestment plan. On February 6, 1997, the initial offering closed upon
receipt of subscriptions totalling $150,591,765 (15,059,177 shares),
including $591,765 (59,177 shares) through the reinvestment plan. Following
the completion of the initial offering on February 6, 1997, CNL American
Properties Fund, Inc. commenced a subsequent offering (the "Subsequent
Offering") of up to 27,500,000 shares ($275,000,000) of common stock. As of
June 30, 1997, CNL American Properties Fund, Inc. had received
subscriptions totalling $73,251,412 (7,325,141 shares), including $643,293
(64,329 shares) through the reinvestment plan from the Subsequent Offering.
As of such date, CNL American Properties Fund, Inc. had purchased 174
properties.
(5) Effective July 9, 1997, CNL American Realty Fund, Inc. commenced an
offering of up to 16,500,000 shares of ($165,000,000) of common stock. As
of June 30, 1997, the offering had not commenced and no properties had been
acquired.
As of June 30, 1997, Mr. Seneff and Mr. Bourne, directly or through
affiliated entities, also had served as joint general partners of 67 nonpublic
real estate limited partnerships. The offerings of 65 of these 67 nonpublic
limited partnerships had terminated as of June 30, 1997. These 65 partnerships
raised a total of $166,969,266 from approximately 4,180 investors, and
purchased, directly or through participation in a joint venture or limited
partnership, interests in a total of 203 projects as of June 30, 1997. These 203
projects consist of 19 apartment projects (comprising 11% of the total amount
raised by all 65 partnerships), 13 office buildings (comprising 5% of the total
amount raised by all 65 partnerships), 157 fast-food, family-style, or casual
dining restaurant property and business investments (comprising 68% of the total
amount raised by all 65 partnerships), one condominium development (comprising
.5% of the total amount raised by all 65 partnerships), four hotels/motels
(comprising 5% of the total amount raised by all 65 partnerships), seven
commercial/retail properties (comprising 10% of the total amount raised by all
65 partnerships), and two tracts of undeveloped land (comprising .5% of the
total amount raised by all 65 partnerships). The offering of the two remaining
nonpublic limited partnerships (offerings aggregating $16,750,000) had raised
$9,700,000 from 201 investors (approximately 57.9% of the total offering amount)
as of June 30, 1997.
Mr. Bourne also has served, without Mr. Seneff, as a general partner of one
additional nonpublic real estate limited partnership program which raised a
total of $600,000 from 13 investors and purchased, through participation in a
limited partnership, one apartment building located in Georgia with a purchase
price of $1,712,000.
Mr. Seneff also has served, without Mr. Bourne, as a general partner of two
additional nonpublic real estate limited partnerships which raised a total of
$240,000 from 12 investors and purchased two office buildings with an aggregate
purchase price of $928,390. Both of the office buildings are located in Florida.
Of the 85 real estate limited partnerships whose offerings had closed as of
June 30, 1997 (including 17 CNL Income Fund limited partnerships) in which Mr.
Seneff and/or Mr. Bourne serve or have served as general partners in the past,
35 invested in restaurant properties leased on a "triple-net" basis, including
six which also invested in franchised restaurant businesses (accounting for
approximately 93% of the total amount raised by all 85 real estate limited
partnerships).
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<PAGE>
The following table sets forth summary information, as of June 30, 1997,
regarding property acquisitions by the 18 limited partnerships and the two
unlisted REITs that, either individually or through a joint venture or
partnership arrangement, have investment objectives similar to those of the
Company.
<TABLE>
<CAPTION>
NAME OF TYPE OF METHOD OF TYPE OF
ENTITY PROPERTY LOCATION FINANCING PROGRAM
------ --------- ---------- ------------ -----------
<S> <C>
CNL Income 20 fast-food AL, AZ, CA, FL, All cash Public
Fund, Ltd. or family- GA, LA, MD, OK,
style TX, VA
restaurants
CNL Income 44 fast-food AL, AZ, CO, FL, All cash Public
Fund II, or family- GA, IL, IN, LA,
Ltd. style MI, MN, MO, NC,
restaurants NM, OH, TX, WY
CNL Income 33 fast-food AZ, CA, FL, GA, All cash Public
Fund III, or family- IA, IL, IN, KS,
Ltd. style KY, MD, MI, MN,
restaurants MO, NC, NE, OK,
TX
CNL Income 45 fast-food AL, DC, FL, GA, All cash Public
Fund IV, or family- IL, IN, KS, MA,
Ltd. style MD, MI, MS, NC,
restaurants OH, PA, TN, TX,
VA
CNL Income 30 fast-food FL, GA, IL, IN, All cash Public
Fund V, or family- MI, NH, NY, OH,
Ltd. style SC, TN, TX, UT,
restaurants WA
CNL Income 48 fast-food AR, AZ, FL, GA, All cash Public
Fund VI, or family- IN, MA, MI, MN,
Ltd. style NC, NE, NM, NY,
restaurants OH, OK, PA, TN,
TX, VA, WY
CNL Income 47 fast-food AZ, CO, FL, GA, All cash Public
Fund VII, or family- IN, LA, MI, MN,
Ltd. style OH, SC, TN, TX,
restaurants UT, WA
CNL Income 42 fast-food AZ, FL, IN, LA, All cash Public
Fund VIII, or family- MI, MN, NC, NY,
Ltd. style OH, TN, TX, VA
restaurants
<PAGE>
CNL Income 42 fast-food AL, FL, GA, IL, All cash Public
Fund IX, or family- IN, LA, MI, MN,
Ltd. style MS, NC, NH, NY,
restaurants OH, SC, TN, TX
CNL Income 49 fast-food AL, CA, CO, FL, All cash Public
Fund X, or family- ID, IL, LA, MI,
Ltd. style MO, MT, NC, NH,
restaurants NM, NY, OH, PA,
SC, TN, TX
CNL Income 40 fast-food AL, AZ, CA, CO, All cash Public
Fund XI, or family- CT, FL, KS, LA,
Ltd. style MA, MI, MS, NC,
restaurants NH, NM, OH, OK,
PA, SC, TX, VA,
WA
CNL Income 49 fast-food AL, AZ, CA, FL, All cash Public
Fund XII, or family- GA, LA, MO, MS,
Ltd. style NC, NM, OH, SC,
restaurants TN, TX, WA
CNL Income 49 fast-food AL, AR, AZ, CA, All cash Public
Fund XIII, or family- CO, FL, GA, IN,
Ltd. style KS, LA, MD, NC,
restaurants OH, PA, SC, TN,
TX, VA
CNL Income 62 fast-food AL, AZ, CO, FL, All cash Public
Fund XIV, or family- GA, KS, LA, MN,
Ltd. style MO, MS, NC, NJ,
restaurants NV, OH, SC, TN,
TX, VA
CNL Income 54 fast-food AL, CA, FL, GA, All cash Public
Fund XV, or family- KS, KY, MN, MO,
Ltd. style MS, NC, NJ, NM,
restaurants OH, OK, PA, SC,
TN, TX, VA
CNL Income 44 fast-food AZ, CA, CO, DC, All cash Public
Fund XVI, or family- FL, GA, ID, IN,
Ltd. style KS, MN, MO, NC,
restaurants NM, NV, OH, TN,
TX, UT, WI
CNL Income 27 fast-food, CA, FL, GA, IL, All cash Public
Fund XVII, family-style IN, MI, NC, NV,
Ltd. or casual OH, SC, TN, TX
dining
restaurants
CNL Income 17 fast-food, CA, GA, KY, MD, All cash Public
Fund family-style MN, NC, NV, OH,
XVIII, or casual TN, TX
Ltd. dining
restaurants
<PAGE>
NAME OF TYPE OF METHOD OF TYPE OF
ENTITY PROPERTY LOCATION FINANCING PROGRAM
------ --------- ---------- ------------ -----------
CNL 174 fast-food, AL, AZ, CA, CO, All cash Public
American family-style, DE, FL, GA, IA, REIT
Properties or casual ID, IL, IN, KY,
Fund, Inc. dining MD, MI, MN, MO,
restaurants NC, NE, NM, NV,
OH, OK, OR, PA,
TN, TX, UT, VA,
WA, WV
CNL (1) (1) (1) Public
American REIT
Realty
Fund, Inc.
</TABLE>
- ------------------
(1) As of June 30, 1997, CNL American Realty Fund, Inc. had not acquired
any properties.
A more detailed description of the acquisitions by real estate limited
partnerships and the two unlisted REITs sponsored by Messrs. Bourne and Seneff
is set forth in prior performance Table VI, included in Part II of the
registration statement filed with the Securities and Exchange Commission for
this offering. A copy of Table VI is available to stockholders from the Company
upon request, free of charge. In addition, upon request to the Company, the
Company will provide, without charge, a copy of the most recent Annual Report on
Form 10-K filed with the Securities and Exchange Commission for CNL Income Fund,
Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV,
Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII,
Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X,
Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII,
Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI,
Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd., CNL American
Properties Fund, Inc. and CNL American Realty Fund, Inc. as well as a copy, for
a reasonable fee, of the exhibits filed with such reports.
In order to provide potential purchasers of Shares in the Company with
information to enable them to evaluate the prior experience of the Messrs.
Seneff and Bourne as general partners of real estate limited partnerships and as
directors and officers of the two unlisted REITs, including those set forth in
the foregoing table, certain financial and other information concerning those
limited partnerships and the two unlisted REITs with investment objectives
similar to one or more of the Company's investment objectives is provided in the
Prior Performance Tables included as Exhibit C. Information about the previous
public partnerships, the offerings of which became fully subscribed between July
1992 and June 1997, is included therein. Potential stockholders are encouraged
to examine the Prior Performance Tables attached as Exhibit C (in Table III),
which include information as to the operating results of these prior
partnerships, for more detailed information concerning the experience of Messrs.
Seneff and Bourne.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
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 fixed increases in
base rent or increases in base rent based on increases in consumer price indices
over the term of the lease, 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, either
in whole or in part, within five to ten years after commencement of the
offering, through (a) Listing, or, (b) if Listing does not occur within ten
years after commencement of the offering (December 31, 2008), the commencement
of orderly Sales of the
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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. If the Company is successful in achieving its investment and operating
objectives, the stockholders (other than tax-exempt entities) are likely to
recognize taxable income in each year. While there is no order of priority
intended in the listing of the Company's objectives, stockholders should realize
that the ability of the Company to meet these objectives may be severely
handicapped by any lack of diversification of the Company's investments and the
terms of the leases.
The Company intends to meet its objectives through its investment policies
of (i) purchasing carefully selected, well-located Properties and leasing them
on a "triple-net" basis (which means that the tenant will be responsible for
paying the cost of all repairs, maintenance, property taxes, and insurance) to
operators of Health Care Facilities under leases generally requiring the tenant
to pay base annual rental with automatic fixed increases in base rent or
increases in base rent based on increases in consumer price indices over the
term of the lease, and (ii) offering Mortgage Loans and Secured Equipment Leases
to operators of Health Care Facilities.
In accordance with its investment policies, the Company intends to invest
in Properties whose tenants are operators of Health Care Facilities to be
selected by the Company, based upon recommendations by the Advisor. Although
there is no limit on the number of properties of a particular Health Care
Facility which the Company may acquire, the Company currently does not expect to
acquire a Property if the Board of Directors, including a majority of the
Independent Directors, determines that the acquisition would adversely affect
the Company in terms of geographic, property type or chain diversification.
Potential Mortgage Loan borrowers and Secured Equipment Lease lessees or
borrowers will similarly be operators of Health Care Facilities selected by the
Company, following the Advisor's recommendations. The Company has undertaken,
consistent with its objective of qualifying as a REIT for federal income tax
purposes, to ensure that the value of all Secured Equipment Leases, in the
aggregate, will not exceed 25% of the Company's total assets, while Secured
Equipment Leases to any single lessee or borrower, in the aggregate, will not
exceed 5% of the Company's total assets. It is intended that investments will be
made in Properties, Mortgage Loans and Secured Equipment Leases in various
locations in an attempt to achieve diversification and thereby minimize the
effect of changes in local economic conditions and certain other risks. The
extent of such diversification, however, depends in part upon the amount raised
in the offering and the purchase price of each Property. See "Estimated Use of
Proceeds" and "Risk Factors - Investment Risks - Possible Lack of
Diversification." For a more complete description of the manner in which the
structure of the Company's business, including its investment policies, will
facilitate the Company's ability to meet its investment objectives, See
"Business."
The investment objectives of the Company may not be changed without the
approval of stockholders owning a majority of the shares of outstanding Common
Stock. The Bylaws of the Company require the Independent Directors to review the
Company's investment policies at least annually to determine that the policies
are in the best interests of the stockholders. The determination shall be set
forth in the minutes of the Board of Directors along with the basis for such
determination. The Directors (including a majority of the Independent Directors)
have the right, without a stockholder vote, to alter the Company's investment
policies but only to the extent consistent with the Company's investment
objectives and investment limitations. See "Certain Investment Limitations,"
below.
CERTAIN 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 Articles of Incorporation or the Bylaws provide for the following
limitations on the Company's investments.
1. 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 paragraph, "unimproved real property" does not include any
Property under construction, under contract for development or planned for
development within one year.
2. 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.
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3. 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 the majority of Independent Directors so determine, and in all cases in
which the mortgage loan involves the Advisor, Directors, or Affiliates, such
appraisal must be obtained from an independent expert concerning the underlying
property. Such appraisal shall be maintained in the Company's records for at
least five 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. The Company may not invest in real estate
contracts of sale otherwise known as land sale contracts.
4. The Company may not make or invest in mortgage loans, including
construction loans, on any one 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 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 5% per annum of
the principal balance of the loan.
5. The Company may 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 the amount of such Junior Debt, plus the
outstanding amount of the Senior Debt, does not exceed 90% of the appraised
value of such property, if after giving effect thereto, the value of all such
investments 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 is limited to 10% of the Company's
tangible assets (which is included within the 25% limitation).
6. The Company may 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, 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.
7. 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
Net Assets.
8. The Company may 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 Affiliates of the Company.
9. The Company will 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
Affiliates thereof are subject to the restrictions on joint venture investments.
In addition, the Company shall not invest in any security of any entity holding
investments or engage in activities prohibited by the Company's Articles of
Incorporation.
10. The Company will not issue (i) equity securities redeemable solely at
the option of the holder (except that stockholders may offer their Shares to the
Company as described under "Redemption of Shares,"); (ii) debt securities unless
the historical debt service coverage (in the most recently completed fiscal
year), as adjusted for known charges, is sufficient to service that higher level
of debt properly; (iii) Shares on a deferred payment basis or under similar
arrangements; (iv) non-voting or assessable securities; or (v) 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, Directors or any Affiliate thereof except on
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the same terms as such Options are sold to the general public, provided that the
Company may issue Options to persons other than the Advisor, Directors or any
Affiliate thereof at exercise prices not less than the fair market value of the
underlying securities on the date of grant and for consideration that, in the
judgment of the Independent Directors, has a market value not 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.
11. 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 Affiliates thereof, such fair market value
shall be determined by a qualified independent real estate appraiser selected by
the Independent Directors.
12. The Company will not engage in underwriting or the agency distribution
of securities issued by others or in trading, as compared to investment
activities.
13. The Company will 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.
14. The Company will not invest in any foreign currency or bullion or
engage in short sales.
15. The Company will not issue senior securities except notes to banks and
other lenders and preferred shares.
16. The Company will not make loans to the Advisor or its Affiliates.
17. The Company will not operate so as to be classified as an "investment
company" under the Investment Company Act of 1940, as amended.
18. The Company will not make any investment that the Company believes will
be inconsistent with its objective of qualifying as a REIT.
The foregoing limitations may not be modified or eliminated without the
approval of a majority of the shares of outstanding Common Stock.
Except as set forth above or elsewhere in this Prospectus, the Company does
not intend to issue senior securities; borrow money; make loans to other
persons; invest in the securities of other issuers for the purpose of exercising
control; underwrite securities of other issuers; engage in the purchase and sale
(or turnover) of investments; offer securities in exchange for property,
repurchase or otherwise reacquire its shares or other securities; or make annual
or other reports to security holders. The Company evaluates investments in
Mortgage Loans on an individual basis and does not have a standard turnover
policy with respect to such investments.
DISTRIBUTION POLICY
GENERAL
In order to qualify as a REIT for federal income tax purposes, among other
things, the Company must make distributions each taxable year (not including any
return of capital for federal income tax purposes) equal to at least 95% of its
real estate investment trust taxable income, although the Board of Directors, in
its discretion, may increase that percentage as it deems appropriate. See
"Federal Income Tax Considerations - Taxation of the Company Distribution
Requirements." The declaration of Distributions is within the discretion of the
Board of Directors and depends upon the Company's distributable funds, current
and projected cash requirements, tax considerations and other factors.
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DISTRIBUTIONS
The Company intends to make regular Distributions to stockholders. To the
extent consistent with the Company's objective of qualifying as a REIT, it is
anticipated that the first Distributions will be paid not later than the close
of the first full calendar quarter after the first release of funds from escrow
to the Company. Distributions will be made to those stockholders who are
stockholders as of the record date selected by the Directors. Distributions will
be declared monthly during the offering period, declared monthly during any
subsequent offering, paid on a quarterly basis during an offering period, and
declared and paid quarterly thereafter. The Company is required to distribute
annually at least 95% of its real estate investment trust taxable income to
maintain its objective of qualifying as a REIT. Generally, income distributed
will not be taxable to the Company under federal income tax laws if the Company
complies with the provisions relating to qualification as a REIT. If the cash
available to the Company is insufficient to pay such Distributions, the Company
may obtain the necessary funds by borrowing, issuing new securities, or selling
Assets. These methods of obtaining funds could affect future Distributions by
increasing operating costs. To the extent that Distributions to stockholders
exceed earnings and profits, such amounts constitute a return capital for
federal income tax purposes, although such Distributions will not reduce
stockholders' aggregate Invested Capital. 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 the 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 receiving in-kind property distributions; and (iii) distribute in-kind
property only to those stockholders who accept the Directors' offer.
Distributions will be made at the discretion of the Directors, depending
primarily on net cash from operations (which includes cash received from tenants
except to the extent that such cash represents a return of principal in regard
to the lease of a Property consisting of building only, distributions from joint
ventures, and interest income from lessees of Equipment and borrowers under
Mortgage Loans, less expenses paid) and the general financial condition of the
Company, subject to the obligation of the Directors to cause the Company to
qualify and remain qualified as a REIT for federal income tax purposes. The
Company intends to increase Distributions in accordance with increases in net
cash from operations.
SUMMARY OF THE
ARTICLES OF INCORPORATION AND BYLAWS
GENERAL
The Company is organized as a corporation under the laws of the State of
Maryland. As a Maryland corporation, the Company is governed by the Maryland
General Corporation Law. Maryland corporate law deals with a variety of matters
regarding Maryland corporations, including liabilities of the Company,
stockholders, directors, and officers, the amendment of the Articles of
Incorporation, and mergers of a Maryland corporation with other entities. Since
many matters are not addressed by Maryland corporate law, it is customary for a
Maryland corporation to address these matters through provisions in its Articles
of Incorporation.
The Articles of Incorporation and the Bylaws of the Company contain certain
provisions that could make it more difficult to acquire control of the Company
by means of a tender offer, a proxy contest, or otherwise. These provisions are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
the Company to negotiate first with its Board of Directors. The Company believes
that these provisions increase the likelihood that proposals initially will be
on more attractive terms than would be the case in their absence and facilitate
negotiations which may result in improvement of the terms of an initial offer.
The Articles of Incorporation also permit Listing by the Board of Directors
after completion or termination of this offering.
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The discussion below sets forth material provisions of governing laws,
instruments and guidelines applicable to the Company. For more complete
provisions, reference is made to the Maryland General Corporation Law, the
guidelines for REITs published by the North American Securities Administrators
Association and the Company's Articles of Incorporation and Bylaws.
DESCRIPTION OF CAPITAL STOCK
General. The Company has authorized a total of 206,000,000 shares of
capital stock, consisting of 100,000,000 shares of Common Stock, $.01 par value
per share, 3,000,000 shares of Preferred Stock ("Preferred Stock"), and
103,000,000 additional shares of excess stock ("Excess Shares"), $.01 par value
per share. Of the 103,000,000 Excess Shares, 100,000,000 are issuable in
exchange for Common Stock and 3,000,000 are issuable in exchange for Preferred
Stock as described below at "- Restriction of Ownership." The Company currently
has 20,000 shares of Common Stock outstanding and no Preferred Stock or Excess
Shares outstanding. The Board of Directors may determine to engage in future
offerings of Common Stock of up to the number of unissued authorized shares of
Common Stock available.
The Company will not issue share certificates except to stockholders who
make a written request to the Company. Each stockholder's investment will be
recorded on the books of the Company, and information concerning the
restrictions and rights attributable to Shares (whether in connection with an
initial issuance or a transfer) will be sent to the stockholder receiving Shares
in connection with an issuance or transfer. A stockholder wishing to transfer
his or her Shares will be required to send only an executed form to the Company,
and the Company will provide the required form upon a stockholder's request. The
executed form and any other required documentation must be received by the
Company at least one calendar month prior to the last day of the current
quarter. Subject to restrictions in the Articles of Incorporation, transfers of
Shares shall be effective, and the transferee of the Shares will be recognized
as the holder of such Shares as of the first day of the following quarter on
which the Company receives properly executed documentation. Stockholders who are
residents of New York may not transfer fewer than 250 shares at any time.
Stockholders have no preemptive rights to purchase or subscribe for
securities that the Company may issue subsequently. Each Share is entitled to
one vote per Share, and Shares do not have cumulative voting rights. The
Stockholders are entitled to Distributions in such amounts as may be declared by
the Board of Directors from time to time out of funds legally available for such
payments and, in the event of liquidation, to share ratably in any assets of the
Company remaining after payment in full of all creditors.
All of the Shares offered hereby will be fully paid and nonassessable when
issued.
The Articles of Incorporation authorize the Board of Directors to designate
and issue from time to time one or more classes or series of Preferred Shares
without stockholder approval. The Board of Directors may determine the relative
rights, preferences, and privileges of each class or series of Preferred Stock
so issued. Because the Board of Directors has the power to establish the
preferences and rights of each class or series of Preferred Stock, it may afford
the holders of any series or class of Preferred Stock preferences, powers, and
rights senior to the rights of holders of Common Stock; however, the voting
rights for each share of Preferred Stock shall not exceed voting rights which
bear the same relationship to the voting rights of the Shares as the
consideration paid to the Company for each share of Preferred Stock bears to the
book value of the Shares on the date that such Preferred Stock is issued. The
issuance of Preferred Stock could have the effect of delaying or preventing a
change in control of the Company.
The Board of Directors has no present plans to issue any Preferred Stock.
Similarly, the voting rights per share of equity securities of the Company
(other than the publicly held equity securities 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 securities as the
consideration paid to the Company for each privately offered Company share bears
to the book value of each outstanding publicly held equity security. The Board
of Directors currently has no plans to offer equity securities of the Company in
a private offering.
For a description of the characteristics of the Excess Shares, which differ
from Common Stock and Preferred Stock in a number of respects, including voting
and economic rights, see "Restriction of Ownership," below.
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Soliciting Dealer Warrants. The Company has agreed to issue and sell
Soliciting Dealer Warrants to the Managing Dealer, whereby one warrant to
purchase one share of Common Stock will be issued for every 25 Shares sold by
the Managing Dealer. The Managing Dealer has agreed to pay the Company $0.0008
for each Soliciting Dealer Warrant. These warrants will be issued on a quarterly
basis commencing 60 days after the date on which the Shares are first sold
pursuant to this offering. All or a portion of the Soliciting Dealer Warrants
may be reallowed to Soliciting Dealers with prior written approval from, and in
the sole discretion of, the Managing Dealer, except where prohibited by either
federal or state securities laws.
The holder of a Soliciting Dealer Warrant will be entitled to purchase one
share of Common Stock from the Company at a price of $12.00 (120% of the current
public offering price per Share) during the Exercise Period; provided however
that Soliciting Dealer Warrants will not be exercisable until one year from the
date of issuance. Holders of Soliciting Dealer Warrants may not exercise the
Soliciting Dealer Warrants to the extent such exercise would jeopardize the
Company's status as a REIT under the Code.
The terms of the Soliciting Dealer Warrants, including the exercise price
and the number and type of securities issuable upon exercise of a Soliciting
Dealer Warrant and the number of such warrants may be adjusted in the event of
stock dividends, certain subdivisions, combinations and reclassification of
shares of Common Stock or the issuance to stockholders of rights, options or
warrants entitling them to purchase shares of Common Stock or securities
convertible into shares of Common Stock. The terms of the Soliciting Dealer
Warrants also may be adjusted if the Company engages in certain merger or
consolidation transactions or if all or substantially all of the Company's
assets are sold. Soliciting Dealer Warrants are not transferable or assignable
except by the Managing Dealer, the Soliciting Dealers, their successors in
interest, or to individuals who are both officers and directors of such a
person. Exercise of these Soliciting Dealer Warrants will be under the terms and
conditions detailed this Prospectus and in the Warrant Purchase Agreement, which
is an exhibit to the Registration Statement.
As holders of Soliciting Dealer Warrants, persons do not have the rights of
stockholders, may not vote on Company matters and are not entitled to receive
Distributions until such time as such warrants are exercised.
BOARD OF DIRECTORS
The Articles of Incorporation provide that the number of Directors of the
Company cannot be less than three nor more than 15. A majority of the Board of
Directors will be Independent Directors. See "Management Independent Directors."
Each Director, other than a Director elected to fill the unexpired term of
another Director, will be elected at each annual meeting or at any special
meeting of the stockholders called for that purpose, by a majority of the shares
of Common Stock present in person or by proxy and entitled to vote. Independent
Directors will nominate replacements for vacancies among the Independent
Directors. Under the Articles of Incorporation, the term of office for each
Director will be one year, expiring each annual meeting of stockholders;
however, nothing in the Articles of Incorporation prohibits a director from
being reelected by the stockholders. The Directors may not (a) amend the
Articles of Incorporation, except for amendments which do not adversely affect
the rights, preferences and privileges of stockholders; (b) sell all or
substantially all of the Company's assets other than in the ordinary course of
business or in connection with liquidation and dissolution; (c) cause the merger
or other reorganization of the Company; or (d) dissolve or liquidate the
Company, other than before the initial investment in property. The Directors may
establish such committees as they deem appropriate (provided that the majority
of the members of each committee are Independent Directors).
STOCKHOLDER MEETINGS
An annual meeting will be held for the purpose of electing Directors and
for the transaction of such other business as may come before the meeting, and
will be held not less than 30 days after delivery of the annual report. Under
the Company's Bylaws, a special meeting of stockholders may be called by the
chief executive officer, a majority of the Directors, or a majority of the
Independent Directors. Special meetings of the stockholders also shall be called
by an officer of the Company upon the written request of stockholders holding in
the aggregate not less than 10% of the outstanding Common Stock entitled to vote
at such meeting. Upon receipt of such a written request, either in person or by
mail, stating the purpose or purposes of the meeting, the Company shall provide
all stockholders, within ten days of receipt of the written request, written
notice, either in person or by mail, of a
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meeting and its purpose. Such meeting will be held not less than fifteen nor
more than sixty days after distribution of the notice, at a time and place
specified in the request, or if none is specified, at a time and place
convenient to stockholders.
At any meeting of stockholders, each stockholder is entitled to one vote
per share of Common Stock owned of record on the applicable record date. In
general, the presence in person or by proxy of 50% of the shares of Common Stock
then outstanding shall constitute a quorum, and the majority vote of the shares
of Common Stock present in person or by proxy will be binding on all the
stockholders of the Company.
ADVANCE NOTICE FOR STOCKHOLDER NOMINATIONS FOR
DIRECTORS AND PROPOSALS OF NEW BUSINESS
The Bylaws of the Company require notice at least 60 days and not more than
90 days before the anniversary of the prior annual meeting of stockholders in
order for a stockholder to (a) nominate a Director, or (b) propose new business
other than pursuant to the notice of the meeting or by or on behalf of the
Directors. The Bylaws contain a similar notice requirement in connection with
nominations for Directors at a special meeting of stockholders called for the
purpose of electing one or more Directors. Accordingly, failure to comply with
the notice provisions will make stockholders unable to nominate Directors or
propose new business.
AMENDMENTS TO THE ARTICLES OF INCORPORATION
Pursuant to the Company's Articles of Incorporation, the Directors can
amend the Articles of Incorporation by a two-thirds majority from time to time
if necessary in order to qualify initially or in order to continue to qualify as
a REIT. Except as set forth above, the Articles of Incorporation may be amended
only by the affirmative vote of a majority, and, in some cases a two-thirds
majority, of the shares of Common Stock outstanding and entitled to vote. The
stockholders may vote to amend the Articles of Incorporation, terminate or
dissolve the Company or remove one or more Directors without necessity for
concurrence by the Board of Directors.
MERGERS, COMBINATIONS, AND SALE OF ASSETS
A merger, combination, sale, or other disposition of all or substantially
all of the Company's assets other than in the ordinary course of business must
be approved by the Directors and a majority of the shares of Common Stock
outstanding and entitled to vote. In addition, 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.
TERMINATION OF THE COMPANY AND REIT STATUS
The Articles of Incorporation provide for the voluntary termination and
dissolution of the Company by the affirmative vote of a majority of the shares
of Common Stock outstanding and entitled to vote at a meeting called for that
purpose. In addition, the Articles of Incorporation permit the stockholders to
terminate the status of the Company as a REIT under the Code only by the
affirmative vote of the holders of a majority of the shares of Common Stock
outstanding and entitled to vote.
Under the Articles of Incorporation, the Company automatically will
terminate and dissolve on December 31, 2008, unless Listing occurs, in which
event the Company automatically will become a perpetual life entity.
RESTRICTION OF OWNERSHIP
To qualify as a REIT under the Code (i) not more than 50% of the value of
the REIT's outstanding stock may be owned, directly or indirectly (applying
certain attribution rules), by five or fewer individuals (as defined in the Code
to include certain entities) during the last half of a taxable year, (ii) the
REIT's stock must be beneficially
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owned (without reference to any attribution rules) by 100 or more persons during
at least 335 days of a taxable year of 12 months or during a proportionate part
of a shorter taxable year; and (iii) certain other requirements must be
satisfied. See "Federal Income Tax Considerations - Taxation of the Company."
To ensure that the Company satisfies these requirements, the Articles of
Incorporation restrict the direct or indirect ownership (applying certain
attribution rules) of shares of Common Stock and Preferred Stock by any Person
(as defined in the Articles of Incorporation) to no more than 9.8% of the
outstanding shares of such Common Stock or 9.8% of any series of Preferred
Shares (the "Ownership Limit"). However, the Articles of Incorporation provide
that this Ownership Limit may be modified, either entirely or with respect to
one or more Persons, by a vote of a majority of the Directors, if such
modification does not jeopardize the Company's status as a REIT. As a condition
of such modification, the Board of Directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the status of the Company as a REIT.
It is the responsibility of each Person (as defined in the Articles of
Incorporation) owning (or deemed to own) more than 5% of the outstanding shares
of Common Stock or any series of outstanding Preferred Stock to give the Company
written notice of such ownership. In addition, to the extent deemed necessary by
the Directors, the Company can demand that each stockholder disclose to the
Company in writing all information regarding the Beneficial and Constructive
Ownership (as such terms are defined in the Articles of Incorporation) of the
Common Stock and Preferred Stock.
If the ownership, transfer or acquisition of shares of Common or Preferred
Stock, or change in capital structure of the Company or other event or
transaction would result in (i) any Person owning (applying certain attribution
rules) Common Stock or Preferred Stock in excess of the Ownership Limit, (ii)
fewer than 100 Persons owning the Common Stock and Preferred Stock, (iii) the
Company being "closely held" within the meaning of section 856(h) of the Code,
or (iv) the Company failing any of the gross income requirements of section
856(c) of the Code or otherwise failing to qualify as a REIT, then the
ownership, transfer, or acquisition, or change in capital structure or other
event or transaction that would have such effect will be void as to the
purported transferee or owner, and the purported transferee or owner will not
have or acquire any rights to the Common Stock and/or Preferred Stock, as the
case may be, to the extent required to avoid such a result. Common Stock or
Preferred Stock owned, transferred or proposed to be transferred in excess of
the Ownership Limit or which would otherwise jeopardize the Company's status as
a REIT will automatically be converted to Excess Shares. A holder of Excess
Shares is not entitled to Distributions, voting rights, and other benefits with
respect to such shares except for the right to payment of the purchase price for
the shares (or, in the case of a devise or gift or similar event which results
in the issuance of Excess Shares, the fair market value at the time of such
devise or gift or event) and the right to certain distributions upon
liquidation. Any Distribution paid to a proposed transferee or holder of Excess
Shares shall be repaid to the Company upon demand. Excess Shares shall be
subject to repurchase by the Company at its election. The purchase price of any
Excess Shares shall be equal to the lesser of (a) the price paid in such
purported transaction (or, in the case of a devise or gift or similar event
resulting in the issuance of Excess Shares, the fair market value at the time of
such devise or gift or event), or (b) the fair market value of such Shares on
the date on which the Company or its designee determines to exercise its
repurchase right. If the foregoing transfer restrictions are determined to be
void or invalid by virtue of any legal decision, statute, rule or regulation,
then the purported transferee of any Excess Shares may be deemed, at the option
of the Company, to have acted as an agent on behalf of the Company in acquiring
such Excess Shares and to hold such Excess Shares on behalf of the Company.
For purposes of the Articles of Incorporation, the term "Person" shall mean
an individual, corporation, partnership, estate, trust (including a trust
qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust
permanently set aside to be used exclusively for the purposes described in
Section 642(c) of the Code, association, private foundation within the meaning
of Section 509(a) of the Code, joint stock company or other entity, or a group
as that term is used for purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended; but does not include (i) CNL Health Care Advisors,
Inc., during the period ending on December 31, 1998, or (ii) an underwriter
which participated in a public offering of Shares for a period of sixty (60)
days following the purchase by such underwriter of Shares therein, provided that
the foregoing exclusions shall apply only if the ownership of such Shares by CNL
Health Care Advisors, Inc. or an underwriter would not cause the Company to fail
to qualify as a REIT by reason of being "closely held" within the meaning of
Section 856(a) of the code or otherwise cause the Company to fail to qualify as
a REIT.
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RESPONSIBILITY OF DIRECTORS
Directors serve in a fiduciary capacity and shall have a fiduciary duty to
the stockholders of the Company, which duty shall include a duty to supervise
the relationship of the Company with the Advisor. See "Management -- Fiduciary
Responsibilities of the Board of Directors."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to Maryland corporate law and the Company's Articles of
Incorporation, the Company is required to indemnify and hold harmless a present
or former Director, officer, Advisor, or Affiliate and may indemnify and hold
harmless a present or former employee or agent of the Company (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 while a Director, officer, Advisor,
Affiliate, employee, or agent and in such capacity, provided, that the
Indemnitee has determined, in good faith, that the act or omission which caused
the loss or liability was in the best interests of the Company. The Company will
not indemnify or hold harmless the Indemnitee if: (i) the loss or liability was
the result of negligence or misconduct, or if the Indemnitee is an Independent
Director, the loss or liability was the result of gross negligence or willful
misconduct, (ii) 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,
(iii) the Indemnitee actually received an improper personal benefit in money,
property, or services, (iv) in the case of any criminal proceeding, the
Indemnitee had reasonable cause to believe that the act or omission was
unlawful, or (v) in a proceeding by or in the right of the Company, the
Indemnitee shall have been adjudged to be liable to the Company. In addition,
the Company will not provide indemnification for any loss or liability arising
from an alleged violation of federal or state securities laws 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 particular Indemnitee; (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnitee; or (iii) a court of competent jurisdiction approves a
settlement of the claims against a particular 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.
Pursuant to its Articles of Incorporation, the Company is required to pay or
reimburse reasonable expenses incurred by a present or former Director, officer,
Advisor or Affiliate and may pay or reimburse reasonable expenses incurred by
any other Indemnitee in advance of final disposition of a proceeding if the
following are satisfied: (i) the Indemnitee was made a party to the proceeding
by reasons of his or her service as a Director, officer, Advisor, Affiliate,
employee or agent of the Company, (ii) the Indemnitee provides the Company with
written affirmation of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification by the Company as authorized
by the Articles of Incorporation, (iii) 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 (iv) 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.
The Company's Articles of Incorporation further provide that any
indemnification, payment, or reimbursement of the expenses permitted by the
Articles of Incorporation will be furnished in accordance with the procedures in
Section 2-418 of the Maryland General Corporation Law.
Any indemnification may be paid only out of Net Assets of the Company, and
no portion may be recoverable from the stockholders.
There are certain defenses under Maryland law available to the Directors,
officers and the Advisor in the event of a stockholder action against them. One
such defense is the "business judgment rule." A Director, officer or the Advisor
can argue that he or she performed the action giving rise to the stockholder's
action in good faith and in a manner he or she reasonably believed to be in the
best interests of the Company, and with such care as an ordinarily prudent
person in a like position would have used under similar circumstances. The
Directors, officers and the Advisor are also entitled to rely on information,
opinions, reports or records prepared by experts (including accountants,
consultants, counsel, etc.) who were selected with reasonable care. However, the
Directors, officers and
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the Advisor may not invoke the business judgment rule to further limit the
rights of the stockholders to access records as provided in the Articles of
Incorporation.
The Company will enter into indemnification agreements with each of the
Company's officers and Directors. The indemnification agreements will require,
among other things, that the Company indemnify its officers and Directors to the
fullest extent permitted by law, and advance to the officers and Directors all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. In accordance with this agreement, the Company
must indemnify and advance all expenses reasonably incurred by officers and
Directors seeking to enforce their rights under the indemnification agreements.
The Company also must cover officers and Directors under the Company's
directors' and officers' liability insurance. Although these indemnification
agreements offer substantially the same scope of coverage afforded by the
indemnification provisions in the Articles of Incorporation and the Bylaws, it
provides greater assurance to Directors and officers that indemnification will
be available because these contracts cannot be modified unilaterally by the
Board of Directors or by the stockholders.
REMOVAL OF DIRECTORS
Under the Articles of Incorporation, a Director may resign or be removed
with or without cause by the affirmative vote of a majority of the capital stock
of the Company outstanding and entitled to vote.
INSPECTION OF BOOKS AND RECORDS
The Advisor will keep, or cause to be kept, on behalf of the Company, full
and true books of account on an accrual basis of accounting, in accordance with
generally accepted accounting principles. All of such books of account, together
with all other records of the Company, including a copy of the Articles of
Incorporation and any amendments thereto, will at all times be maintained at the
principal office of the Company, and will be open to inspection, examination,
and, for a reasonable charge, duplication upon reasonable notice and during
normal business hours by a stockholder or his agent.
As a part of its books and records, the Company will maintain at its
principal office an alphabetical list of names of stockholders, along with their
addresses and telephone numbers and the number of Shares held by each
stockholder. Such list shall be updated at least quarterly and shall be
available for inspection at the Company's home office by a stockholder or his or
her designated agent upon such stockholder's request. Such list also shall be
mailed to any stockholder requesting the list within 10 days of a request. The
copy of the stockholder list shall be printed in alphabetical order, on white
paper, and in readily readable type size that is not smaller than 10-point type.
The Company may impose a reasonable charge for expenses incurred in reproducing
such list. The list may not be sold or used for commercial purposes.
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. 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 by the Articles of Incorporation to stockholders requesting copies of
the stockholder list are in addition to, and do not in any way limit, other
remedies available to stockholders under federal law, or the law of any state.
RESTRICTIONS ON "ROLL-UP" TRANSACTIONS
In connection with a 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 an Independent Expert. In order to qualify as an
Independent Expert for this purpose(s), the person or entity shall have no
material current or prior business or
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personal relationship with the Advisor or Directors and shall be engaged to a
substantial extent in the business of rendering opinions regarding the value of
assets of the type held by the Company. 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 such Independent Expert shall clearly
state that the engagement is for the benefit of the Company and the
stockholders. A summary of the independent 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 proposal the choice
of:
(i) accepting the securities of the 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.
The Company is prohibited from participating in any proposed Roll-Up
Transaction:
(i) which would result in the stockholders having democracy rights in the
Roll-Up Entity that are less than those provided in the Company's Articles of
Incorporation, Sections 8.1, 8.2, 8.4, 8.5, 8.6 and 9.1 and described elsewhere
in this Prospectus, including rights with respect to the election and removal of
Directors, annual reports, annual and special meetings, amendment of the
Articles of Incorporation, and dissolution of the Company. (See "Description of
Capital Stock" and "Stockholder Meetings," above);
(ii) 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;
(iii) in which investor's rights to access of records of the Roll-Up Entity
will be less than those provided in Sections 8.4 and 8.5 of the Company's
Articles of Incorporation and described in "Inspection of Books and Records,"
above; or
(iv) 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.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following is a summary of the material federal income tax consequences
of the ownership of Shares of the Company, prepared by Shaw Pittman Potts &
Trowbridge, as Counsel. This discussion is based upon the laws, regulations, and
reported judicial and administrative rulings and decisions in effect as of the
date of this Prospectus, all of which are subject to change, retroactively or
prospectively, and to possibly differing interpretations. This discussion does
not purport to deal with the federal income or other tax consequences applicable
to all investors in light of their particular investment or other circumstances,
or to all categories of investors, some of whom may be subject to special rules
(including, for example, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign corporations and persons who are
not citizens or residents of the United States). No ruling on the federal, state
or local tax considerations relevant to the operation of the Company, or to the
purchase, ownership or disposition of the Shares, has been requested from the
Internal Revenue Service (the "IRS" or the
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"Service") or other tax authority. Counsel has rendered certain opinions
discussed herein and believes that if the Service were to challenge the
conclusions of Counsel, such conclusions should prevail in court. However,
opinions of counsel are not binding on the Service or on the courts, and no
assurance can be given that the conclusions reached by Counsel would be
sustained in court. Prospective investors should consult their own tax advisors
in determining the federal, state, local, foreign and other tax consequences to
them of the purchase, ownership and disposition of the Shares of the Company,
the tax treatment of a REIT and the effect of potential changes in applicable
tax laws.
TAXATION OF THE COMPANY
General. The Company expects to elect to be taxed as a REIT for federal
income tax purposes, as defined in Sections 856 through 860 of the Code,
commencing with its taxable year ending December 31, 1998. The Company believes
that it will be organized and will operate in such a manner as to qualify as a
REIT, and the Company intends to continue to operate in such a manner, but no
assurance can be given that it will operate in a manner so as to qualify or
remain qualified as a REIT. The provisions of the Code pertaining to REITs are
highly technical and complex. Accordingly, this summary is qualified in its
entirety by the applicable Code sections, rules and regulations issued
thereunder, and administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is currently
distributed to holders of Shares. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from an investment in a corporation. However, the Company will be
subject to federal income tax in the following circumstances. First, the Company
will be taxed at regular corporate rates on any undistributed real estate
investment trust taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
alternative minimum tax on its items of tax preference. Third, if the Company
has net income from foreclosure property, it will be subject to tax on such
income at the highest corporate rate. Foreclosure property generally means real
property (and any personal property incident to such real property) which is
acquired as a result of a default either on a lease of such property or on
indebtedness which such property secured and with respect to which an
appropriate election is made. Fourth, if the Company has net income derived from
prohibited transactions, such income will be subject to a 100% tax. A prohibited
transaction generally includes a sale or other disposition of property (other
than foreclosure property) that is held primarily for sale to customers in the
ordinary course of business. Fifth, if the Company should fail to satisfy the
75% gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75% or
95% test. Sixth, if, during each calendar year, the Company fails to distribute
at least the sum of (i) 85% of its real estate investment trust ordinary income
for such year; (ii) 95% of its real estate investment trust capital gain net
income for such year; and (iii) any undistributed taxable income from prior
periods, the Company will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
If the Company fails to qualify as a REIT for any taxable year and certain
relief provisions do not apply, the Company will be subject to federal income
tax (including alternative minimum tax) as an ordinary corporation on its
taxable income at regular corporate rates without any deduction or adjustment
for distributions to holders of Shares. To the extent that the Company would, as
a consequence, be subject to tax liability for any such taxable year, the amount
of cash available for satisfaction of its liabilities and for distribution to
holders of Shares would be reduced. Distributions made to holders of Shares
generally would be taxable as ordinary income to the extent of current and
accumulated earnings and profits and, subject to certain limitations, would be
eligible for the corporate dividends received deduction, but there can be no
assurance that any such Distributions would be made. The Company would not be
eligible to elect REIT status for the four taxable years after the taxable year
it failed to qualify as a REIT, unless its failure to qualify was due to
reasonable cause and not willful neglect and certain other requirements were
satisfied.
Opinion of Counsel. Based upon representations made by officers of the
Company with respect to relevant factual matters, upon the existing Code
provisions, rules and regulations promulgated thereunder (including proposed
regulations) and reported administrative and judicial interpretations thereof,
upon Counsel's independent review of such documents as Counsel deemed relevant
in the circumstances and upon the assumption that the Company will
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operate in the manner described in this Prospectus, Counsel has advised the
Company that, in its opinion, commencing with the Company's taxable year ending
December 31, 1998, the Company will be organized in conformity with the
requirements for qualification as a REIT, and the Company's proposed method of
operation will enable it to meet the requirements for qualification as a REIT.
It must be emphasized, however, that the Company's ability to qualify and remain
qualified as a REIT is dependent upon actual operating results and future
actions by and events involving the Company and others, and no assurance can be
given that the actual results of the Company's operations and future actions and
events will enable the Company to satisfy in any given year the requirements for
qualification and taxation as a REIT.
Requirements for Qualification as a REIT. As discussed more fully below,
the Code defines a REIT as a corporation, trust or association (i) which is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) which would be taxable, but for Sections 856 through
860 of the Code, as a domestic corporation; (iv) which is neither a financial
institution nor an insurance company; (v) the beneficial ownership of which is
held (without reference to any rules of attribution) by 100 or more persons;
(vi) which is not closely held as defined in section 856(h) of the Code; and
(vii) which meets certain other tests regarding the nature of its assets and
income and the amount of its distributions.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the assets and gross
income (as defined in the Code) of the partnership attributed to the REIT shall
retain the same character as in the hands of the partnership for purposes of
Section 856 of the Code, including satisfying the gross income tests and the
asset tests described below. Thus, the Company's proportionate share of the
assets, liabilities and items of income of any Joint Venture, as described in
"Business -- Joint Venture Arrangements," will be treated as assets, liabilities
and items of income of the Company for purposes of applying the asset and gross
income tests described herein.
Ownership Tests. The ownership requirements for qualification as a REIT are
that (i) during the last half of each taxable year not more than 50% in value of
the REIT's outstanding shares may be owned, directly or indirectly (applying
certain attribution rules), by five or fewer individuals (or certain entities as
defined in the Code) and (ii) there must be at least 100 stockholders (without
reference to any attribution rules) on at least 335 days of such 12- month
taxable year (or a proportionate number of days of a short taxable year). These
two requirements do not apply to the first taxable year for which an election is
made to be treated as a REIT. In order to meet these requirements for subsequent
taxable years, or to otherwise obtain, maintain, or reestablish REIT status, the
Articles of Incorporation generally prohibit any person or entity from actually,
constructively or beneficially acquiring or owning (applying certain attribution
rules) more than 9.8% of the outstanding Common Stock or 9.8% of any series of
outstanding Preferred Stock. Among other provisions, the Articles of
Incorporation empower the Board of Directors to redeem, at its option, a
sufficient number of Shares to bring the ownership of Shares of the Company in
conformity with these requirements or to assure continued conformity with such
requirements.
Under the Articles of Incorporation, each holder of Shares is required,
upon demand, to disclose to the Board of Directors in writing such information
with respect to actual, constructive or beneficial ownership of Shares of the
Company as the Board of Directors deems necessary to comply with provisions of
the Code applicable to the Company or the provisions of the Articles of
Incorporation, or the requirements of any other appropriate taxing authority.
Certain Treasury regulations govern the method by which the Company is required
to demonstrate compliance with these stock ownership requirements and the
failure to satisfy such regulations could cause the Company to fail to qualify
as a REIT. The Company has represented that it expects to meet these stock
ownership requirements for each taxable year and it will be able to demonstrate
its compliance with these requirements.
Asset Tests. At the end of each quarter of a REIT's taxable year, at least
75% of the value of its total assets must consist of "real estate assets," cash
and cash items (including receivables) and certain government securities. The
balance of a REIT's assets generally may be invested without restriction, except
that holdings of securities not within the 75% class of assets generally must
not, with respect to any issuer, exceed 5% of the value of the REIT's assets or
10% of the issuer's outstanding voting securities. The term "real estate assets"
includes real property, interests in real property, leaseholds of land or
improvements thereon, and mortgages on the foregoing and any
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property attributable to the temporary investment of new capital (but only if
such property is stock or a debt instrument and only for the one-year period
beginning on the date the REIT receives such capital). When a mortgage is
secured by both real property and other property, it is considered to constitute
a mortgage on real property to the extent of the fair market value of the real
property when the REIT is committed to make the loan (or, in the case of a
construction loan, the reasonably estimated cost of construction). Initially,
the bulk of the Company's assets will be real property. However, the Company
will also hold the Secured Equipment Leases. Counsel is of the opinion, based on
certain assumptions, that the Secured Equipment Leases will be treated as loans
secured by personal property for federal income tax purposes. See "Federal
Income Tax Considerations - Characterization of the Secured Equipment Leases."
Therefore, the Secured Equipment Leases will not qualify as "real estate
assets." However, the Company has represented that at the end of each quarter
the value of the Secured Equipment Leases, together with any personal property
owned by the Company, will in the aggregate represent less than 25% of the
Company's total assets and that the value of the Secured Equipment Leases
entered into with any particular tenant will represent less than 5% of the
Company's total assets. No independent appraisals will be acquired to support
this representation, and Counsel, in rendering its opinion as to the
qualification of the Company as a REIT, is relying on the conclusions of the
Company and its senior management as to the relative values of its assets. There
can be no assurance however, that the IRS may not contend that either (i) the
value of the Secured Equipment Leases entered into with any particular tenant
represents more than 5% of the Company's total assets, or (ii) the value of the
Secured Equipment Leases, together with any personal property owned by the
Company, exceeds 25% of the Company's total assets.
As indicated in "Business - Joint Venture Arrangements," the Company may
participate in Joint Ventures. If a Joint Venture were classified, for federal
income tax purposes, as an association taxable as a corporation rather than as a
partnership, the Company's ownership of a 10% or greater interest in the Joint
Venture would cause the Company to fail to meet the requirement that it not own
10% or more of an issuer's voting securities. However, Counsel is of the
opinion, based on certain assumptions, that any Joint Ventures will constitute
partnerships for federal income tax purposes. See "Federal Income Tax
Considerations - Investment in Joint Ventures."
Income Tests. A REIT also must meet two separate tests with respect to it
sources of gross income for each taxable year.
(a) The 75 Percent and 95 Percent Tests. In general, at least 75% of a
REIT's gross income for each taxable year must be from "rents from real
property," interest on obligations secured by mortgages on real property, gains
from the sale or other disposition of real property and certain other sources,
including "qualified temporary investment income." For these purposes,
"qualified temporary investment income" means any income (i) attributable to a
stock or debt instrument purchased with the proceeds received by the REIT in
exchange for stock (or certificates of beneficial interest) in such REIT (other
than amounts received pursuant to a distribution reinvestment plan) or in a
public offering of debt obligations with a maturity of at least five years and
(ii) received or accrued during the one-year period beginning on the date the
REIT receives such capital. In addition, a REIT must derive at least 95% of its
gross income for each taxable year from any combination of the items of income
which qualify under the 75% test, from dividends and interest, and from gains
from the sale, exchange or other disposition of certain stock and securities.
Initially, the bulk of the Company's income will be derived from rents with
respect to the Properties. Rents from Properties received by the Company qualify
as "rents from real property" in satisfying these two tests only if several
conditions are met. First, the rent must not be based in whole or in part,
directly or indirectly, on the income or profits of any person. An amount
received or accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, the Code provides that rents received
from a tenant will not qualify as "rents from real property" if the REIT, or a
direct or indirect owner of 10% or more of the REIT owns, directly or
constructively, 10% or more of such tenant (a "Related Party Tenant"). Third, if
rent attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Finally, for rents to qualify as "rents from real
property," a REIT generally must not operate or manage the property or furnish
or render services to the tenants of such property, other than through an
independent contractor from whom the REIT derives no revenue, except that a REIT
may directly perform services which are "usually or customarily rendered" in
connection with the rental of
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space for occupancy, other than services which are considered to be rendered to
the occupant of the property. However, a REIT is currently permitted to earn up
to one percent of its gross income from tenants, determined on a
property-by-property basis, by furnishing services that are noncustomary or
provided directly to the tenants, without causing the rental income to fail to
qualify as rents from real property.
The Company has represented with respect to its leasing of the Properties
that it will not (i) charge rent for any Property that is based in whole or in
part on the income or profits of any person (except by reason of being based on
a percentage or percentages of receipts or sales, as described above); (ii)
charge rent that will be attributable to personal property in an amount greater
than 15% of the total rent received under the applicable lease; (iii) directly
perform services considered to be rendered to the occupant of a Property or
which are not usually or customarily furnished or rendered in connection with
the rental of real property; or (iv) enter into any lease with a Related Party
Tenant. Specifically, the Company expects that virtually all of its income will
be derived from leases of the type described in "Business - Description of
Leases," and it does not expect such leases to generate income that would not
qualify as rents from real property for purposes of the 75% and 95% income
tests.
In addition, the Company will be paid interest on the Mortgage Loans. All
interest income qualifies under the 95% gross income test. If a Mortgage Loan is
secured by both real property and other property, all the interest on it will
nevertheless qualify under the 75% gross income test if the amount of the loan
did not exceed the fair market value of the real property at the time of the
loan commitment. The Company has represented that this will always be the case.
Therefore, in the opinion of Counsel, income generated through the Company's
investments in Mortgage Loans will be treated as qualifying income under the 75%
gross income test.
The Company will also receive payments under the terms of the Secured
Equipment Leases. Although the Secured Equipment Leases will be structured as
leases or loans, Counsel is of the opinion that, subject to certain assumptions,
they will be treated as loans secured by personal property for federal income
tax purposes. See "Federal Income Tax Considerations - Characterization of the
Secured Equipment Leases." If the Secured Equipment Leases are treated as loans
secured by personal property for federal income tax purposes then, the portion
of the payments under the terms of the Secured Equipment Leases that represent
interest, rather than a return of capital for federal income tax purposes, will
not satisfy the 75% gross income test (although it will satisfy the 95% gross
income test). The Company believes, however, that the aggregate amount of such
non-qualifying income will not cause the Company to exceed the limits on
non-qualifying income under the 75% gross income test.
If, contrary to the opinion of Counsel, the Secured Equipment Leases are
treated as true leases, rather than as loans secured by personal property for
federal income tax purposes, the payments under the terms of the Secured
Equipment Leases would be treated as rents from personal property. Rents from
personal property will satisfy either the 75% or 95% gross income tests if they
are received in connection with a lease of real property and the rent
attributable to the personal property does not exceed 15% of the total rent
received from the tenant in connection with the lease. However, if rents
attributable to personal property exceed 15% of the total rent received from a
particular tenant, then the portion of the total rent attributable to personal
property will not satisfy either the 75% or 95% gross income tests.
If, notwithstanding the above, the Company fails to satisfy one or both of
the 75% or 95% tests for any taxable year, it may still qualify as a REIT if (i)
such failure is due to reasonable cause and not willful neglect; (ii) it reports
the nature and amount of each item of its income on a schedule attached to its
tax return for such year; and (iii) the reporting of any incorrect information
is not due to fraud with intent to evade tax. However, even if these three
requirements are met and the Company is not disqualified as a REIT, a penalty
tax would be imposed by reference to the amount by which the Company failed the
75% or 95% test (whichever amount is greater).
(b) The Impact of Default Under the Secured Equipment Leases. In applying
the gross income tests to the Company, it is necessary to consider the impact
that a default under one or more of the Secured Equipment Leases would have on
the Company's ability to satisfy such tests. A default under one or more of the
Secured Equipment Leases would result in the Company directly holding the
Equipment securing such leases for federal income tax purposes. In the event of
a default, the Company may choose to either lease or sell such Equipment.
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However, any income resulting from a rental or sale of Equipment not
incidental to the rental or sale of real property would not qualify under the
75% and 95% gross income tests. In addition, in certain circumstances, income
derived from a sale or other disposition of Equipment could be considered "net
income from prohibited transactions," subject to a 100% tax. The Company does
not, however, anticipate that its income from the rental or sale of Equipment
would be material in any taxable year.
Distribution Requirements. A REIT must distribute to its stockholders for
each taxable year ordinary income dividends in an amount equal to at least (a)
95% of the sum of (i) its "real estate investment trust taxable income" (before
deduction of dividends paid and excluding any net capital gains) and (ii) the
excess of net income from foreclosure property over the tax on such income,
minus (b) certain excess non-cash income. Real estate investment trust taxable
income generally is the taxable income of a REIT computed as if it were an
ordinary corporation, with certain adjustments. Distributions must be made in
the taxable year to which they relate or, if declared before the timely filing
of the REIT's tax return for such year and paid not later than the first regular
dividend payment after such declaration, in the following taxable year.
The Company has represented that it intends to make Distributions to
stockholders that will be sufficient to meet the 95% distribution requirement.
Under some circumstances, however, it is possible that the Company may not have
sufficient funds from its operations to make cash Distributions to satisfy the
95% distribution requirement. For example, in the event of the default or
financial failure of one or more tenants or lessees, the Company might be
required to continue to accrue rent for some period of time under federal income
tax principles even though the Company would not currently be receiving the
corresponding amounts of cash. Similarly, under federal income tax principles,
the Company might not be entitled to deduct certain expenses at the time those
expenses are incurred. In either case, the Company's cash available for making
Distributions might not be sufficient to satisfy the 95% distribution
requirement. If the cash available to the Company is insufficient, the Company
might raise cash in order to make the Distributions by borrowing funds, issuing
new securities or selling assets. If the Company ultimately were unable to
satisfy the 95% distribution requirement, it would fail to qualify as a REIT
and, as a result, would be subject to federal income tax as an ordinary
corporation without any deduction or adjustment for dividends paid to holders of
the Shares. If the Company fails to satisfy the 95% distribution requirement, as
a result of an adjustment to its tax returns by the Service, under certain
circumstances, it may be able to rectify its failure by paying a "deficiency
dividend" (plus a penalty and interest) within 90 days after such adjustment.
This deficiency dividend will be included in the Company's deductions for
dividends paid for the taxable year affected by such adjustment. However, the
deduction for a deficiency dividend will be denied, if any part of the
adjustment resulting in the deficiency is attributable to fraud with intent to
evade tax or to willful failure to timely file an income tax return.
TAXATION OF STOCKHOLDERS
Taxable Domestic Stockholders. For any taxable year in which the Company
qualifies as a REIT for federal income tax purposes, Distributions made by the
Company to its stockholders that are United States persons (generally, any
person other than a nonresident alien individual, a foreign trust or estate or a
foreign partnership or corporation) generally will be taxed as ordinary income.
Amounts received by such United States persons that are properly designated as
capital gain dividends by the Company generally will be taxed as long-term
capital gain, without regard to the period for which such person has held its
Shares, to the extent that they do not exceed the Company's actual net capital
gain for the taxable year. Corporate stockholders may be required to treat up to
20% of certain capital gains dividends as ordinary income. Such ordinary income
and capital gain are not eligible for the dividends received deduction allowed
to corporations. In addition, the Company may elect to retain and pay income tax
on its long-term capital gains. If the Company so elects, each stockholder will
take into income the stockholder's share of the retained capital gain as
long-term capital gain and will receive a credit or refund for that
stockholder's share of the tax paid by the Company. The stockholder will
increase the basis of such stockholder's share by an amount equal to the excess
of the retained capital gain included in the stockholder's income over the tax
deemed paid by such stockholder. Distributions to such United States persons in
excess of the Company's current or accumulated earnings and profits will be
considered first a tax-free return of capital for federal income tax purposes,
reducing the tax basis of each stockholder's Shares, and then, to the extent the
Distribution exceeds each stockholder's basis, a gain realized from the sale of
Shares. The Company will notify each stockholder as to the portions of each
Distribution which, in its judgment, constitute ordinary income, capital gain or
return of capital for federal income
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tax purposes. Any Distribution that is (i) declared by the Company in October,
November or December of any calendar year and payable to stockholders of record
on a specified date in such months and (ii) actually paid by the Company in
January of the following year, shall be deemed to have been received by each
stockholder on December 31 of such calendar year and, as a result, will be
includable in gross income of the stockholder for the taxable year which
includes such December 31. Stockholders who elect to participate in the
Reinvestment Plan will be treated as if they received a cash Distribution from
the Company and then applied such Distribution to purchase Shares in the
Reinvestment Plan. Stockholders may not deduct on their income tax returns any
net operating or net capital losses of the Company.
Upon the sale or other disposition of the Company's Shares, a stockholder
generally will recognize capital gain or loss equal to the difference between
the amount realized on the sale or other disposition and the adjusted basis of
the Shares involved in the transaction. Such gain or loss will be long-term
capital gain or loss if, at the time of sale or other disposition, the Shares
involved have been held for more than one year. In addition, if a stockholder
receives a capital gain dividend with respect to Shares which he has held for
six months or less at the time of sale or other disposition, any loss recognized
by the stockholder will be treated as long-term capital loss to the extent of
the amount of the capital gain dividend that was treated as long-term capital
gain.
Generally, the redemption of Shares by the Company will result in
recognition of ordinary income by the stockholder unless the stockholder
completely terminates or substantially reduces his or her interest in the
Company. A redemption of Shares for cash will be treated as a distribution that
is taxable as a dividend to the extent of the Company's current or accumulated
earnings and profits at the time of the redemption under Section 302 of the Code
unless the redemption (a) results in a "complete termination" of the
stockholder's interest in the Company under Section 302(b)(3) of the Code, (b)
is "substantially disproportionate" with respect to the stockholder under
Section 302(b)(2) of the Code, or (c) is "not essentially equivalent to a
dividend" with respect to the stockholder under Section 302(b)(1) of the Code.
Under Code Section 302(b)(2) a redemption is considered "substantially
disproportionate" if the percentage of the voting stock of the corporation owned
by a stockholder immediately after the redemption is less than eighty percent of
the percentage of the voting stock of the corporation owned by such stockholder
immediately before the redemption. In determining whether the redemption is not
treated as a dividend, Shares considered to be owned by a stockholder by reason
of certain constructive ownership rules set forth in Section 318 of the Code, as
well as Shares actually owned, must generally be taken into account. A
distribution to a stockholder will be "not essentially equivalent to a dividend"
if its results in a "meaningful reduction" in the stockholder's interest in the
Company. The Service has published a ruling indicating that a redemption which
results in a reduction in the proportionate interest in a corporation (taking
into account the Section 318 constructive ownership rules) of a stockholder
whose relative stock interest is minimal (an interest of less than 1% should
satisfy this requirement) and who exercises no control over the corporation's
affairs should be treated as being "not essentially equivalent to a dividend."
If the redemption is not treated as a dividend, the redemption of the
Shares for cash will result in taxable gain or loss equal to the difference
between the amount of cash received and the stockholder's tax basis in the
Shares redeemed. Such gain or loss would be capital gain or loss if the Shares
were held as a capital asset and would be long-term capital gain or loss if the
holding period for the Shares exceeds one year.
The Company will report to its U.S. stockholders and the Service the amount
of dividends paid or treated as paid during each calendar year, and the amount
of tax withheld, if any. Under the backup withholding rules, a stockholder may
be subject to backup withholding at the rate of 31% with respect to dividends
paid unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A stockholder that does not provide the Company with a
correct taxpayer identification number may also be subject to penalties imposed
by the Service. Any amount paid to the Service as backup withholding will be
creditable against the stockholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain dividends to any
stockholders who fail to certify their non-foreign status to the Company. See
"Foreign Stockholders" below.
The state and local income tax treatment of the Company and its
stockholders may not conform to the federal income tax treatment described
above. As a result, stockholders should consult their own tax advisors for an
explanation of how other state and local tax laws would affect their investment
in Shares.
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Tax-Exempt Stockholders. Dividends paid by the Company to a stockholder
that is a tax-exempt entity generally will not constitute "unrelated business
taxable income" ("UBTI") as defined in Section 512(a) of the Code, provided that
the tax-exempt entity has not financed the acquisition of its Shares with
"acquisition indebtedness" within the meaning of Section 514(c) of the Code and
the Shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity.
Notwithstanding the foregoing, qualified trusts that hold more than 10% (by
value) of the shares of certain REITs may be required to treat a certain
percentage of such REIT's distributions as UBTI. This requirement will apply
only if (i) treating qualified trusts holding REIT shares as individuals would
result in a determination that the REIT is "closely held" within the meaning of
Section 856(h)(1) of the Code and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is predominantly held if either (i) a single qualified
trust holds more than 25% by value of the REIT interests or (ii) one or more
qualified trusts, each owning more than 10% by value of the REIT interests, hold
in the aggregate more than 50% of the REIT interests. The percentage of any REIT
dividend treated as UBTI is equal to the ratio of (a) the UBTI earned by the
REIT (treating the REIT as if it were a qualified trust and therefore subject to
tax on UBTI) to (b) the total gross income (less certain associated expenses) of
the REIT. A de minimis exception applies where the ratio set forth in the
preceding sentence is less than 5% for any year. For these purposes, a qualified
trust is any trust described in Section 401(a) of the Code and exempt from tax
under Section 501(a) of the Code. The restrictions on ownership of Shares in the
Articles of Incorporation will prevent application of the provisions treating a
portion of REIT distributions as UBTI to tax-exempt entities purchasing Shares
in the Company, absent a waiver of the restrictions by the Board of Directors.
See "Summary of the Articles of Incorporation and Bylaws - Restriction of
Ownership."
Assuming that there is no waiver of the restrictions on ownership of Shares
in the Articles of Incorporation and that a tax-exempt stockholder does not
finance the acquisition of its Shares with "acquisition indebtedness" within the
meaning of Section 514(c) of the Code or otherwise use its Shares in an
unrelated trade or business, in the opinion of Counsel the distributions of the
Company with respect to such tax-exempt stockholder will not constitute UBTI.
The tax discussion of distributions by qualified retirement plans, IRAs,
Keogh plans and other tax-exempt entities is beyond the scope of this
discussion, and such entities should consult their tax adviser regarding such
questions.
Foreign Stockholders. The rules governing United States federal income
taxation of nonresident alien individuals, foreign corporations, foreign
participants and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a summary of such rules. The following discussion assumes that the income
from investment in the Shares will not be effectively connected with the
Non-U.S. Stockholders' conduct of a United States trade or business. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local laws with regard to an investment in
Shares, including any reporting requirements. Non-U.S. Stockholders will be
admitted as stockholders with the approval of the Advisor.
Distributions that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gain dividends will be treated as dividends of ordinary
income to the extent that they are made out of current and accumulated earnings
and profits of the Company. Such dividends ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the dividend, unless an
applicable tax treaty reduces or eliminates that tax. A number of U.S. tax
treaties that reduce the rate of withholding tax on corporate dividends do not
reduce, or reduce to a lesser extent, the rate of withholding applied to
dividends from a REIT. The Company expects to withhold U.S. income tax at the
rate of 30% on the gross amount of any such distributions paid to a Non-U.S.
Stockholder unless (i) a lower treaty rate applies (and, with regard to payments
on or after January 1, 1999, the Non-U.S. Stockholder files IRS Form W-8 with
the Company and, if the Shares are not traded on an established securities
market, acquires a taxpayer identification number from the IRS) or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 (or, with respect to payments on or
after January 1, 1999, files IRS Form W-8 with the Company) with the Company
claiming that the distribution is effectively connected income. Distributions in
excess of the Company's current and accumulated earnings and profits will not be
taxable to a stockholder to the extent that such distributions paid do not
exceed the adjusted basis
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of the stockholder's Shares, but rather will reduce the adjusted basis of such
Shares. To the extent that distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of a Non-U.S. Stockholders'
Shares, such distributions will give rise to tax liability if the Non-U.S.
Stockholder would otherwise be subject to tax on any gain from the sale or
disposition of the Shares, as described below. If it cannot be determined at the
time a distribution is paid whether or not such distribution will be in excess
of current and accumulated earnings and profits, the distributions will be
subject to withholding at the rate of 30%. However, a Non-U.S. Stockholder may
seek a refund of such amounts from the IRS if it is subsequently determined that
such distribution was, in fact, in excess of the Company's current and
accumulated earnings and profits. Beginning with payments made on or after
January 1, 1999, the Company will be permitted, but not required, to make
reasonable estimates of the extent to which distributions exceed current or
accumulated earnings and profits. Such distributions will generally be subject
to a 10% withholding tax, which may be refunded to the extent they exceed the
stockholder's actual U.S. tax liability, provided the required information is
furnished to the IRS.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales
of United States real property interests are taxed to a Non-U.S. Stockholder as
if such gain were effectively connected with a United States business. Non-U.S.
Stockholders would thus be taxed at the normal capital gain rates applicable to
U.S. Stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty exemption or
rate reduction. The Company is required by applicable Treasury Regulations to
withhold 35% of any distribution that could be designated by the Company as a
capital gain dividend. This amount is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. It is currently anticipated that the Company will
be a "domestically controlled REIT," and in such case the sale of Shares would
not be subject to taxation under FIRPTA. However, gain not subject to FIRPTA
nonetheless will be taxable to a Non-U.S. Stockholder if (i) investment in the
Shares is treated as "effectively connected" with the Non-U.S. Stockholders'
U.S. trade or business, or (ii) the Non-U.S. Stockholder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year and certain other conditions are met. Effectively connected gain
realized by a foreign corporate shareholder may be subject to an additional 30%
branch profits tax, subject to possible exemption or rate reduction under an
applicable tax treaty. If the gain on the sale of Shares were to be subject to
taxation under FIRPTA, the Non-U.S. Stockholder would be subject to the same
treatment as U.S. Stockholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals), and the purchaser of the Shares would be
required to withhold and remit to the Service 10% of the purchase price.
STATE AND LOCAL TAXES
The Company and its shareholders may be subject to state and local taxes in
various states and localities in which it or they transact business, own
property, or reside. The tax treatment of the Company and the stockholders in
such jurisdictions may differ from the federal income tax treatment described
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws upon an investment in
the Common Stock of the Company.
CHARACTERIZATION OF PROPERTY LEASES
The Company will purchase both new and existing Properties and lease them
to operators of Health Care Facilities pursuant to leases of the type described
in "Business - Description of Property Leases." The ability of the Company to
claim certain tax benefits associated with ownership of the Properties, such as
depreciation, depends on a determination that the lease transactions engaged in
by the Company are true leases, under which the Company is the owner of the
leased Property for federal income tax purposes, rather than a conditional sale
of the Property
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or a financing transaction. A determination by the Service that the Company is
not the owner of the Properties for federal income tax purposes may have adverse
consequences to the Company, such as the denying of the Company's depreciation
deductions. Moreover, a denial of the Company's depreciation deductions could
result in a determination that the Company's Distributions to stockholders were
insufficient to satisfy the 95% distribution requirement for qualification as a
REIT. However, as discussed above, if the Company has sufficient cash, it may be
able to remedy any past failure to satisfy the distribution requirements by
paying a "deficiency dividend" (plus a penalty and interest). See "Distribution
Requirements," above. Furthermore, in the event that the Company were determined
not to be the owner of a particular Property, in the opinion of Counsel the
income that the Company would receive pursuant to the recharacterized lease
would constitute interest qualifying under the 95% and 75% gross income tests by
reason of being interest on an obligation secured by a mortgage on an interest
in real property, because the legal ownership structure of such Property will
have the effect of making the building serve as collateral for the debt
obligation.
The characterization of transactions as leases, conditional sales, or
financings has been addressed in numerous cases. The courts have not identified
any one factor as being determinative of whether the lessor or the lessee of
property is to be treated as the owner. Judicial decisions and pronouncements of
the Service with respect to the characterization of transactions as either
leases, conditional sales, or financing transactions have made it clear that the
characterization of leases for tax purposes is a question which must be decided
on the basis of a weighing of many factors, and courts have reached different
conclusions even where characteristics of two lease transactions were
substantially similar.
While certain characteristics of the leases anticipated to be entered into
by the Company suggest the Company might not be the owner of the Properties,
such as the fact that such leases are "triple-net" leases, a substantial number
of other characteristics indicate the bona fide nature of such leases and that
the Company will be the owner of the Properties. For example, under the types of
leases described in "Business - Description of Property Leases," the Company
will bear the risk of substantial loss in the value of the Properties, since the
Company will acquire its interests in the Properties with an equity investment,
rather than with nonrecourse indebtedness. Further, the Company, rather than the
tenant, will benefit from any appreciation in the Properties, since the Company
will have the right at any time to sell or transfer its Properties, subject to
the tenant's right to purchase the property at a price not less than the
Property's fair market value (determined by appraisal or otherwise).
Other factors that are consistent with the ownership of the Properties by
the Company are (i) the tenants are liable for repairs and to return the
Properties in reasonably good condition; (ii) insurance proceeds generally are
to be used to restore the Properties and, to the extent not so used, belong to
the Company; (iii) the tenants agree to subordinate their interests in the
Properties to the lien of any first mortgage upon delivery of a nondisturbance
agreement and agree to attorn to the purchaser upon any foreclosure sale; and
(iv) based on the Company's representation that the Properties can reasonably be
expected to have at the end of their lease terms (generally a maximum of 30 to
40 years) a fair market value of at least 20% of the Company's cost and a
remaining useful life of at least 20% of their useful lives at the beginning of
the leases, the Company has not relinquished the Properties to the tenants for
their entire useful lives, but has retained a significant residual interest in
them. Moreover, the Company will not be primarily dependent upon tax benefits in
order to realize a reasonable return on its investments.
Concerning the Properties for which the Company owns the buildings and the
underlying land, on the basis of the foregoing, assuming (i) the Company leases
the Properties on substantially the same terms and conditions described in
"Business -- Description of Leases," and (ii) as is represented by the Company,
the residual value of the Properties remaining after the end of their lease
terms (including all renewal periods) may reasonably be expected to be at least
20% of the Company's cost of such Properties, and the remaining useful lives of
the Properties after the end of their lease terms (including all renewal
periods) may reasonably be expected to be at least 20% of the Properties' useful
lives at the beginning of their lease terms, it is the opinion of Counsel that
the Company will be treated as the owner of the Properties for federal income
tax purposes and will be entitled to claim depreciation and other tax benefits
associated with such ownership. In the case of Properties for which the Company
does not own the underlying land, Counsel cannot opine that such transactions
will be characterized as leases.
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CHARACTERIZATION OF SECURED EQUIPMENT LEASES
The Company will purchase Equipment and lease it to operators of Health
Care Facilities pursuant to leases of the type described in "Business -
General." The ability of the Company to qualify as a REIT depends on a
determination that the Secured Equipment Leases are financing arrangements,
under which the lessees acquire ownership of the Equipment for federal income
tax purposes. If the Secured Equipment Leases are instead treated as true
leases, the Company may be unable to satisfy the income tests for REIT
qualification. See "Federal Income Tax Considerations - Taxation of the Company
- - Income Tests."
While certain characteristics of the Secured Equipment Leases to be entered
into by the Company suggest that the Company retains ownership of the Equipment,
such as the fact that certain of the Secured Equipment Leases are structured as
leases, with the Company retaining title to the Equipment, a substantial number
of other characteristics indicate that the Secured Equipment Leases are
financing arrangements and that the lessees are the owners of the Equipment for
federal income tax purposes. For example, under the types of Secured Equipment
Leases described in "Business - General," the lease term will equal or exceed
the useful life of the Equipment, and the lessee will have the option to
purchase the Equipment at the end of the lease term for a nominal sum. Moreover,
under the terms of the Secured Equipment Leases, the Company and the lessees
will each agree to treat the Secured Equipment Leases as loans secured by
personal property, rather than leases, for tax purposes.
On the basis of the foregoing, assuming (i) the Secured Equipment Leases
are made on substantially the same terms and conditions described in "Business -
General," and (ii) as represented by the Company, each of the Secured Equipment
Leases will have a term that equals or exceeds the useful life of the Equipment
subject to the lease, it is the opinion of Counsel that the Company will not be
treated as the owner of the Equipment that is subject to the Secured Equipment
Leases for federal income tax purposes and that the Company will be able to
treat the Secured Equipment Leases as loans secured by personal property.
Counsel's opinion that the Company will be organized in conformity with the
requirements for qualification as a REIT is based, in part, on the assumption
that each of the Secured Equipment Leases will conform to the conditions
outlined in clauses (i) and (ii) of the preceding sentence.
INVESTMENT IN JOINT VENTURES
As indicated in "Business -- Joint Venture Arrangements," the Company may
participate in Joint Ventures which own and lease Properties. Assuming that the
Joint Ventures have the characteristics described in "Business - Joint Venture
Arrangements," and are operated in the same manner that the Company operates
with respect to Properties that it owns directly, it is the opinion of Counsel
that (i) the Joint Ventures will be treated as partnerships, as defined in
Sections 7701(a)(2) and 761(a) of the Code and not as associations taxable as
corporations, and that the Company will be subject to tax as a partner pursuant
to Sections 701-761 of the Code and (ii) all material allocations to the Company
of income, gain, loss and deduction as provided in the Joint Venture agreements
and as discussed in the Prospectus will be respected under Section 704(b) of the
Code. The Company has represented that it will not become a participant in any
Joint Venture unless the Company has first obtained advice of Counsel that the
Joint Venture will constitute a partnership for federal income tax purposes and
that the allocations to the Company contained in the Joint Venture agreement
will be respected.
If, contrary to the opinion of Counsel, a Joint Venture were to be treated
as an association taxable as a corporation, the Company would be treated as a
stockholder for tax purposes and would not be treated as owning a pro rata share
of the Joint Venture's assets. In addition, the items of income and deduction of
the Joint Venture would not pass through to the Company. Instead, the Joint
Venture would be required to pay income tax at regular corporate tax rates on
its net income, and distributions to partners would constitute dividends that
would not be deductible in computing the Joint Venture's taxable income.
Moreover, a determination that a Joint Venture is taxable as a corporation could
cause the Company to fail to satisfy the asset tests for qualification as a
REIT. See "Asset Tests" and "Income Tests," above.
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REPORTS TO STOCKHOLDERS
The Company will furnish each stockholder with its audited annual report
within 120 days following the close of each fiscal year. These annual reports
will contain the following: (i) financial statements, including a balance sheet,
statement of operations, statement of stockholders' equity, and statement of
cash flows, prepared in accordance with generally accepted accounting principals
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 charges 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 the Average Invested Assets
(the average of the aggregate book value of the assets of the Company, for a
specified period, 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) 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 interest 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, Advisor 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 60 days after the end of the fiscal year in which the distribution
was made).
Within 75 days following the close of each Company fiscal year, each
stockholder that is a Qualified Plan will be furnished with an annual statement
of Share valuation to enable it to file annual reports required by ERISA as they
relate to its investment in the Company. The statement will report an estimated
value of each Share, prior to the termination of the offering, of $10 per Share
and, after the termination of the offering, based on (i) appraisal updates
performed by the Company based on a review of the existing appraisal and lease
of each Property, focusing on a re-examination of the capitalization rate
applied to the rental stream to be derived from that Property; and (ii) a review
of the outstanding Mortgage Loans and Secured Equipment Leases focusing on a
determination of present value by a re-examination of the capitalization rate
applied to the stream of payments due under the terms of each Mortgage Loan and
Secured Equipment Leases. The Company may elect to deliver such reports to all
stockholders. Stockholders will not be forwarded copies of appraisals or
updates. In providing such reports to stockholders, neither the Company nor its
Affiliates thereby make any warranty, guarantee, or representation that (i) the
stockholders or the Company, upon liquidation, will actually realize the
estimated value per Share, or (ii) the stockholders will realize the estimated
net asset value if they attempt to sell their Shares.
If the Company is required by the Securities Exchange Act of 1934, as
amended, to file quarterly reports with the Securities and Exchange Commission
on Form 10-Q, stockholders will be furnished with a summary of the information
contained in each such report within 60 days after the end of each fiscal
quarter. Such summary information generally will include a balance sheet, a
quarterly statement of income, and a statement of cash flows, and any other
pertinent information regarding the Company and its activities during the
quarter. Stockholders also may receive a copy of any Form 10-Q upon request to
the Company. If the Company is not subject to this filing requirement,
stockholders will be furnished with a semi-annual report within 60 days after
each six-month period containing information similar to that contained in the
quarterly report but applicable to such six-month period.
Stockholders and their duly authorized representatives are entitled to
inspect and copy, at their expense, the books and records of the Company at all
times during regular business hours, upon reasonable prior notice to the
Company, at the location where such reports are kept by the Company.
Stockholders, upon request and at their expense, may obtain full information
regarding the financial condition of the Company, a copy of the Company's
federal, state, and local income tax returns for each fiscal year of the
Company, and, subject to certain confidentiality requirements, a list containing
the name, address, and Shares held by each stockholder.
The fiscal year of the Company will be the calendar year.
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The Company's federal tax return (and any applicable state income tax
returns) will be prepared by the accountants regularly retained by the Company.
Appropriate tax information will be submitted to the stockholders within 30 days
following the end of each fiscal year of the Company. A specific reconciliation
between GAAP and income tax information will not be provided to the
stockholders; however, such reconciling information will be available in the
office of the Company for inspection and review by any interested stockholder.
THE OFFERING
GENERAL
A minimum of 250,000 Shares ($2,500,000) and a maximum of 15,000,000 Shares
($150,000,000) are being offered at a purchase price of $10.00 per share. In
addition, the Company has registered an additional 500,000 Shares ($5,000,000)
available only to stockholders who receive a copy of this Prospectus and who
elect to participate in the Reinvestment Plan. Any participation in such plan by
a person who becomes a stockholder otherwise than by participating in this
offering will require solicitation under a separate prospectus. See "Summary of
Reinvestment Plan." The Board of Directors may determine to engage in future
offerings of Common Stock of up to the number of unissued authorized shares of
Common Stock available following termination of this offering.
A minimum investment of 250 Shares ($2,500) is required. IRAs, Keogh plans,
and pension plans must make a minimum investment of at least 100 Shares
($1,000). Any investor who makes the required minimum investment may purchase
additional Shares in increments of one Share. See "The Offering - General,"
"The Offering Subscription Procedures," and "Summary of Reinvestment Plan."
No Shares will be sold and the offering will terminate unless subscriptions
for at least 250,000 Shares ($2,500,000) have been obtained within one year
after the date of this Prospectus. If such minimum amount is sold, the Company
may, in its sole discretion, and without prior notice to the subscribers, elect
to extend the offering for up to an additional one year thereafter (in states
that permit such an extension). Until subscription funds for the Company total
$2,500,000, the funds will be held in escrow by SouthTrust Asset Management
Company of Florida, N.A., and interest earned on such funds will accrue to the
benefit of subscribers. Pursuant to the requirements of the Commissioner of
Securities of the State of Pennsylvania, subscriptions from Pennsylvania
residents may not be released from escrow, or included in determining whether
the $2,500,000 minimum for the Company has been reached, until subscriptions for
Shares totalling at least $7,775,000 have been received from all sources.
Subscription amounts with all interest due will be returned in the event that
subscriptions aggregating $2,500,000 are not received within one year after the
commencement of the offering.
PLAN OF DISTRIBUTION
The Shares will be offered to the public on a "best efforts" basis (which
means that no one is guaranteeing that any minimum amount will be sold) through
the Soliciting Dealers, who will be members of the National Association of
Securities Dealers, Inc. (the "NASD") or other persons or entities exempt from
broker-dealer registration, and the Managing Dealer. The Soliciting Dealers will
use their best efforts during the offering period to find eligible persons who
desire to subscribe for the purchase of Shares from the Company. Both James M.
Seneff, Jr. and Robert A. Bourne are Affiliates and licensed principals of the
Managing Dealer, and the Advisor is an Affiliate of the Managing Dealer.
Prior to a subscriber's admission to the Company as a stockholder, funds
paid by such subscriber will be deposited in an interest-bearing escrow account
with SouthTrust Asset Management Company of Florida, N.A. The Company, within 30
days after the date a subscriber is admitted to the Company, will pay to such
subscriber the interest (generally calculated on a daily basis) actually earned
on such subscriber's funds. After the initial admission of stockholders to the
Company in connection with the sale of at least 250,000 Shares, interest will be
payable only
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to those subscribers whose funds have been held in escrow by such bank for at
least 20 days. Stockholders otherwise are not entitled to interest earned on
Company funds or to receive interest on their Invested Capital. See "Escrow
Arrangements" below.
Subject to the provisions for reduced Selling Commissions described below,
the Company will pay the Managing Dealer an aggregate of 7.5% of the Gross
Proceeds as Selling Commissions. The Managing Dealer shall reallow fees of up to
7% to the Soliciting Dealers with respect to Shares sold by them. In addition,
the Company will pay the Managing Dealer, as an expense allowance, a marketing
support and due diligence expense reimbursement fee equal to 0.5% of Gross
Proceeds. All or any portion of this fee may be reallowed to any Soliciting
Dealer with the prior written approval from, and in the sole discretion of, the
Managing Dealer, based on such factors as the number of Shares sold by such
Soliciting Dealer, the assistance, if any, of such Soliciting Dealer in
marketing the offering, and bona fide due diligence expenses incurred. The
Company also will issue to the Managing Dealer, a Soliciting Dealer Warrant to
purchase one share of Common Stock for every 25 Shares sold, to be exercised, if
at all, during the Exercise Period, at a price of $12.00 per share. The Managing
Dealer may, in its sole discretion, reallow all or any part of such Soliciting
Dealer Warrant to certain Soliciting Dealers, unless prohibited by federal or
state securities laws. See "Summary of Articles of Incorporation and Bylaws -
Description of Capital Stock - Soliciting Dealer Warrants." Stockholders who
elect to participate in the Reinvestment Plan will be charged Selling
Commissions and the marketing support and due diligence fee on Shares purchased
for their accounts on the same basis as investors who purchase Shares in the
offering. See "Summary of Reinvestment Plan."
A registered principal or representative of the Managing Dealer or a
Soliciting Dealer, employees, officers, and Directors of the Company, or
employees, officers and directors of the Advisor, any of their Affiliates and
any Plan established exclusively for the benefit of such persons or entities may
purchase Shares net of 7% commissions, at a per Share purchase price of $9.30.
Clients of an investment adviser registered under the Investment Advisers Act of
1940, as amended, who have been advised by such adviser on an ongoing basis
regarding investments other than in the Company, and who are not being charged
by such adviser or its Affiliates, through the payment of commissions or
otherwise, for the advice rendered by such adviser in connection with the
purchase of the Shares, may purchase the Shares net of 7% commissions. In
addition, Soliciting Dealers that have a contractual arrangement with their
clients for the payment of fees which is consistent with accepting Selling
Commissions, in their sole discretion, may elect not to accept any Selling
Commissions offered by the Company for Shares that they sell. In that event,
such Shares shall be sold to the investor net of all Selling Commissions, at a
per Share purchase price of $9.30. In connection with the purchases of certain
minimum numbers of Shares, the amount of Selling Commissions otherwise payable
to the Managing Dealer or a Soliciting Dealer shall be reduced in accordance
with the following schedule:
<TABLE>
<CAPTION>
Purchase Price for Reallowed Commissions on Sales
Incremental Share in per Share on Total Sale for Increment
Dollar Amount Volume Discount Share in Volume Discount Range
of Shares Purchased Range Per Share Percent Dollar Amount
<S> <C>
$ 10 -- $250,000 $10.00 7.0% $0.70
250,010 -- 500,000 9.85 5.5% 0.55
500,010 -- 750,000 9.70 4.0% 0.40
750,010 -- 1,000,000 9.60 3.0% 0.30
1,000,010 -- 5,000,000 9.50 2.0% 0.20
</TABLE>
Selling Commissions for purchases of $5,000,000 or more will, in the
sole discretion of the Managing Dealer, be reduced to $0.15 per Share or less
but in no event will the proceeds to the Company be less than $9.25 per Share.
For example, if an investor purchases 100,000 Shares, the investor
could pay as little as $978,750 rather than $1,000,000 for the Shares, in which
event the Selling Commissions on the sale of such Shares would be $53,750
($0.54 per Share). The net proceeds to the Company will not be affected by such
discounts.
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Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser," provided all
such Shares are purchased through the same Soliciting Dealer or through the
Managing Dealer. The volume discount will be prorated among the separate
subscribers considered to be a single "purchaser." Shares purchased pursuant to
the Reinvestment Plan on behalf of a Participant in the Reinvestment Plan will
not be combined with other subscriptions for Shares by the investor in
determining the volume discount to which such investor may be entitled. See
"Summary of Reinvestment Plan." Further subscriptions for Shares will not be
combined for purposes of the volume discount in the case of subscriptions by any
"purchaser" who subscribes for additional Shares subsequent to the purchaser's
initial purchase of Shares.
Any request to combine more than one subscription must be made in
writing in a form satisfactory to the Company and must set forth the basis for
such request. Any such request will be subject to verification by the Managing
Dealer that all of such subscriptions were made by a single "purchaser." If a
"purchaser" does not reduce the per Share purchase price, the excess purchase
price over the discounted purchase price will be returned to the actual separate
subscribers for Shares.
For purposes of such volume discounts, "purchaser" includes (i) an
individual, his or her spouse, and their children under the age of 21, who
purchase the Shares for his or her or their own accounts, and all pension or
trust funds established by each such individual; (ii) a corporation,
partnership, association, joint-stock company, trust fund, or any organized
group of persons, whether incorporated or not (provided that the entities
described in this clause (ii) must have been in existence for at least six
months before purchasing the Shares and must have formed such group for a
purpose other than to purchase the Shares at a discount); (iii) an employee's
trust, pension, profit-sharing, or other employee benefit plan qualified under
Section 401 of the Code; and (iv) all pension, trust, or other funds maintained
by a given bank. In addition, the Company, in its sole discretion, may aggregate
and combine separate subscriptions for Shares received during the offering
period from (i) the Managing Dealer or the same Soliciting Dealer, (ii)
investors whose accounts are managed by a single investment adviser registered
under the Investment Advisers Act of 1940, (iii) investors over whose accounts a
designated bank, insurance company, trust company, or other entity exercises
discretionary investment responsibility, or (iv) a single corporation,
partnership, trust association, or other organized group of persons, whether
incorporated or not, and whether such subscriptions are by or for the benefit of
such corporation, partnership, trust association, or group. Except as provided
in this paragraph, subscriptions will not be cumulated, combined, or aggregated.
Any reduction in commissions will reduce the effective purchase price
per Share to the investor involved but will not alter the net proceeds payable
to the Company as a result of such sale. All investors will be deemed to have
contributed the same amount per Share to the Company whether or not the investor
receives a discount. Accordingly, for purposes of Distributions, investors who
pay reduced commissions will receive higher returns on their investments in the
Company as compared to investors who do not pay reduced commissions.
In connection with the sale of Shares, certain registered principals or
representatives of the Managing Dealer may perform wholesaling functions for
which they will receive compensation payable by the Managing Dealer in an
aggregate amount not in excess of one percent of Gross Proceeds. The first 0.5%
of Gross Proceeds of any such fee will be paid from the 7.5% of Gross Proceeds
payable to the Managing Dealer as Selling Commissions. In addition, the Advisor
and its Affiliates, including the Managing Dealer and its registered principals
or representatives, may incur due diligence fees and other expenses, including
expenses related to sales seminars and wholesaling activities, a portion of
which may be paid by the Company.
In addition, stockholders may agree with their participating Soliciting
Dealer and the Managing Dealer to have Selling Commissions relating to their
Shares paid over a seven-year period pursuant to a deferred commission
arrangement (the "Deferred Commission Option"). Stockholders electing the
Deferred Commission Option will be required to pay a total of $9.40 per Share
purchased upon subscription, rather than $10.00 per Share, with respect to which
$0.15 per Share will be payable as Selling Commissions due upon subscription,
$0.10 of which may be reallowed to the Soliciting Dealer by the Managing Dealer.
For each of the six years following such subscription on a date to be determined
by the Managing Dealer, $0.10 per Share will be paid by the Company as deferred
Selling Commissions with respect to Shares sold pursuant to the Deferred
Commission Option, which amounts will be deducted from and paid out of
distributions otherwise payable to such stockholders holding such Shares and may
be reallowed to the Soliciting Dealer by the Managing Dealer. The net proceeds
to the Company will not be affected by the election of the Deferred Commission
Option. Under this arrangement, a stockholder electing the Deferred
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Commission Option will pay a 1% Selling Commission per year thereafter for the
next six years which will be deducted from and paid by the Company out of
distributions otherwise payable to such stockholder. All such Selling
Commissions will be paid to the Managing Dealer, whereby a total of up to 7% of
such Selling Commissions may be reallowed to the Soliciting Dealer.
The Company or its Affiliates also may provide incentive items for
registered representatives of the Managing Dealer and the Soliciting Dealers,
which in no event shall exceed an aggregate of $100 per annum per participating
salesperson. In the event other incentives are provided to registered
representatives of the Managing Dealer or the Soliciting Dealers, they will be
paid only in cash, and such payments will be made only to the Managing Dealer or
the Soliciting Dealers rather than to their registered representatives. Any such
sales incentive program must first have been submitted for review by the NASD,
and must comply with Rule 2710(c)(6)(B)(xii). Costs incurred in connection with
such sales incentive programs, if any, will be considered underwriting
compensation. See "Estimated Use of Proceeds."
The Company will also reimburse the Managing Dealer and the Soliciting
Dealers for bona fide due diligence expenses and certain expenses as incurred in
connection with the offering.
The total amount of underwriting compensation, including commissions
and reimbursement of expenses, paid in connection with the offering will not
exceed 10.5% of Gross Proceeds.
The Managing Dealer and the Soliciting Dealers severally will indemnify
the Company and its officers and Directors, the Advisor and its officers and
directors and their Affiliates, against certain liabilities, including
liabilities under the Securities Act of 1933.
SUBSCRIPTION PROCEDURES
Procedures Applicable to All Subscriptions. In order to purchase
Shares, the subscriber must complete and execute the Subscription Agreement. Any
subscription for Shares must be accompanied by cash or check payable to
"SouthTrust Asset Management Company of Florida, N.A., Escrow Agent" (or to the
Company after subscription funds are released from escrow), in the amount of
$10.00 per Share. See "Escrow Arrangements" below. Certain Soliciting Dealers
who have "net capital," as defined in the applicable federal securities
regulations, of $250,000 or more may instruct their customers to make their
checks for Shares for which they have subscribed payable directly to the
Soliciting Dealer. In such case, the Soliciting Dealer will issue a check made
payable to the order of the Escrow Agent for the aggregate amount of the
subscription proceeds.
Each subscription will be accepted or rejected by the Company within 30
days after its receipt, and no sale of Shares shall be completed until at least
five business days after the date on which the subscriber receives a copy of
this Prospectus. If a subscription is rejected, the funds will be returned to
the subscriber within ten business days after the date of such rejection,
without interest and without deduction. A form of the Subscription Agreement is
set forth as Exhibit D to this Prospectus. The subscription price of each Share
is payable in full upon execution of the Subscription Agreement. A subscriber
whose subscription is accepted shall be sent a confirmation of his or her
purchase.
The Advisor and each Soliciting Dealer who sells Shares on behalf of
the Company have the responsibility to make every reasonable effort to determine
that the purchase of Shares is appropriate for an investor and that the
requisite suitability standards are met. See "Suitability Standards and How to
Subscribe -- Suitability Standards." In making this determination, the
Soliciting Dealers will rely on relevant information provided by the investor,
including information as to the investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. Each investor should be aware
that determining suitability is the responsibility of the Soliciting Dealer.
The Advisor and each Soliciting Dealer shall maintain records of the
information used to determine that an investment in the Shares is suitable and
appropriate for an investor. The Advisor and each Soliciting Dealer shall
maintain these records for at least six years.
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Subscription payments will be released from escrow promptly after the
receipt by the Company of subscriptions for a minimum of 250,000 Shares
(excluding subscriptions of Pennsylvania investors). Persons whose subscriptions
are accepted prior to the release of such payments from escrow will be admitted
as stockholders within 15 days after such release of payments. Thereafter,
subscribers will be admitted as stockholders not later than the last day of the
calendar month following acceptance of their subscriptions.
Procedures Applicable to Non-Telephonic Orders. Each Soliciting Dealer
receiving a subscriber's check made payable solely to the bank escrow agent
(where, pursuant to such Soliciting Dealer's internal supervisory procedures,
internal supervisory review must be conducted at the same location at which
subscription documents and checks are received from subscribers), will deliver
such checks to the Managing Dealer no later than the close of business of the
first business day after receipt of the subscription documents by the Soliciting
Dealer except that, in any case in which the Soliciting Dealer maintains a
branch office, and, pursuant to a Soliciting Dealer's internal supervisory
procedures, final internal supervisory review is conducted at a different
location, the branch office shall transmit the subscription documents and check
to the Soliciting Dealer conducting such internal supervisory review by the
close of business on the first business day following their receipt by the
branch office and the Soliciting Dealer shall review the subscription documents
and subscriber's check to ensure their proper execution and form and, if they
are acceptable, transmit the check to the Managing Dealer by the close of
business on the first business day after the check is received by the Soliciting
Dealer. The Managing Dealer will transmit the check to the Escrow Agent by no
later than the close of business on the first business day after the check is
received from the Soliciting Dealer.
Procedures Applicable to Telephonic Orders. Certain Soliciting Dealers
may permit investors to subscribe for Shares by telephonic order to the
Soliciting Dealer. There are no additional fees associated with telephonic
orders. Subscribers who wish to subscribe for Shares by telephonic order to the
Soliciting Dealer may complete the telephonic order either by delivering a check
in the amount necessary to purchase the Shares to be covered by the subscription
agreement to the Soliciting Dealer or by authorizing the Soliciting Dealer to
pay the purchase price for the Shares to be covered by the subscription
agreement from funds available in an account maintained by the Soliciting Dealer
on behalf of the subscriber. A subscriber must specifically authorize the
registered representative and branch manager to execute the subscription
agreement on behalf of the subscriber and must already have made or agreed to
make payment for the Shares covered by the subscription agreement.
To the extent that customers of any Soliciting Dealer wish to subscribe
and pay for Shares with funds held by or to be deposited with those firms, then
such firms shall, subject to Rule 15c2-4 promulgated under the Securities
Exchange Act of 1934, either (i) upon receipt of an executed subscription
agreement or direction to execute a subscription agreement on behalf of a
customer, to forward the offering price for the Shares covered by the
subscription agreement on or before the close of business of the first business
day following receipt or execution of a subscription agreement by such firms to
the Managing Dealer (except that, in any case in which the Soliciting Dealer
maintains a branch office, and, pursuant to a Soliciting Dealer's internal
supervisory procedures, final internal supervisory review is conducted at a
different location, the branch office shall transmit the subscription documents
and subscriber's check to the Soliciting Dealer conducting such internal
supervisory review by the close of business on the first business day following
their receipt by the branch office and the Soliciting Dealer shall review the
subscription documents and subscriber's check to ensure their proper execution
and form and, if they are acceptable, transmit the check to the Managing Dealer
by the close of business on the first business day after the check is received
by the Soliciting Dealer), or (ii) to solicit indications of interest in which
event (a) such Soliciting Dealers must subsequently contact the customer
indicating interest to confirm the interest and give instructions to execute and
return a subscription agreement or to receive authorization to execute the
subscription agreement on the customer's behalf, (b) such Soliciting Dealers
must mail acknowledgments of receipt of orders to each customer confirming
interest on the business day following such confirmation, (c) such Soliciting
Dealers must debit accounts of such customers on the fifth business day (the
"debit date") following receipt of the confirmation referred to in (a), and (d)
such Soliciting Dealers must forward funds to the Managing Dealer in accordance
with the procedures and on the schedule set forth in clause (i) of this
sentence. If the procedure in (ii) is adopted, subscribers' funds are not
required to be in their accounts until the debit date. The Managing Dealer will
transmit the check to the Escrow Agent by no later than the close of business on
the first business day after the check is received from the Soliciting Dealer.
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Investors, however, who are residents of Florida, Iowa, Maine,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Mexico,
North Carolina, Ohio, Oregon, South Dakota, Tennessee, or Washington must
complete and sign the Subscription Agreement in order to subscribe for Shares
and, therefore, may not subscribe for Shares by telephone. Representatives of
Soliciting Dealers who accept telephonic orders will execute the Subscription
Agreement on behalf of investors who place such orders. All investors who
telephonically subscribe for Shares will receive, with confirmation of their
subscription, a second copy of the Prospectus.
Residents of California, Oklahoma, and Texas who telephonically
subscribe for Shares will have the right to rescind such subscriptions within
ten days from receipt of the confirmation. Such investors who do not rescind
their subscriptions within such ten-day period shall be deemed to have assented
to all of the terms and conditions of the Subscription Agreement.
Additional Subscription Procedures. Investors who have questions or who
wish to place orders for Shares by telephone or to participate in the
Reinvestment Plan should contact their Soliciting Dealer. Certain Soliciting
Dealers do not permit telephonic subscriptions or participation in the
Reinvestment Plan. See "Summary of Reinvestment Plan." The form of Subscription
Agreement for certain Soliciting Dealers who do not permit telephonic
subscriptions or participation in the Reinvestment Plan differs slightly from
the form attached hereto as Exhibit D, primarily in that it will eliminate one
or both of these options.
Investors who wish to establish an IRA for the purpose of investing
solely in Shares may do so by completing, in addition to the Subscription
Agreement, the special IRA account form attached hereto as a part of Exhibit D
appointing Franklin Bank, N.A., an unaffiliated bank, to act as their IRA
custodian. The custodian will not have the authority to vote any of the Shares
held in an IRA except in accordance with written instructions from the
beneficiary of the IRA, although it will hold the Shares on behalf of the
beneficiary and make distributions and, at the direction and in the discretion
of the beneficiary, investments in Shares or in other securities issued by
Affiliates of the Advisor. The custodian will not have authority at any time to
make investments through any such IRA on behalf of the beneficiary if the
investments do not constitute Shares or other securities issued by Affiliates of
the Advisor. The investors will not be required to pay any initial or annual
fees in connection with any such IRA. The fees for establishing and maintaining
all such IRAs will be paid by the Advisor initially and annually up to an
aggregate amount of $5,000, and by the Company above such amount.
ESCROW ARRANGEMENTS
Subscription proceeds will be received in trust and deposited in a
separate account with SouthTrust Asset Management Company of Florida, N.A. (the
"Bank"). No Shares will be sold by the Company, no commissions or fees will be
paid by it, and the initial admission of investors of the Company will not take
place unless subscriptions have been accepted for at least 250,000 Shares
($2,500,000) and subscription funds from investors who place telephonic orders
have been on deposit with the Bank for at least 15 days from the date written
confirmation is mailed to the investor by the Managing Dealer. If subscriptions
for at least $2,500,000 have not been received, accepted, and paid for within
one year from the initial date of this Prospectus, all funds received will be
promptly repaid in full, with any interest earned thereon. In addition,
California and Florida investors only will have the right, as provided in the
attached form of Subscription Agreement, to withdraw their subscription funds if
subscribers for at least $2,500,000 have not been accepted by the Company within
six months after the initial date of this Prospectus and the Company elects at
that time not to terminate the offering.
The Escrow Agreement between the Company and the Bank provides that
escrowed funds will be invested by the Bank in an interest-bearing account with
the power of investment in short-term, highly liquid securities issued or
guaranteed by the U.S. Government, other investments permitted under Rule 15c2-4
of the Securities Exchange Act of 1934, as amended, or, upon receipt of
subscription proceeds for at least 250,000 Shares (provided that subscription
funds from investors who place telephonic orders have been on deposit with the
Bank for at least 15 days), in other short-term, highly liquid investments with
appropriate safety of principal. Such subscription funds will be released
periodically (at least once per month) upon admission of stockholders to the
Company.
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The interest, if any, earned on subscription proceeds prior to their
release from escrow, within 30 days after the date a subscriber is admitted to
the Company as a stockholder, will be distributed to each subscriber. After the
initial admission of stockholders to the Company in connection with the sale of
at least 250,000 Shares, interest will be payable only to those subscribers
whose funds have been held in escrow by the Bank for at least 20 days.
Stockholders will not otherwise be entitled to interest earned on Company funds
or to receive interest on their Invested Capital.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the
prohibited transaction provisions of Section 4975 of the Code that may be
relevant to prospective investors. This discussion does not purport to deal with
all aspects of ERISA or the Code that may be relevant to particular investors in
light of their particular circumstances. A PROSPECTIVE INVESTOR THAT IS AN
EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA, A TAXQUALIFIED RETIREMENT PLAN, AN IRA,
OR A GOVERNMENTAL, CHURCH, OR OTHER PLAN THAT IS EXEMPT FROM ERISA IS ADVISED TO
CONSULT ITS OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING
UNDER APPLICABLE PROVISIONS OF ERISA, THE CODE, AND STATE LAW WITH RESPECT TO
THE PURCHASE, OWNERSHIP, OR SALE OF THE SHARES BY SUCH PLAN OR IRA.
Fiduciary Duties and Prohibited Transactions. A fiduciary of a pension,
profit-sharing, retirement or other employee benefit plan subject to ERISA (an
"ERISA Plan") should consider the fiduciary standards under ERISA in the context
of the ERISA Plan's particular circumstances before authorizing an investment of
any portion of the ERISA Plan's assets in the Common Stock. Accordingly, such
fiduciary should consider (i) whether the investment satisfies the
diversification requirements of Section 404(a)(1)(C) of ERISA; (ii) whether the
investment is in accordance with the documents and instruments governing the
ERISA Plan as required by Section 404(a)(1)(D) of ERISA; (iii) whether the
investment is prudent under Section 404(a)(1)(B) of ERISA; and (iv) whether the
investment is solely in the interests of the ERISA Plan participants and
beneficiaries and for the exclusive purpose of providing benefits to the ERISA
Plan participants and beneficiaries and defraying reasonable administrative
expenses of the ERISA Plan as required by Section 404(a)(1)(A) of ERISA.
In addition to the imposition of fiduciary standards, ERISA and Section
4975 of the Code prohibit a wide range of transactions between an ERISA Plan, an
IRA, or certain other plans (collectively, a "Plan") and persons who have
certain specified relationships to the Plan ("parties in interest" within the
meaning of ERISA and "disqualified persons" within the meaning of the Code).
Thus, a Plan fiduciary or person making an investment decision for a Plan also
should consider whether the acquisition or the continued holding of the Shares
might constitute or give rise to a direct or indirect prohibited transaction.
Plan Assets. The prohibited transaction rules of ERISA and the Code
apply to transactions with a Plan and also to transactions with the "plan
assets" of the Plan. The "plan assets" of a Plan include the Plan's interest in
an entity in which the Plan invests and, in certain circumstances, the assets of
the entity in which the Plan holds such interest. The term "plan assets" is not
specifically defined in ERISA or the Code, nor, as of the date hereof, has it
been interpreted definitively by the courts in litigation. On November 13, 1986,
the United States Department of Labor, the governmental agency primarily
responsible for administering ERISA, adopted a final regulation (the "DOL
Regulation") setting out the standards it will apply in determining whether an
equity investment in an entity will cause the assets of such entity to
constitute "plan assets." The DOL Regulation applies for purposes of both ERISA
and Section 4975 of the Code.
Under the DOL Regulation, if a Plan acquires an equity interest in an
entity, which equity interest is not a "publicly-offered security," the Plan's
assets generally would include both the equity interest and an undivided
interest in each of the entity's underlying assets unless certain specified
exceptions apply. The DOL Regulation defines a publicly-offered security as a
security that is "widely held," "freely transferable," and either part of a
class of securities registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or sold pursuant to an
effective registration statement under the Securities Act (provided the
securities are registered under the Exchange Act within 120 days after the end
of the fiscal year of the issuer during
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which the offering occurred). The Shares are being sold in an offering
registered under the Securities Act of 1933, as amended, and will be registered
within the relevant time period under Section 12(b) of the Exchange Act.
The DOL Regulation provides that a security is "widely held" only if it
is part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another. However, a class of securities
will not fail to be "widely held" solely because the number of independent
investors falls below 100 subsequent to the initial public offering as a result
of events beyond the issuer's control. The Company expects the Shares to be
"widely held" upon completion of the offering.
The DOL Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all the
relevant facts and circumstances. The DOL Regulation further provides that when
a security is part of an offering in which the minimum investment is $10,000 or
less, as is the case with this offering, certain restrictions ordinarily will
not affect, alone or in combination, the finding that such securities are freely
transferable. The Company believes that the restrictions imposed under the
Articles of Incorporation on the transfer of the Common Stock are limited to
restrictions on transfer generally permitted under the DOL Regulation and are
not likely to result in the failure of the Common Stock to be "freely
transferable." See "Summary of the Articles of Incorporation and Bylaws --
Restriction on Ownership." The DOL Regulation only establishes a presumption in
favor of a finding of free transferability and, therefore, no assurance can be
given that the Department of Labor and the U.S. Treasury Department would not
reach a contrary conclusion with respect to the Common Stock.
Assuming that the Shares will be "widely held" and "freely
transferable," the Company believes that the Shares will be publicly-offered
securities for purposes of the DOL Regulation and that the assets of the Company
will not be deemed to be "plan assets" of any Plan that invests in the Shares.
DETERMINATION OF OFFERING PRICE
The offering price per Share was determined by the Company based upon
the estimated costs of investing in the Properties and the Mortgage Loans, the
fees to be paid to the Advisor and its Affiliates, as well as fees to third
parties, and the expenses of this offering.
SUPPLEMENTAL SALES MATERIAL
Shares are being offered only through this Prospectus. In addition to
this Prospectus, the Company may use certain sales materials in connection with
this offering, although only when accompanied or preceded by the delivery of
this Prospectus. No sales material may be used unless it has first been approved
in writing by the Company. As of the date of this Prospectus, it is anticipated
that the following sales material will be authorized for use by the Company in
connection with this offering: (i) a brochure entitled CNL Health Care
Properties, Inc.; (ii) a fact sheet describing the general features of the
Company; (iii) a cover letter transmitting the Prospectus; (iv) a summary
description of the offering; (v) a slide presentation; (vi) broker updates;
(vii) an audio cassette presentation; (viii) a video presentation; (ix) an
electronic media presentation; (x) a cd-rom presentation; (xi) a script for
telephonic marketing; (xii) seminar advertisements and invitations; and (xiii)
certain third-party articles. All such materials will be used only by registered
broker-dealers that are members of the NASD. The Company also may respond to
specific questions from Soliciting Dealers and prospective investors. Additional
materials relating to the offering may be made available to Soliciting Dealers
for their internal use.
LEGAL OPINIONS
The legality of the shares being offered hereby has been passed upon
for the Company by Shaw Pittman Potts & Trowbridge. Statements made under "Risk
Factors -- Tax Risks" and "Federal Income Tax Considerations" have been reviewed
by Shaw Pittman Potts & Trowbridge, who have given their opinion that such
statements as to matters of law are correct in all material respects. Shaw
Pittman Potts & Trowbridge serves as securities and tax counsel to the Company
and to the Advisor and certain of their Affiliates. Certain members of the firm
have invested in prior programs sponsored by the Affiliates of the Company in
aggregate amounts which do not exceed one percent of the amounts sold by any
such program, and members of the firm also may invest in the Company.
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EXPERTS
The audited balance sheet and statement of stockholder's equity of the
Company as of December 31, 1997, and for the period December 22, 1997 (date of
inception) through December 31, 1997, included in this Prospectus, have been
included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement has been filed with the Securities and
Exchange Commission with respect to the securities offered hereby. This
Prospectus does not contain all information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any document are necessarily summaries of such documents, and in
each instance reference is made to the copy of such documents filed with the
Commission, each such statement being qualified in all respects by such
reference. For further information regarding the Company and the Shares,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed or incorporated as a part thereof which may be obtained from the
principal office of the Commission in Washington, D.C., upon payment of the fee
prescribed by the Commission, or examined at the principal office of the
Commission without charge. The Commission maintains a Web site located at
http://www.sec.gov. that contains information regarding registrants that file
electronically with the Commission.
DEFINITIONS
"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 communication expenses, costs of appraisals, nonrefundable option
payments on property not acquired, accounting fees and expenses, and title
insurance.
"Acquisition Fees" 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, 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.
"ADLs" means activities of daily living, such as eating, dressing,
walking, bathing and bathroom use.
"Advisor" means CNL Health Care Advisors, Inc., a Florida corporation,
any successor advisor to the Company, or any person or entity to which CNL
Health Care Advisors, Inc. or any successor advisors subcontracts substantially
all of its functions.
"Advisory Agreement" means the Advisory Agreement between the Company
and the Advisor, pursuant to which the Advisor will act as the advisor to the
Company and provide specified services to the Company.
"Affiliate" means (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.
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"Articles of Incorporation" means the Articles of Incorporation, as the
same may be amended from time to time, of the Company.
"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.
"Bank" means SouthTrust Asset Management Company of Florida, N.A.,
escrow agent for the offering.
"Board of Directors" means the Directors of the Company.
"Bylaws" means the bylaws of the Company.
"Certificate of Need Laws" means laws enacted by certain states
requiring a health care corporation to apply and to be approved prior to
establishing or modifying a health care facility.
"CNL" means CNL Group, Inc., the parent company of the Advisor and the
Managing Dealer.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.01 per share, 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 Company to all persons and
entities (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 of the gross sales price of the Property or Properties.
"Counsel" means tax counsel to the Company.
"Deferred Commission Option" means an agreement between a stockholder,
the participating Soliciting Dealer and the Managing Dealer to have Selling
Commissions paid over a seven year period as described in "The Offering - Plan
of Distribution."
"Director" means a member of the Board of Directors of the Company.
"Distributions" means any distributions of money or other property by
the Company to owners of shares of Common Stock, including distributions that
may constitute a return of capital for federal income tax purposes.
"Equipment" means the furniture, fixtures and equipment used at Health
Care Facilities by operators of Health Care Facilities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" means a pension, profit-sharing, retirement, or other
employee benefit plan subject to ERISA.
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"Excess Shares" means the excess shares exchanged for shares of Common
Stock or Preferred Stock, as the case may be, transferred or proposed to be
transferred in excess of the Ownership Limit or which would otherwise jeopardize
the Company's status as a REIT under the Code.
"Front-End Fees" means fees and expenses paid by any person or entity
to any person or entity for any services rendered in connection with the
organization of the Company and investing in Properties and Mortgage Loans,
including Selling Commissions, marketing support and due diligence expense
reimbursement fees, Organizational and Offering Expenses, Acquisition Expenses
and Acquisition Fees paid out of Gross Proceeds, and any other similar fees,
however designated. During the term of the Company, Front-End Fees shall not
exceed 20% of Gross Proceeds.
"Gross Proceeds" means the aggregate purchase price of all Shares sold
for the account of the Company through the offering, without deduction for
Selling Commissions, volume discounts, the marketing support and due diligence
expense reimbursement fee or Organization 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 the
full offering price, currently $10.00.
"Health Care Facilities" means facilities at which health care services
are provided, including, but not limited to, congregate living, assisted living,
and skilled nursing facilities for seniors, continuing care retirement
communities and life care communities, and medical office buildings and walk-in
clinics.
"IADLs" means instrumental activities of daily living, such as
shopping, telephone use and money management.
"Independent Director" means a Director who is not and within the last
two 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) the performance of services,
other than as a Director, for the Company, (v) service as a director or trustee
of more than three 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 or 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 exceeds 5% of
either the Company's annual gross revenue during either of the last two 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.
"Invested Capital" means the amount calculated by multiplying the total
number of shares of Common Stock 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 plan for redemption of shares.
"IRA" means an Individual Retirement Account.
"IRS" means the Internal Revenue Service.
"Joint Ventures" means the 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.
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"Line of Credit" means a line of credit initially 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 and to pay the Secured Equipment
Lease Servicing Fee. The Line of Credit may be in addition to any Permanent
Financing.
"Listing" means the listing of the shares of Common Stock of the
Company on a national securities exchange or over-the-counter market.
"Managing 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.
"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 borrower.
"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 (as defined herein) shall exclude the gain from the
sale of the Company's Assets.
"Net Offering Proceeds" means Gross Proceeds less (i) Selling
Commissions, (ii) Organizational and Offering Expenses, and (iii) the marketing
support and due diligence expense reimbursement fee.
"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 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 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 or Secured Equipment Leases, to repay outstanding indebtedness, or to
establish reserves.
"Operating Expenses" includes 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 Asset Management Fee, (c) the Performance
Fee, and (d) the Subordinated Incentive Fee, but excluding (i) the expenses of
raising capital such as Organizational and Offering Expenses, legal, audit,
accounting, underwriting, brokerage, listing, 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 10% share of
Net Sales Proceeds, (vi) the Secured Equipment Lease Servicing Fee, and (vii)
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
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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 and the 0.5% marketing support and due
diligence expense reimbursement 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 the formation of the Company,
together with the 7.5% Selling Commissions and the 0.5% marketing support and
due diligence expense reimbursement fee incurred by the Company will not exceed
thirteen percent (13%) of the proceeds raised in connection with this offering.
"Ownership Limit" means, with respect to shares of Common Stock and
Preferred Stock, the percent limitation placed on the ownership of Common Stock
and Preferred Stock by any one Person (as defined in the Articles of
Incorporation). As of the initial date of this Prospectus, the Ownership Limit
is 9.8% of the outstanding Common Stock and 9.8% of the outstanding Preferred
Stock.
"Participants" means those stockholders who elect to participate in the
Reinvestment Plan.
"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 (i) to acquire Assets, (ii) to
pay the Secured Equipment Lease Servicing Fee, (iii) to pay a fee of 4.5% of any
Permanent Financing, excluding amounts to fund Secured Equipment Leases, as
Acquisition Fees, and (iv) to refinance outstanding amounts on the Line of
Credit. Permanent Financing may be in addition to any borrowing under the Line
of Credit.
"Plan" means ERISA Plans, IRAs, Keogh plans, stock bonus plans, and
certain other plans.
"Preferred Stock" means any class or series of preferred stock of the
Company that may be issued in accordance with the terms of the Articles of
Incorporation and applicable law.
"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 final prospectus included in the Company's
Registration Statement filed with the Securities and Exchange Commission,
pursuant to which the Company will offer Shares to the public, as the same may
be amended or supplemented from time to time after the effective date of such
Registration Statement.
"Qualified Plans" means qualified pension, profit-sharing, and stock
bonus plans, including Keogh plans and IRAs.
"Real Estate Asset Value" means the amount actually paid or allocated
to the purchase, development, construction or improvement of a Property,
exclusive of Acquisition Fees and Acquisition Expenses.
"Reinvestment Agent" or "Agent" means the independent agent, which
currently is MMS Escrow and Transfer Agency, Inc., for Participants in the
Reinvestment Plan.
"Reinvestment Plan" means the Reinvestment Plan, in the form attached
hereto as Exhibit A.
"Reinvestment Proceeds" means net proceeds available from the sale of
Shares under the Reinvestment Plan to redeem Shares or, under certain
circumstances, to invest in additional Properties or Mortgage Loans.
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"REIT" means real estate investment trust, as defined pursuant to
Sections 856 through 860 of the Code.
"Related Party Tenant" means a related party tenant, as defined pursuant to
Section 856(d)(2)(B) of the Code.
"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 the National Association of Securities Dealers
Automated Quotation National Market 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
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" (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 or Secured Equipment Lease or portion thereof,
including any event with respect to any Mortgage Loan or Secured Equipment Lease
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 180 days thereafter.
"Secured Equipment Leases" means the Equipment financing made available
by the Company to operators of Health Care Facilities 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.
"Selling Commissions" means any and all commissions payable to
underwriters, managing dealers, or other broker-dealers in connection with the
sale of Shares as described in the Prospectus, including, without limitation,
commissions payable to CNL Securities Corp.
"Shares" means the up to 15,500,000 shares of Common Stock of the Company
to be sold in the offering.
"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.
"Soliciting Dealer Warrants" means warrants to purchase one share of
Common Stock of the Company for every 25 Shares sold through the offering, which
are issuable to the Managing Dealer (all or a portion of which may be reallowed
to Soliciting Dealers, with prior written approval from, and in the sole
discretion of, at the Managing Dealer) and are to be exercised during the
Exercise Period, at a price of $12.00 per share.
-111-
<PAGE>
"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 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;
f. or providing goods or services to the Company on a basis which
was not negotiated at arms length with the Company.
"Stockholder" shall mean a registered holder of the Company's Shares.
"Stockholders' 8% Return," as of each date, shall mean an aggregate
amount equal to an 8% cumulative, noncompounded, annual return on Invested
Capital.
"Subscription Agreement" means the Subscription Agreement, in one of
the forms attached hereto as Exhibit D.
"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.
"Termination Date" means the date of termination of the Advisory
Agreement.
"Total Proceeds" means Gross Proceeds, loan proceeds from Permanent
Financing and amounts outstanding on the Line of Credit, if any, at the time of
Listing, but excluding loan proceeds used to finance Secured Equipment Leases.
"Triple-Net Lease" means a Property lease pursuant to which the tenant
is responsible for property costs associated with ongoing operations, including
repairs, maintenance, property taxes, utilities and insurance.
"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.
-112-
<PAGE>
EXHIBIT A
FORM OF
REINVESTMENT PLAN
<PAGE>
FORM OF
REINVESTMENT PLAN
CNL HEALTH CARE PROPERTIES, INC., a Maryland corporation (the
"Company"), pursuant to its Articles of Incorporation, adopted a Reinvestment
Plan (the "Reinvestment Plan") on the terms and conditions set forth below.
1. Reinvestment of Distributions. MMS Escrow and Transfer Agency, Inc.,
the agent (the "Reinvestment Agent") for participants (the "Participants") in
the Reinvestment Plan, will receive all cash distributions made by the Company
with respect to shares of common stock of the Company (the "Shares") owned by
each Participant (collectively, the "Distributions"). The Reinvestment Agent
will apply such Distributions as follows:
(a) At any period during which the Company is making a public
offering of Shares, the Reinvestment Agent will invest Distributions in
Shares acquired from the managing dealer or participating brokers for
the offering at the public offering price per Share. During such
period, commissions and the marketing support and due diligence fee
equal to 0.5% of the total amount raised from sale of the Shares may be
reallowed to the broker who made the initial sale of Shares to the
Participant at the same rate as for initial purchases.
(b) If no public offering of Shares is ongoing, the Reinvestment
Agent will purchase Shares from any additional shares which the Company
elects to register with the Securities and Exchange Commission (the
"SEC") for the Reinvestment Plan, at a per Share price equal to the
fair market value of the Shares determined by (i) quarterly appraisal
updates performed by the Company based on a review of the existing
appraisal and lease of each Property, focusing on a re-examination of
the capitalization rate applied to the rental stream to be derived from
that Property; and (ii) a review of the outstanding Mortgage Loans and
Secured Equipment Leases focusing on a determination of present value
by a re-examination of the capitalization rate applied to the stream of
payments due under the terms of each Mortgage Loan and Secured
Equipment Lease. The capitalization rate used by the Company and, as a
result, the price per Share paid by Participants in the Reinvestment
Plan prior to Listing will be determined by the Advisor in its sole
discretion. The factors that the Advisor will use to determine the
capitalization rate include (i) its experience in selecting, acquiring
and managing properties similar to the Properties; (ii) an examination
of the conditions in the market; and (iii) capitalization rates in use
by private appraisers, to the extent that the Advisor deems such
factors appropriate, as well as any other factors that the Advisor
deems relevant or appropriate in making its determination. The
Company's internal accountants will then convert the most recent
quarterly balance sheet of the Company from a "GAAP" balance sheet to a
"fair market value" balance sheet. Based on the "fair market value"
balance sheet, the internal accountants will then assume a sale of the
Company's assets and the liquidation of the Company in accordance with
its constitutive documents and applicable law and compute the
appropriate method of distributing the cash available after payment of
reasonable liquidation expenses, including closing costs typically
associated with the sale of assets and shared by the buyer and seller,
and the creation of reasonable reserves to provide for the payment of
any contingent liabilities. Upon listing of the Shares on a national
securities exchange or over-the-counter market, the Reinvestment Agent
may purchase Shares either through such market or directly from the
Company pursuant to a registration statement relating to the
Reinvestment Plan, in either case at a per Share price equal to the
then-prevailing market price on the national securities exchange or
over-the-counter market on which the Shares are listed at the date of
purchase by the Reinvestment Agent.
(c) For each Participant, the Reinvestment Agent will maintain a
record which shall reflect for each fiscal quarter the Distributions
received by the Reinvestment Agent on behalf of such Participant. The
Reinvestment Agent will use the aggregate amount of Distributions to
all Participants for each fiscal quarter to purchase Shares for the
Participants. If the aggregate amount of Distributions to Participants
exceeds the amount required to purchase all Shares then available for
purchase, the Reinvestment Agent will purchase all available Shares and
will return all remaining Distributions to the Participants within 30
days after the date such Distributions are made. The purchased Shares
will be allocated among the Participants based on the portion of the
aggregate Distributions received by the Reinvestment Agent on behalf of
each Participant,
A-1
<PAGE>
as reflected in the records maintained by the Reinvestment Agent. The
ownership of the Shares purchased pursuant to the Reinvestment Plan
shall be reflected on the books of the Company.
(d) Distributions shall be invested by the Reinvestment Agent in
Shares promptly following the payment date with respect to such
Distributions to the extent Shares are available. If sufficient Shares
are not available, Distributions shall be invested on behalf of the
Participants in one or more interest-bearing accounts in Franklin Bank,
N.A., Southfield, Michigan, or in another commercial bank approved by
the Company which is located in the continental United States and has
assets of at least $100,000,000, until Shares are available for
purchase, provided that any Distributions that have not been invested
in Shares within 30 days after such Distributions are made by the
Company shall be returned to Participants.
(e) The allocation of Shares among Participants may result in the
ownership of fractional Shares, computed to four decimal places.
(f) Distributions attributable to Shares purchased on behalf of
the Participants pursuant to the Reinvestment Plan will be reinvested
in additional Shares in accordance with the terms hereof.
(g) No certificates will be issued to a Participant for Shares
purchased on behalf of the Participant pursuant to the Reinvestment
Plan. Participants in the Reinvestment Plan will receive statements of
account in accordance with Paragraph 7 below.
2. Election to Participate. Any stockholder who participates in a
public offering of Shares and who has received a copy of the related final
prospectus included in the Company's registration statement filed with the SEC
may elect to participate in and purchase Shares through the Reinvestment Plan at
any time by written notice to the Company and would not need to receive a
separate prospectus relating solely to the Reinvestment Plan. A person who
becomes a stockholder otherwise than by participating in a public offering of
Shares may purchase Shares through the Reinvestment Plan only after receipt of a
separate prospectus relating solely to the Reinvestment Plan. Participation in
the Reinvestment Plan will commence with the next Distribution made after
receipt of the Participant's notice, provided it is received more than ten days
prior to the last day of the fiscal month or quarter, as the case may be, to
which such Distribution relates. Subject to the preceding sentence, regardless
of the date of such election, a shareholder will become a Participant in the
Reinvestment Plan effective on the first day of the fiscal month (prior to
termination of the offering of Shares) or fiscal quarter (after termination of
the offering of Shares) following such election, and the election will apply to
all Distributions attributable to the fiscal quarter or month (as the case may
be) in which the shareholder makes such written election to participate in the
Reinvestment Plan and to all fiscal quarters or months thereafter.
3. Distribution of Funds. In making purchases for Participants'
accounts, the Reinvestment Agent may commingle Distributions attributable to
Shares owned by Participants in the Reinvestment Plan.
4. Proxy Solicitation. The Reinvestment Agent will distribute to
Participants proxy solicitation material received by it from the Company which
is attributable to Shares held in the Reinvestment Plan. The Reinvestment Agent
will vote any Shares that it holds for the account of a Participant in
accordance with the Participant's written instructions. If a Participant gives a
proxy to person(s) representing the Company covering Shares registered in the
Participant's name, such proxy will be deemed to be an instruction to the
Reinvestment Agent to vote the full Shares in the Participant's account in like
manner. If a Participant does not direct the Reinvestment Agent as to how the
Shares should be voted and does not give a proxy to person(s) representing the
Company covering these Shares, the Reinvestment Agent will not vote said Shares.
5. Absence of Liability. Neither the Company nor the Reinvestment Agent
shall have any responsibility or liability as to the value of the Company's
Shares, any change in the value of the Shares acquired for the Participant's
account, or the rate of return earned on, or the value of, the interest-bearing
accounts, in which Distributions are invested. Neither the Company nor the
Reinvestment Agent shall be liable for any act done in good faith, or for any
good faith omission to act, including, without limitation, any claims of
liability (a) arising out of the failure to terminate a Participant's
participation in the Reinvestment Plan upon such Participant's death prior to
receipt of notice in writing of such death and the expiration of 15 days from
the date of receipt of such notice and
A-2
<PAGE>
(b) with respect to the time and the prices at which Shares are purchased for a
Participant. Notwithstanding the foregoing, liability under the federal
securities laws cannot be waived. Similarly, the Company and the Reinvestment
Agent have been advised that in the opinion of certain state securities
commissioners, indemnification is also considered contrary to public policy and
therefore unenforceable.
6. Suitability.
(a) Within 60 days prior to the end of each fiscal year, CNL
Securities Corp. ("CSC"), will mail to each Participant a participation
agreement (the "Participation Agreement"), in which the Participant
will be required to represent that there has been no material change in
the Participant's financial condition and confirm that the
representations made by the Participant in the Subscription Agreement
(a form of which shall be attached to the Participation Agreement) are
true and correct as of the date of the Participation Agreement, except
as noted in the Participation Agreement or the attached form of
Subscription Agreement.
(b) Each Participant will be required to return the executed
Participation Agreement to CSC within 30 days after receipt. In the
event that a Participant fails to respond to CSC or return the
completed Participation Agreement on or before the fifteenth (15th) day
after the beginning of the fiscal year following receipt of the
Participation Agreement, the Participant's Distribution for the first
fiscal quarter of that year will be sent directly to the Participant
and no Shares will be purchased on behalf of the Participant for that
fiscal quarter and, subject to (c) below, any fiscal quarters
thereafter, until CSC receives an executed Participation Agreement from
the Participant.
(c) If a Participant fails to return the executed Participation
Agreement to CSC prior to the end of the second fiscal quarter for any
year of the Participant's participation in the Reinvestment Plan, the
Participant's participation in the Reinvestment Plan shall be
terminated in accordance with Paragraph 11 below.
(d) Each Participant shall notify CSC in the event that, at any
time during his participation in the Reinvestment Plan, there is any
material change in the Participant's financial condition or inaccuracy
of any representation under the Subscription Agreement.
(e) For purposes of this Paragraph 6, a material change shall
include any anticipated or actual decrease in net worth or annual gross
income or any other change in circumstances that would cause the
Participant to fail to meet the suitability standards set forth in the
Company's Prospectus.
7. Reports to Participants. Within 60 days after the end of each fiscal
quarter, the Reinvestment Agent will mail to each Participant a statement of
account describing, as to such Participant, the Distributions received during
the quarter, the number of Shares purchased during the quarter, the per Share
purchase price for such Shares, the total administrative charge to such
Participant, and the total Shares purchased on behalf of the Participant
pursuant to the Reinvestment Plan. Each statement shall also advise the
Participant that, in accordance with Paragraph 6(d) hereof, he is required to
notify CSC in the event that there is any material change in his financial
condition or if any representation under the Subscription Agreement becomes
inaccurate. Tax information for income earned on Shares under the Reinvestment
Plan will be sent to each participant by the Company or the Reinvestment Agent
at least annually.
8. Administrative Charges, Commissions, and Plan Expenses. The Company
shall be responsible for all administrative charges and expenses charged by the
Reinvestment Agent. The administrative charge for each Participant for each
fiscal quarter shall be the lesser of 5% of the amount reinvested for the
Participant or $2.50, with a minimum charge of $.50. Any interest earned on
Distributions will be paid to the Company to defray costs relating to the
Reinvestment Plan. Additionally, in connection with any Shares purchased from
the Company both prior to and after the termination of a public offering of the
Shares, the Company will pay to CSC selling commissions of 7.5%, a marketing
support and due diligence expense reimbursement fee of .5%, and, in the event
that proceeds of the sale of Shares pursuant to the Reinvestment Plan are used
to acquire Properties or to invest in Mortgage Loans, will pay to CNL Fund
Advisors, Inc. acquisition fees of 4.5% of the purchase price of the Shares sold
pursuant to the Reinvestment Plan.
A-3
<PAGE>
9. No Drawing. No Participant shall have any right to draw checks or
drafts against his account or give instructions to the Company or the
Reinvestment Agent except as expressly provided herein.
10. Taxes. Taxable Participants may incur a tax liability for
Distributions made with respect to such Participant's Shares, even though they
have elected not to receive their Distributions in cash but rather to have their
Distributions held in their account under the Reinvestment Plan.
11. Termination.
(a) A Participant may terminate his participation in the
Reinvestment Plan at any time by written notice to the Company. To be
effective for any Distribution, such notice must be received by the
Company at least ten business days prior to the last day of the fiscal
month or quarter to which such Distribution relates.
(b) The Company or the Reinvestment Agent may terminate a
Participant's individual participation in the Reinvestment Plan, and
the Company may terminate the Reinvestment Plan itself at any time by
ten days' prior written notice mailed to a Participant, or to all
Participants, as the case may be, at the address or addresses shown on
their account or such more recent address as a Participant may furnish
to the Company in writing.
(c) After termination of the Reinvestment Plan or termination of a
Participant's participation in the Reinvestment Plan, the Reinvestment
Agent will send to each Participant (i) a statement of account in
accordance with Paragraph 7 hereof, and (ii) a check for (a) the amount
of any Distributions in the Participant's account that have not been
reinvested in Shares, and (b) the value of any fractional Shares
standing to the credit of a Participant's account based on the market
price of the Shares. The record books of the Company will be revised to
reflect the ownership of record of the Participant's full Shares and
any future Distributions made after the effective date of the
termination will be sent directly to the former Participant.
12. Notice. Any notice or other communication required or permitted to
be given by any provision of this Reinvestment Plan shall be in writing and
addressed to Investor Services Department, CNL Securities Corp., 400 East South
Street, Orlando, Florida 32801, if to the Company, or to MMS Escrow and Transfer
Agency, Inc., 1845 Maxwell, Suite 101, Troy, Michigan 48084-4510, if to the
Reinvestment Agent, or such other addresses as may be specified by written
notice to all Participants. Notices to a Participant may be given by letter
addressed to the Participant at the Participant's last address of record with
the Company. Each Participant shall notify the Company promptly in writing of
any change of address.
13. Amendment. The terms and conditions of this Reinvestment Plan may
be amended or supplemented by an agreement between the Reinvestment Agent and
the Company at any time, including but not limited to an amendment to the
Reinvestment Plan to add a voluntary cash contribution feature or to substitute
a new Reinvestment Agent to act as agent for the Participants or to increase the
administrative charge payable to the Reinvestment Agent, by mailing an
appropriate notice at least 30 days prior to the effective date thereof to each
Participant at his last address of record; provided, that any such amendment
must be approved by a majority of the Independent Directors of the Company. Such
amendment or supplement shall be deemed conclusively accepted by each
Participant except those Participants from whom the Company receives written
notice of termination prior to the effective date thereof.
14. Governing Law. THIS REINVESTMENT PLAN AND A PARTICIPANT'S ELECTION
TO PARTICIPATE IN THE REINVESTMENT PLAN SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF FLORIDA.
A-4
<PAGE>
EXHIBIT B
FINANCIAL INFORMATION
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
Page
----
Report of Independent Accountants B-2
Financial Statements:
Balance Sheet at December 31, 1997 B-3
Statement of Stockholder's Equity B-4
Notes to Financial Statements B-5
B-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
CNL Health Care Properties, Inc.
We have audited the accompanying balance sheet of CNL Health Care
Properties, Inc. (a development stage company) as of December 31, 1997, and the
related statement of stockholder's equity for the period December 22, 1997 (date
of inception) through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CNL Health Care
Properties, Inc. as of December 31, 1997, and the changes in stockholder's
equity for the period December 22, 1997 (date of inception) through December 31,
1997 in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Orlando, Florida
January 20, 1998
B-2
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
BALANCE SHEET
December 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash $200,000
Deferred offering costs 80,330
--------
$280,330
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued offering costs:
Due to CNL Health Care Advisors, Inc. $ 58,600
Due to others 21,730
--------
80,330
--------
Stockholder's equity:
Common stock, $.01 par value; 100,000
shares authorized, 20,000 shares
issued and outstanding 200
Capital in excess of par value 199,800
--------
200,000
--------
$280,330
========
</TABLE>
See accompanying notes to financial statements.
B-3
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
STATEMENT OF STOCKHOLDER'S EQUITY
December 22, 1997 (Date of Inception)
through December 31, 1997
<TABLE>
<CAPTION>
Common stock Capital in
Number Par excess of
of shares value par value Total
----------- --------- ------------ -----------
<S> <C>
Balance, December 22, 1997
(Date of Inception) - $ - $ - $ -
Cash received from sale
of common stock to
CNL Health Care Advisors, Inc. 20,000 200 199,800 200,000
-------- -------- -------- --------
Balance at December 31, 1997 20,000 $ 200 $199,800 $200,000
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
B-4
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS
December 22, 1997 (Date of Inception)
through December 31, 1997
1. Organization:
CNL Health Care Properties, Inc. (the "Company") was organized in
Maryland on December 22, 1997. The Company intends to file a
registration statement on Form S-11 with the Securities and Exchange
Commission with respect to a public offering (the "Offering") of
15,500,000 shares of common stock. A maximum of 15,000,000 shares may
be sold. In addition, the Company plans to register an additional
500,000 shares which will be available only to stockholders who elect
to participate in the Company's reinvestment plan (the "Reinvestment
Plan") (Note 3). In addition, the Company plans to register 600,000
shares issuable upon the exercise of warrants granted to the managing
dealer of the offering.
The Company intends to use the proceeds from its public offering, after
deducting offering expenses, primarily to acquire real estate
properties (the "Properties") related to health care and seniors'
housing facilities (the "Health Care Facilities") located across the
United States. The Health Care Facilities may include, but will not be
limited to, congregate living, assisted living and skilled nursing
facilities for seniors, continuing care retirement communities and life
care communities, and medical office buildings and walk-in clinics. The
Company may provide mortgage financing (the "Mortgage Loans") to
operators of Health Care Facilities in the aggregate principal amount
of approximately 5% to 10% of the Company's total assets. The Company
also intends to offer furniture, fixture and equipment financing
("Secured Equipment Leases") to operators of Health Care Facilities.
Secured Equipment Leases will be funded from the proceeds of a loan in
an amount up to ten percent of the Company's total assets which the
Company intends to obtain.
The Company is in the development stage and has not begun operations.
2. Income Taxes:
The Company intends to make an election to be taxed as a real estate
investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code commencing with its taxable year ending December
31, 1998. If the Company qualifies for taxation as a REIT, the Company
generally will not be subject to federal corporate income tax to the
extent it distributes its REIT taxable income to its stockholders, so
long as it distributes at least 95 percent of its REIT taxable income.
B-5
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 22, 1997 (Date of Inception)
through December 31, 1997
2. Income Taxes - Continued:
REITs are subject to a number of other organizational and operational
requirements. Even if the Company qualifies for taxation as a REIT, it
may be subject to certain state and local taxes on its income and
property, and federal income and excise taxes on its undistributed
income.
3. Reinvestment Plan:
The Company established a Reinvestment Plan pursuant to which
stockholders may elect to have the full amount of their cash
distributions from the Company reinvested in additional shares of
common stock of the Company.
The Offering includes 500,000 shares of common stock for purchase
through the Reinvestment Plan.
4. Deferred Offering Costs:
The Company has and will continue to incur certain costs in connection
with the Offering, including filing fees, legal, accounting, marketing
and printing costs and escrow fees, which will be deducted from the
gross proceeds of the Offering. Certain preliminary costs incurred
prior to raising capital have been and will be advanced by an affiliate
of the Company.
5. Capitalization:
At December 31, 1997, the Company was authorized to issue 100,000
shares of common stock, all of one class, with a par value of $.01 per
share. The Company plans to amend the Articles of Incorporation to
increase the authorized number of shares of common stock and to
authorize the issuance of two additional classes of stock, preferred
stock and excess stock, to accomplish the Offering.
6. Concentration of Credit Risk:
At December 31, 1997, the Company had cash on deposit in one financial
institution in excess of federally insured levels; however, the Company
has not experienced any losses in such account. The Company limits
investment of cash investments to financial institutions with high
credit standing; therefore, the Company believes it is not exposed to
any significant credit risk on cash.
B-6
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 22, 1997 (Date of Inception)
through December 31, 1997
7. Related Party Arrangements:
Certain affiliates of the Company will receive fees and compensation in
connection with the Offering, and the acquisition, management, and sale
of the assets of the Company.
Amounts due to CNL Health Care Advisors, Inc., the sole stockholder of
the Company, totalling $58,600 at December 31, 1997, consisted of
expenditures incurred on behalf of the Company of $43,398 and
accounting and administrative services in connection with the offering
of $15,202.
B-7
<PAGE>
EXHIBIT C
PRIOR PERFORMANCE TABLES
<PAGE>
EXHIBIT C
PRIOR PERFORMANCE TABLES
The information in this Exhibit C contains certain relevant summary
information concerning certain prior public programs sponsored by two of the
Company's principals (who also serve as the Chairman of the Board and President
of the Company) and their Affiliates (the "Prior Public Programs") which
were formed to invest in restaurant properties leased on a triple-net basis to
operators of national and regional fast-food and family-style restaurant chains.
No Prior Public Programs sponsored by the Company's Affiliates have invested in
health care facilities leased on a triple-net basis to operators of the health
care facilities.
A more detailed description of the acquisitions by the Prior Public
Programs is set forth in Part II of the registration statement filed with the
Securities and Exchange Commission for this Offering and is available from the
Company upon request, without charge. In addition, upon request to the Company,
the Company will provide, without charge, a copy of the most recent Annual
Report on Form 10-K filed with the Securities and Exchange Commission for CNL
Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL
Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL
Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL
Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL
Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd.,
and CNL American Properties Fund, Inc., as well as a copy, for a reasonable fee,
of the exhibits filed with such reports.
The investment objectives of the Prior Public Programs generally
include preservation and protection of capital, the potential for increased
income and protection against inflation, and potential for capital appreciation,
all through investment in restaurant properties. In addition, the investment
objectives of the Prior Public Programs included making partially tax-sheltered
distributions.
STOCKHOLDERS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES AS
IMPLYING THAT THE COMPANY WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN
SUCH TABLES. DISTRIBUTABLE CASH FLOW, FEDERAL INCOME TAX DEDUCTIONS, OR OTHER
FACTORS COULD BE SUBSTANTIALLY DIFFERENT. STOCKHOLDERS SHOULD NOTE THAT, BY
ACQUIRING SHARES IN THE COMPANY, THEY WILL NOT BE ACQUIRING ANY INTEREST IN ANY
PRIOR PUBLIC PROGRAMS.
Description of Tables
The following Tables are included herein:
Table I - Experience in Raising and Investing Funds
Table II - Compensation to Sponsor
Table III - Operating Results of Prior Programs
Table V - Sales or Disposal of Properties
Unless otherwise indicated in the Tables, all information contained in
the Tables is as of June 30, 1997. The following is a brief description of the
Tables:
Table I - Experience in Raising and Investing Funds
Table I presents information on a percentage basis showing the
experience of two of the principals of the Company and their Affiliates in
raising and investing funds for the Prior Public Programs, the offerings of
which became fully subscribed between July 1992 and June 1997.
C-1
<PAGE>
The Table sets forth information on the offering expenses incurred and
amounts available for investment expressed as a percentage of total dollars
raised. The Table also shows the percentage of property acquisition cost
leveraged, the date the offering commenced, and the time required to raise funds
for investment.
Table II - Compensation to Sponsor
Table II provides information, on a total dollar basis, regarding
amounts and types of compensation paid to the general partners of the Prior
Public Programs.
The Table indicates the total offering proceeds and the portion of such
offering proceeds paid or to be paid to two of the principals of the Company and
their Affiliates in connection with the Prior Public Programs, the offerings of
which became fully subscribed between July 1992 and June 1997. The Table also
shows the amounts paid to two of the principals of the Company and their
Affiliates from cash generated from operations and from cash generated from
sales or refinancing by each of the Prior Public Programs on a cumulative basis
commencing with inception and ending June 30, 1997.
Table III - Operating Results of Prior Programs
Table III presents a summary of operating results for the period from
inception through June 30, 1997, of the Prior Public Programs, the offerings of
which became fully subscribed between July 1992 and June 1997.
The Table includes a summary of income or loss of the Prior Public
Programs, which are presented on the basis of generally accepted accounting
principles ("GAAP"). The Table also shows cash generated from operations, which
represents the cash generated from operations of the properties of the Prior
Public Programs, as distinguished from cash generated from other sources
(special items). The section of the Table entitled "Special Items" provides
information relating to cash generated from or used by items which are not
directly related to the operations of the properties of the Prior Public
Programs, but rather are related to items of a partnership nature. These items
include proceeds from capital contributions of limited partners and
disbursements made from these sources of funds, such as syndication and
organizational costs, acquisition of the properties and other costs which are
related more to the organization of the partnership and the acquisition of
properties than to the actual operations of the partnerships.
The Table also presents information pertaining to investment income,
returns of capital on a GAAP basis, cash distributions from operations, sales
and refinancing proceeds expressed in total dollar amounts as well as
distributions and tax results on a per $1,000 investment basis.
Table IV - Results of Completed Programs
Table IV is omitted from this Exhibit C because none of the directors
of the Company or their Affiliates has been involved in completed programs which
made investments similar to those of the Company.
Table V - Sales or Disposal of Properties
Table V provides information regarding the sale or disposal of
properties owned by the Prior Public Programs between July 1992 and June 30,
1997.
The Table includes the selling price of the property, the cost of the
property, the date acquired and the date of sale.
C-2
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XI, Fund XII, Fund XIII, Fund XIV,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ---------- ----------
<S><C>
Dollar amount offered $40,000,000 $45,000,000 $40,000,000 $45,000,000
=========== =========== =========== ===========
Dollar amount raised 100.0% 100.0% 100.0% 100.0%
----------- ----------- ----------- -----------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5) (8.5) (8.5)
Organizational expenses (3.0) (3.0) (3.0) (3.0)
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated
entities) (0.5) (0.5) (0.5) (0.5)
----------- ----------- ----------- -----------
(12.0) (12.0) (12.0) (12.0)
----------- ----------- ----------- -----------
Reserve for operations -- -- -- --
----------- ----------- ----------- ----------
Percent available for
investment 88.0% 88.0% 88.0% 88.0%
=========== =========== =========== ===========
Acquisition costs:
Cash down payment 83.0% 83.0% 82.5% 82.5%
Acquisition fees paid
to affiliates 5.0 5.0 5.5 5.5
Loan costs -- -- -- --
----------- ----------- ----------- ----------
Total acquisition costs 88.0% 88.0% 88.0% 88.0%
=========== =========== =========== ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- -- -- --
Date offering began 3/18/92 9/29/92 3/31/93 8/27/93
Length of offering (in
months) 6 6 5 6
Months to invest 90% of
amount available for
investment measured
from date of offering 6 11 10 11
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
CNL Income CNL Income CNL American CNL Income CNL Income
Fund XV, Fund XVI, Properties Fund, Fund XVII, Fund XVIII,
Ltd. Ltd. Inc. Ltd. Ltd.
---------- ---------- ---------------- ---------- -----------
(Note 1) (Note 2)
<S><C>
Dollar amount offered $40,000,000 $45,000,000 $150,591,765 $30,000,000
=========== =========== ============ ===========
Dollar amount raised 100.0% 100.0% 91.3% 100.0%
----------- ----------- ------------ -----------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5) (7.5) (8.5)
Organizational expenses (3.0) (3.0) (3.0) (3.0)
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated
entities) (0.5) (0.5) (0.5) (0.5)
----------- ----------- ------------ -----------
(12.0) (12.0) (11.0) (12.0)
----------- ----------- ------------ -----------
Reserve for operations -- -- -- --
----------- ----------- ------------ -----------
Percent available for
investment 88.0% 88.0% 89.0% 88.0%
=========== =========== ============ ===========
Acquisition costs:
Cash down payment 82.5% 82.5% 84.5% 83.5%
Acquisition fees paid
to affiliates 5.5 5.5 4.5 4.5
Loan costs -- -- -- --
----------- ----------- ------------ -----------
Total acquisition costs 88.0% 88.0% 89.0% 88.0%
=========== =========== ============ ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- -- -- --
Date offering began 2/23/94 9/02/94 4/19/95 9/02/95
Length of offering (in 6 9 22 12
months)
Months to invest 90% of
amount available for
investment measured 10 11 23 15
from date of offering
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective March 29, 1995, CNL American
Properties Fund, Inc. registered for sale $165,000,000 of shares of
common stock (the "Initial Offering of Shares"). The Initial Offering
of Shares of CNL American Properties Fund, Inc. commenced April 19,
1995, and upon completion of the Initial Offering of Shares on February
6, 1997, had received subscription proceeds of $150,591,765 (15,059,177
shares), including $591,765 (59,177 shares) issued pursuant to the
Reinvestment Plan. Pursuant to a Registration Statement on Form S-11
under the Securities Act of 1933, as amended, effective January 31,
1997, CNL American Properties Fund, Inc. registered for sale
$275,000,000 of shares of common stock (the "1997 Offering of Shares").
The 1997 Offering of Shares of CNL American Properties Fund, Inc.
commenced following the completion of the Initial Offering of Shares on
February 6, 1997.
Note 2: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective August 11, 1995, CNL Income Fund
XVII, Ltd. and CNL Income Fund XVIII, Ltd. each registered for sale
$30,000,000 of units of limited partnership interest (the "Units"). The
offering of Units of CNL Income Fund XVII, Ltd. commenced September 2,
1995. Pursuant to the Registration Statement, the offering of Units of
CNL Income Fund XVIII, Ltd. could not commence until the offering of
Units of CNL Income Fund XVII, Ltd. had terminated. CNL Income Fund
XVII, Ltd. terminated its offering of Units on September 19, 1996, at
which time subscriptions for an aggregate 3,000,000 Units ($30,000,000)
had been received. Upon the termination of the offering of Units of
CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd. commenced its
offering to the public of 3,500,000 Units ($35,000,000).
C-4
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XI, Fund XII, Fund XIII, Fund XIV,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ---------- ----------
<S><C>
Date offering commenced 3/18/92 9/29/92 3/31/93 8/27/93
Dollar amount raised $40,000,000 $45,000,000 $40,000,000 $45,000,000
=========== =========== =========== ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 3,400,000 3,825,000 3,400,000 3,825,000
Real estate commissions - - - -
Acquisition fees 2,000,000 2,250,000 2,200,000 2,475,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) 200,000 225,000 200,000 225,000
----------- ----------- ----------- -----------
Total amount paid to sponsor 5,600,000 6,300,000 5,800,000 6,525,000
=========== =========== =========== ===========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1997 (6 months) 1,841,174 1,981,123 1,708,175 1,856,053
1996 3,734,852 4,089,655 3,494,528 3,841,163
1995 3,758,271 3,928,473 3,482,461 3,823,939
1994 3,574,474 3,933,486 3,232,046 2,897,432
1993 3,434,512 3,320,549 1,148,550 329,957
1992 1,525,462 63,401 - -
1991 - - - -
1990 - - - -
1989 - - - -
1988 - - - -
1987 - - - -
1986 - - - -
1985 - - - -
1984 - - - -
1983 - - - -
1982 - - - -
1981 - - - -
1980 - - - -
1979 - - - -
1978 - - - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1997 (6 months) 48,260 49,885 48,767 48,170
1996 133,138 137,966 126,947 134,867
1995 106,086 109,111 103,083 114,095
1994 76,533 84,524 83,046 84,801
1993 78,926 73,789 27,003 8,220
1992 30,237 2,031 - -
1991 - - - -
1990 - - - -
1989 - - - -
1988 - - - -
1987 - - - -
1986 - - - -
1985 - - - -
1984 - - - -
1983 - - - -
1982 - - - -
1981 - - - -
1980 - - - -
1979 - - - -
1978 - - - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash 1,044,750 1,640,000 836,411 3,196,603
Notes - - - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - - - -
Incentive fees - - - -
Other - - - -
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
CNL Income CNL Income CNL American CNL Income CNL Income
Fund XV, Fund XVI, Properties Fund, Fund XVII, Fund XVIII,
Ltd. Ltd. Inc. Ltd. Ltd.
---------- ---------- ---------------- ---------- -----------
(Note 1) (Note 2)
<S><C>
Date offering commenced 2/23/94 9/02/94 4/19/95 and 2/6/97 9/02/95
Dollar amount raised $40,000,000 $45,000,000 $223,843,177 $30,000,000
=========== =========== ============ ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 3,400,000 3,825,000 16,788,238 2,550,000
Real estate commissions - - - -
Acquisition fees 2,200,000 2,475,000 10,072,943 1,350,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) 200,000 225,000 1,119,216 150,000
----------- ----------- ------------ -----------
Total amount paid to sponsor 5,800,000 6,525,000 27,980,397 4,050,000
=========== =========== ============ ===========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1997 (6 months) 1,716,242 1,938,911 6,583,211 1,232,910
1996 3,557,073 3,911,609 5,817,143 1,340,159
1995 3,361,477 2,619,840 566,475 11,671
1994 1,154,454 212,171 - -
1993 - - - -
1992 - - - -
1991 - - - -
1990 - - - -
1989 - - - -
1988 - - - -
1987 - - - -
1986 - - - -
1985 - - - -
1984 - - - -
1983 - - - -
1982 - - - -
1981 - - - -
1980 - - - -
1979 - - - -
1978 - - - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1997 (6 months) 42,619 50,756 269,208 53,768
1996 122,391 157,883 334,603 107,211
1995 122,107 138,445 68,016 2,659
1994 37,620 7,023 - -
1993 - - - -
1992 - - - -
1991 - - - -
1990 - - - -
1989 - - - -
1988 - - - -
1987 - - - -
1986 - - - -
1985 - - - -
1984 - - - -
1983 - - - -
1982 - - - -
1981 - - - -
1980 - - - -
1979 - - - -
1978 - - - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash 3,312,297 1,385,384 5,254,083 -
Notes - - - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - - - -
Incentive fees - - - -
Other - - - -
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective March 29, 1995, CNL American
Properties Fund, Inc. registered for sale $165,000,000 of shares of
common stock (the "Initial Offering of Shares"). The Initial Offering
of Shares of CNL American Properties Fund, Inc. commenced April 19,
1995, and upon completion of the Initial Offering of Shares on February
6, 1997, had received subscription proceeds of $150,591,765 (15,059,177
shares), including $591,765 (59,177 shares) issued pursuant to the
Reinvestment Plan. Pursuant to a Registration Statement on Form S-11,
as amended, effective January 31, 1997, CNL American Properties Fund,
Inc. registered for sale $275,000,000 of shares of common stock (the
"1997 Offering of Shares"). The 1997 Offering of Shares of CNL
American Properties Fund, Inc. commenced following the completion of
the Initial Offering of Shares on February 6, 1997. The amounts shown
represent the combined results of the Initial Offering of Shares and
the 1997 Offering of Shares as of June 30, 1997.
Note 2: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective August 11, 1995, CNL Income Fund
XVII, Ltd. and CNL Income Fund XVIII, Ltd. each registered for sale
$30,000,000 of units of limited partnership interest (the "Units"). The
offering of Units of CNL Income Fund XVII, Ltd. commenced September 2,
1995.Pursuant to the Registration Statement, the offering of Units of
CNL Income Fund XVIII, Ltd. could not commence until the offering of
Units of CNL Income Fund XVII, Ltd. had terminated. CNL Income Fund
XVII, Ltd. terminated its offering of Units on September 19, 1996, at
which time subscriptions for an aggregate 3,000,000 Units ($30,000,000)
had been received. Upon the termination of the offering of Units of CNL
Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd. commenced its
offering to the public of 3,500,000 Units ($35,000,000). As of June 30,
1997, CNL Income Fund XVIII, Ltd. had sold 2,219,221 Units,
representing $22,192,212 of capital contributed by limited partners,
and 17 properties had been acquired. From commencement of the offering
through June 30, 1997, total selling commissions and discounts were
$1,886,338, due diligence expense reimbursement fees were $110,961, and
acquisition fees were $998,650, for a total amount paid to sponsor of
$2,995,949. CNL Income Fund XVIII, Ltd. had cash generated from
operations for the period October 11, 1996 (the date funds were
originally released from escrow) through June 30, 1997, of $490,897.
CNL Income Fund XVIII, Ltd. made payments of $33,405 to the sponsor
from operations for this period.
C-6
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XI, LTD.
<TABLE>
<CAPTION>
1991
(Note 1) 1992 1993 1994
-------- ------------ ------------ ------------
<S><C>
Gross revenue $ 0 $ 1,269,086 $ 3,831,648 $ 3,852,107
Equity in earnings of unconsolidated
joint ventures 0 33,367 121,059 119,370
Profit from sale of properties (Note 5) 0 0 0 0
Interest income 0 150,535 24,258 30,894
Less: Operating expenses 0 (63,390) (206,987) (179,717)
Interest expense 0 0 0 0
Depreciation and amortization 0 (180,631) (469,127) (481,226)
Minority interests in income of
consolidated joint ventures 0 (23,529) (68,399) (68,936)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,185,438 3,232,452 3,272,492
============ ============ ============ ============
Taxable income
- from operations 0 1,295,104 2,855,026 2,947,445
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 4) 0 1,495,225 3,355,586 3,497,941
Cash generated from sales (Note 5) 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,495,225 3,355,586 3,497,941
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (1,205,030) (2,495,002) (3,400,001)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 290,195 860,584 97,940
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 40,000,000 0 0
General partners' capital
contributions 1,000 0 0 0
Minority interests' capital
contributions 0 426,367 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (3,922,875) 0 0
Acquisition of land and buildings 0 (26,428,556) (276,157) 0
Investment in direct financing
leases 0 (6,716,561) (276,206) 0
Increase in restricted cash 0 0 0 0
Decrease in restricted cash 0 0 0 0
Investment in joint ventures 0 (1,658,925) (772) 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XI, Ltd. by
related parties 0 (1,011,487) (900) 0
Increase in other assets 0 (122,024) 0 0
Distributions to holders of minority
interests 0 (17,467) (51,562) (57,641)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 828,667 254,987 40,299
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 45 71 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
6 months
1995 1996 1997
------------ ------------ ------------
<S><C>
Gross revenue $ 3,820,990 $ 3,877,311 $ 1,847,371
Equity in earnings of unconsolidated
joint ventures 118,384 118,211 105,163
Profit from sale of properties (Note 5) 0 213,685 0
Interest income 51,192 51,381 21,104
Less: Operating expenses (237,126) (247,569) (136,290)
Interest expense 0 0 0
Depreciation and amortization (481,226) (478,198) (229,919)
Minority interests in income of
consolidated joint ventures (70,038) (70,116) (34,598)
------------ ------------ ------------
Net income - GAAP basis 3,202,176 3,464,705 1,572,831
============ ============ ============
Taxable income
- from operations 2,985,221 2,965,514 1,447,710
============ ============ ============
- from gain on sale 0 0 0
============ ============ ============
Cash generated from operations
(Notes 2 and 4) 3,652,185 3,601,714 1,792,914
Cash generated from sales (Note 5) 0 1,044,750 0
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales
and refinancing 3,652,185 4,646,464 1,792,914
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,500,023) (3,540,024) (1,790,012)
- from sale of properties 0 0 0
- from cash flow from prior period 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 152,162 1,106,440 2,902
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0
General partners' capital
contributions 0 0 0
Minority interests' capital
contributions 0 0 0
Organization costs 0 0 0
Syndication costs 0 0 0
Acquisition of land and buildings 0 0 0
Investment in direct financing
leases 0 0 0
Increase in restricted cash 0 (1,044,750) 0
Decrease in restricted cash 0 0 1,044,750
Investment in joint ventures 0 0 (1,044,750)
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XI, Ltd. by
related parties 0 0 0
Increase in other assets 0 0 0
Distributions to holders of minority
interests (54,227) (58,718) (29,095)
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 97,935 2,972 (26,193)
============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 74 73 36
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 0 0
============ ============ ============
</TABLE>
C-8
<PAGE>
TABLE III - CNL INCOME FUND XI, LTD. (continued)
<TABLE>
<CAPTION>
1991
(Note 1) 1992 1993 1994
------------ ------------ ------------ -----------
<S><C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 41 62 81
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 4
- from return of capital (Note 3) 0 1 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 0 42 62 85
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 42 62 85
- from cash flow from prior
period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 6) 0 42 62 85
============ ============ ============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 7 and 8) 0.00% 6.17% 8.31% 8.56%
Total cumulative cash distributions
per $1,000 investment from inception 0 42 104 189
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 5) N/A 100% 100% 100%
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
6 months
1995 1996 1997
------------ ------------ ------------
<S><C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 79 81 39
- from capital gain 0 5 0
- from investment income from
prior period 9 3 2
- from return of capital (Note 3) 0 0 4
------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 88 89 45
============ ============ ============
Source (on cash basis)
- from sales 0 0 0
- from refinancing 0 0 0
- from operations 88 89 45
- from cash flow from prior
period 0 0 0
------------ ------------ ------------
Total distributions on cash basis
(Note 6) 88 89 45
============ ============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 7 and 8) 8.85% 8.85% 8.75%
Total cumulative cash distributions
per $1,000 investment from inception 277 366 411
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 5) 100% 97% 100%
</TABLE>
Note 1: The registration statement relating to the offering of Units by CNL
Income Fund XI, Ltd. became effective on March 12, 1992. Activities
through April 22, 1992, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income includes
deductions for depreciation and amortization expense and income from
certain non-cash items. This amount is not required to be presented as
a return of capital except for purposes of this table, and CNL Income
Fund XI, Ltd. has not treated this amount as a return of capital for
any other purpose.
Note 4: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XI, Ltd.
Note 5: In November 1996, CNL Income Fund XI, Ltd. sold one if its properties
and received net sales proceeds of $1,044,750, resulting in a gain of
$213,685 for financial reporting purposes. In January 1997, the
partnership reinvested the net sales proceeds in an additional property
as tenants-in-common with an affiliate of the general partners.
Note 6: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994, 1995 and 1996, are reflected in the 1994, 1995, 1996 and
1997 columns, respectively, for distributions on a cash basis due to
the payment of such distributions in January 1994, 1995, 1996 and 1997,
respectively. As a result of 1994, 1995, 1996 and 1997 distributions
being presented on a cash basis, distributions declared and unpaid as
of December 31, 1994, 1995 and 1996, and June 30, 1997 are not included
in the 1994, 1995, 1996 and 1997 totals, respectively.
Note 7: On December 31, 1995 and 1996, CNL Income Fund XI, Ltd. declared a
special distribution of cumulative excess operating reserves equal to
.10% for each year of the total invested capital. Accordingly, the
total yield for each of 1995 and 1996 was 8.85%.
Note 8: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 6 above)
Note 9: Certain data for columns representing less than 12 months have been
annualized.
C-10
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XII, LTD.
<TABLE>
<CAPTION>
1991
(Note 1) 1992 1993 1994
------------ ------------ ------------ ------------
<S><C>
Gross revenue $ 0 $ 25,133 $ 3,374,640 $ 4,397,881
Equity in earnings of joint ventures 0 46 49,604 85,252
Profit (Loss) from sale of properties
(Note 7) 0 0 0 0
Interest income 0 45,228 190,082 65,447
Less: Operating expenses 0 (7,211) (193,804) (192,951)
Interest expense 0 0 0 0
Depreciation and amortization 0 (3,997) (286,293) (327,795)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 59,199 3,134,229 4,027,834
============ ============ ============ ============
Taxable income
- from operations 0 58,543 2,749,072 3,301,005
============ ============ ============ ============
- from gain (loss) on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 5) 0 61,370 3,246,760 3,848,962
Cash generated from sales (Note 7) 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 61,370 3,246,760 3,848,962
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (61,370) (1,972,769) (3,768,754)
- from sale of properties 0 0 0 0
- from return of capital (Note 4) 0 (60,867) 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 (60,867) 1,273,991 80,208
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 21,543,270 23,456,730 0
General partners' capital
contributions 1,000 0 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (2,066,937) (2,277,637) 0
Acquisition of land and buildings 0 (7,536,009) (15,472,737) (230)
Investment in direct financing
leases 0 (2,503,050) (11,875,100) (591)
Loan to tenant of joint venture,
net of repayments 0 0 (207,189) 6,400
Investment in joint ventures 0 (372,045) (468,771) (4,400)
Increase in restricted cash 0 0 0 0
Payment of lease costs 0 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XII, Ltd. by
related parties 0 (704,923) (432,749) 0
Increase in other assets 0 (654,497) 0 0
Other 0 0 0 973
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 7,634,942 (6,003,462) 82,360
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 5 64 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
6 months
1995 1996 1997
------------ ------------ ------------
<S><C>
Gross revenue $ 4,404,792 $ 4,264,273 $ 2,058,864
Equity in earnings of joint ventures 81,582 200,499 141,356
Profit (Loss) from sale of properties
(Note 7) 0 (15,355) 0
Interest income 84,197 88,286 37,968
Less: Operating expenses (228,404) (279,341) (132,808)
Interest expense 0 0 0
Depreciation and amortization (327,795) (315,319) (159,551)
------------ ------------ ------------
Net income - GAAP basis 4,014,372 3,943,043 1,945,829
============ ============ ============
Taxable income
- from operations 3,262,046 3,275,495 1,617,525
============ ============ ============
- from gain (loss) on sale 0 (41,506) 0
============ ============ ============
Cash generated from operations
(Notes 2 and 5) 3,819,362 3,951,689 1,931,238
Cash generated from sales (Note 7) 0 1,640,000 0
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales
and refinancing 3,819,362 5,591,689 1,931,238
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,819,362) (3,870,008) (1,912,504)
- from sale of properties 0 0 0
- from return of capital (Note 4) 0 0 0
- from cash flow from prior period (5,645) 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions (5,645) 1,721,681 18,734
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0
General partners' capital
contributions 0 0 0
Organization costs 0 0 0
Syndication costs 0 0 0
Acquisition of land and buildings 0 0 (55,000)
Investment in direct financing
leases 0 0 0
Loan to tenant of joint venture,
net of repayments 7,008 7,741 4,171
Investment in joint ventures 0 (1,645,024) 0
Increase in restricted cash 0 0 0
Payment of lease costs 0 0 (24,052)
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XII, Ltd. by
related parties 0 0 0
Increase in other assets 0 0 0
Other 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,363 84,398 (56,147)
============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 72 72 36
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 (1) 0
============ ============ ============
</TABLE>
C-12
<PAGE>
TABLE III - CNL INCOME FUND XII, LTD. (continued)
<TABLE>
<CAPTION>
1991 6 months
(Note 1) 1992 1993 1994 1995 1996 1997
----------- --------- --------- --------- --------- --------- --------
<S><C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 5 46 84 85 86 43
- from capital gain 0 0 0 0 0 0 0
- from investment income from
prior period 0 0 0 0 0 0 0
- from return of capital (Note 3) 0 7 0 0 0 0 0
----------- --------- --------- --------- --------- --------- ---------
Total distributions on GAAP basis
(Note 6) 0 12 46 84 85 86 43
=========== ========= ========= ========= ========= ========= =========
Source (on cash basis)
- from sales 0 0 0 0 0 0 0
- from refinancing 0 0 0 0 0 0 0
- from operations 0 6 46 84 85 86 43
- from return of capital (Note 4) 0 6 0 0 0 0 0
- from cash flow from prior period 0 0 0 0 0 0 0
----------- --------- --------- --------- --------- --------- ---------
Total distributions on cash basis
(Note 6) 0 12 46 84 85 86 43
=========== ========= ========= ========= ========= ========= =========
Total cash distributions as a
percentage of original $1,000
investment (Notes 8 and 9) 0.00% 5.00% 6.75% 8.50% 8.60% 8.50% 8.50%
Total cumulative cash distributions
per $1,000 investment from inception 0 12 58 142 227 313 356
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 7) N/A 100% 100% 100% 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XII, Ltd. ("CNL XII") and CNL
Income Fund XI, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XI, Ltd. commenced March 12, 1992. Pursuant to the
registration statement, CNL XII could not commence until the offering
of Units of CNL Income Fund XI, Ltd. was terminated. CNL Income Fund
XI, Ltd. terminated its offering of Units on September 28, 1992, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XI, Ltd., CNL XII commenced its offering of Units. Activities
through October 8, 1992, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income includes
deductions for depreciation and amortization expense and income from
certain non-cash items. This amount is not required to be presented as
a return of capital except for purposes of this table, and CNL Income
Fund XII, Ltd. has not treated this amount as a return of capital for
any other purpose.
Note 4: CNL Income Fund XII, Ltd. makes its distributions in the current period
rather than in arrears based on estimated operating results. In cases
where distributions exceed cash from operations in the current period,
once finally determined, subsequent distributions are lowered
accordingly in order to avoid any return of capital. This amount is not
required to be presented as a return of capital except for purposes of
this table, and CNL Income Fund XII, Ltd. has not treated this amount
as a return of capital for any other purpose.
Note 5: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XII, Ltd.
Note 6: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994, 1995 and 1996, are reflected in the 1994, 1995, 1996 and
1997 columns, respectively, for distributions on a cash basis due to
the payment of such distributions in January 1994, 1995, 1996 and 1997,
respectively. As a result of 1994, 1995, 1996 and 1997 distributions
being presented on a cash basis, distributions declared and unpaid as
of December 31, 1994, 1995 and 1996, and June 30, 1997 are not included
in the 1994, 1995, 1996 and 1997 totals, respectively.
C-13
<PAGE>
Note 7: In April 1996, CNL Income Fund XII, Ltd. sold one of its properties to
an unrelated third party for $1,640,000. As a result of this
transaction, CNL Income Fund XII, Ltd. recognized a loss of $15,355 for
financial reporting purposes primarily due to acquisition fees and
miscellaneous acquisition expenses CNL Income Fund XII, Ltd. had
allocated to this property. In May 1996, CNL Income Fund XII, Ltd.
reinvested the proceeds from this sale, along with additional funds,
for a total of $1,645,024 in Middleburg Joint Venture.
Note 8: On December 31, 1995, CNL Income Fund XII, Ltd. declared a special
distribution of cumulative excess operating reserves equal to .10% of
the total invested capital. Accordingly, the total yield for 1995 was
8.60%.
Note 9: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions
declared for the period. (See Note 6 above)
Note 10: Certain data for columns representing less than 12 months have
been annualized.
C-14
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XIII, LTD.
<TABLE>
<CAPTION>
1992 6 months
(Note 1) 1993 1994 1995 1996 1997
---------- ------------ ------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 966,564 $ 3,558,447 $ 3,806,944 $ 3,685,280 $ 1,796,451
Equity in earnings of joint ventures 0 1,305 43,386 98,520 60,654 70,503
Profit (Loss) from sale of properties
(Notes 4 and 5) 0 0 0 (29,560) 82,855 0
Provision for loss on land and net
investment in direct financing leases
(Note 8) 0 0 0 0 0 (41,202)
Interest income 0 181,568 77,379 51,410 49,820 18,246
Less: Operating expenses 0 (59,390) (183,311) (214,705) (253,360) (128,593)
Interest expense 0 0 0 0 0 0
Depreciation and amortization 0 (148,170) (378,269) (393,435) (393,434) (197,265)
---------- ------------ ------------ ------------ ------------ ------------
Net income - GAAP basis 0 941,877 3,117,632 3,319,174 3,231,815 1,518,140
========== ============ ============ ============ ============ ============
Taxable income
- from operations 0 978,535 2,703,252 2,920,859 2,972,159 1,387,838
========== ============ ============ ============ ============ ============
- from gain (loss) on sale 0 0 0 0 0 0
========== ============ ============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 1,121,547 3,149,000 3,379,378 3,367,581 1,659,408
Cash generated from sales (Notes 4 and 5) 0 0 0 286,411 550,000 0
Cash generated from refinancing 0 0 0 0 0 0
---------- ------------ ------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,121,547 3,149,000 3,665,789 3,917,581 1,659,408
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (528,364) (2,800,004) (3,350,014) (3,367,581) (1,659,408)
- from sale of properties 0 0 0 0 0 0
- from cash flow from prior period 0 0 0 0 (32,427) (40,596)
---------- ------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after
cash distributions 0 593,183 348,996 315,775 517,573 (40,596)
Special items (not including sales
and refinancing):
Limited partners' capital
contributions 0 40,000,000 0 0 0 0
General partners' capital
contributions 1,000 0 0 0 0 0
Syndication costs 0 (3,932,017) (181) 0 0 0
Acquisition of land and buildings 0 (19,691,630) (5,764,308) (336,116) 0 0
Investment in direct financing leases 0 (6,760,624) (1,365,075) 0 0 0
Investment in joint ventures 0 (314,998) (545,139) (140,052) 0 (550,000)
Increase in restricted cash 0 0 0 0 (550,000) 0
Decrease in restricted cash 0 0 0 0 0 550,000
Loan to tenant 0 0 0 0 0 (190,997)
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIII, Ltd. by related parties 0 (799,980) (25,036) (3,074) 0 0
Increase in other assets 0 (454,909) 9,226 0 0 0
Other 0 0 0 954 0 0
---------- ------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 8,639,025 (7,341,517) (162,513) (32,427) (231,593)
========== ============ ============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 33 67 72 74 34
========== ============ ============ ============ ============ ============
- from recapture 0 0 0 0 0 0
========== ============ ============ ============ ============ ============
Capital gain (loss) (Notes 4 and 5) 0 0 0 0 0 0
========== ============ ============ ============ ============ ============
</TABLE>
C-15
<PAGE>
TABLE III - CNL INCOME FUND XIII, LTD. (continued)
<TABLE>
<CAPTION>
1992 6 months
(Note 1) 1993 1994 1995 1996 1997
-------- -------- -------- ------- -------- --------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 18 70 82 78 38
- from capital gain 0 0 0 0 2 0
- from investment income from prior
period 0 0 0 2 5 5
-------- -------- -------- -------- -------- --------
Total distributions on GAAP basis (Note 6) 0 18 70 84 85 43
======== ======== ======== ======== ======== ========
Source (on cash basis)
- from sales 0 0 0 0 0 0
- from refinancing 0 0 0 0 0 0
- from operations 0 18 70 84 84 42
- from cash flow from prior period 0 0 0 0 1 1
-------- -------- -------- -------- -------- --------
Total distributions on cash basis (Note 6) 0 18 70 84 85 43
======== ======== ======== ======== ======== ========
Total cash distributions as a percentage
of original $1,000 investment (Note 7) 0.00% 5.33% 7.56% 8.44% 8.50% 8.50%
Total cumulative cash distributions per
$1,000 investment from inception 0 18 88 172 257 300
Amount (in percentage terms) remaining
invested in program properties at the end
of each year (period) presented
(original total acquisition cost of properties
retained, divided by original
total acquisition cost of all properties
in program) (Notes 4 and 5) N/A 100% 100% 100% 99% 100%
</TABLE>
Note 1: The registration statement relating to the offering of Units by
CNL Income Fund XIII, Ltd. became effective on March 17, 1993.
Activities through April 15, 1993, were devoted to organization
of the partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from
tenants, plus distributions from joint ventures, less cash paid
for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows
included in the financial statements of CNL Income Fund XIII,
Ltd.
Note 4: During 1995, the partnership sold one of its properties to a
tenant for its original purchase price, excluding acquisition
fees and miscellaneous acquisition expenses. The net sales
proceeds were used to acquire an additional property. As a
result of this transaction, the partnership recognized a loss
for financial reporting purposes of $29,560 primarily due to
acquisition fees and miscellaneous acquisition expenses the
partnership had allocated to the property and due to the accrued
rental income relating to future scheduled rent increases that
the partnership had recorded and reversed at the time of sale.
Note 5: In November 1996, CNL Income Fund XIII, Ltd. sold one of its
properties and received net sales proceeds of $550,000,
resulting in a gain of $82,855 for financial reporting purposes.
In January 1997, the partnership reinvested the net sales
proceeds in an additional property as tenants-in-common with an
affiliate of the general partners.
Note 6: As a result of the partnership's change in investor services
agents in 1993, distributions are now declared at the end of
each quarter and paid in the following quarter. Since this
table generally presents distributions on a cash basis (rather
than amounts declared), distributions on a cash basis for 1993
only reflect payments for three quarters. Distributions
declared for the quarters ended December 31, 1993, 1994, 1995
and 1996, are reflected in the 1994, 1995, 1996 and 1997
columns, respectively, for distributions on a cash basis due to
the payment of such distributions in January 1994, 1995, 1996
and 1997, respectively. As a result of 1994, 1995, 1996 and
1997 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994, 1995
and 1996, and June 30, 1997, are not included in the 1994, 1995,
1996 and 1997 totals, respectively.
Note 7: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions declared
for the period. (See Note 6 above)
Note 8: During the six months ended June 30, 1997, the partnership
recorded an allowance for loss on land and net investment in the
direct financing lease of $41,202, for financial reporting
purposes, relating to one of its properties. The loss represents
the difference between the property's land carrying value and
the carrying value of the net investment in the direct financing
lease, as compared to the estimated net realizable value, based
on the anticipated sales price of this property from a third
party.
Note 9: Certain data for columns representing less than 12 months have been
annualized.
C-17
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XIV, LTD.
<TABLE>
<CAPTION>
1992 6 months
(Note 1) 1993 1994 1995 1996 1997
--------- ------------ ------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 256,234 $ 3,135,716 $ 4,017,266 $ 3,999,813 $ 1,964,870
Equity in earnings of joint ventures 0 1,305 35,480 338,717 459,137 152,823
Profit (Loss) from sale of properties
(Note 4) 0 0 0 (66,518) 0 0
Interest income 0 27,874 200,499 50,724 44,089 23,015
Less: Operating expenses 0 (14,049) (181,980) (248,840) (246,621) (148,962)
Interest expense 0 0 0 0 0 0
Depreciation and amortization 0 (28,918) (257,640) (340,112) (340,089) (170,055)
-------- ------------ ------------ ------------ ------------ -----------
Net income - GAAP basis 0 242,446 2,932,075 3,751,237 3,916,329 1,821,691
======== ============ ============ ============ ============ ===========
Taxable income
- from operations 0 278,845 2,482,240 3,162,165 3,236,329 1,594,605
======== ============ ============ ============ ============ ===========
- from gain on sale 0 0 0 0 0 47,256
======== ============ ============ ============ ============ ===========
Cash generated from operations
(Notes 2 and 3) 0 321,737 2,812,631 3,709,844 3,706,296 1,807,883
Cash generated from sales (Note 4) 0 0 0 696,012 0 0
Cash generated from refinancing 0 0 0 0 0 0
-------- ------------ ------------ ------------ ------------ -----------
Cash generated from operations, sales
and refinancing 0 321,737 2,812,631 4,405,856 3,706,296 1,807,883
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (9,050) (2,229,952) (3,543,751) (3,706,296) (1,807,883)
- from sale of properties 0 0 0 0 0 0
- from cash flow from prior period 0 0 0 0 (6,226) (48,377)
-------- ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 312,687 582,679 862,105 (6,226) (48,377)
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 28,785,100 16,214,900 0 0 0
General partners' capital
contributions 1,000 0 0 0 0 0
Syndication costs 0 (2,771,892) (1,618,477) 0 0 0
Acquisition of land and buildings 0 (13,758,004) (11,859,237) (964,073) 0 0
Investment in direct financing leases 0 (4,187,268) (5,561,748) (75,352) 0 0
Investment in joint ventures 0 (315,209) (1,561,988) (1,087,218) (7,500) 0
Return of capital from joint venture 0 0 0 0 0 51,950
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIV, Ltd. by related parties 0 (706,215) (376,738) (577) 0 0
Increase in other assets 0 (444,267) 0 0 0 0
Other 0 0 0 5,530 0 0
-------- ------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 6,914,932 (4,180,609) (1,259,585) (13,726) 3,573
======== ============ ============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 16 56 70 71 35
======== ============ ============ ============ ============ ============
- from recapture 0 0 0 0 0 0
======== ============ ============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 0 0 1
======== ============ ============ ============ ============ ============
</TABLE>
C-19
<PAGE>
TABLE III - CNL INCOME FUND XIV, LTD. (continued)
<TABLE>
<CAPTION>
1992 6 months
(Note 1) 1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 51 79 83 40
- from capital gain 0 0 0 0 0 0
- from return of capital 0 0 0 0 0 0
- from investment income from prior
period 0 0 0 0 0 1
----------- ----------- ----------- ----------- ----------- -----------
Total distributions on GAAP basis (Note 5) 0 1 51 79 83 41
=========== =========== =========== =========== =========== ===========
Source (on cash basis)
- from sales 0 0 0 0 0 0
- from refinancing 0 0 0 0 0 0
- from operations 0 1 51 79 83 40
- from cash flow from prior period 0 0 0 0 0 1
----------- ----------- ----------- ----------- ----------- -----------
Total distributions on cash basis (Note 5) 0 1 51 79 83 41
=========== =========== =========== =========== =========== ===========
Total cash distributions as a percentage
of original $1,000 investment (Note 6) 0.00% 4.50% 6.50% 8.06% 8.25% 8.25%
Total cumulative cash distributions
per $1,000 investment from inception 0 1 52 131 214 255
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended, CNL Income Fund XIV, Ltd.
("CNL XIV") and CNL Income Fund XIII, Ltd. each registered for
sale $40,000,000 units of limited partnership interests
("Units"). The offering of Units of CNL Income Fund XIII, Ltd.
commenced March 17, 1993. Pursuant to the registration
statement, CNL XIV could not commence until the offering of
Units of CNL Income Fund XIII, Ltd. was terminated. CNL Income
Fund XIII, Ltd. terminated its offering of Units on August 26,
1993, at which time the maximum offering proceeds of
$40,000,000 had been received. Upon the termination of the
offering of Units of CNL Income Fund XIII, Ltd., CNL XIV
commenced its offering of Units. Activities through September
13, 1993, were devoted to organization of the partnership and
operations had not begun.
Note 2: Cash generated from operations includes cash received from
tenants, plus distributions from joint ventures, less cash paid
for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows
included in the financial statements of CNL Income Fund XIV,
Ltd.
Note 4: During 1995, the partnership sold two of its properties to a
tenant for its original purchase price, excluding acquisition
fees and miscellaneous acquisition expenses. The net sales
proceeds were used to acquire two additional properties. As a
result of these transactions, the partnership recognized a loss
for financial reporting purposes of $66,518 primarily due to
acquisition fees and miscellaneous acquisition expenses the
partnership had allocated to the property and due to the
accrued rental income relating to future scheduled rent
increases that the partnership had recorded and reversed at the
time of sale.
Note 5: As a result of the partnership's change in investor services
agents in 1993, distributions are now declared at the end of
each quarter and paid in the following quarter. Since this
table generally presents distributions on a cash basis (rather
than amounts declared), distributions on a cash basis for 1993
only reflect payments for three quarters. Distributions
declared for the quarters ended December 31, 1993, 1994, 1995
and 1996, are reflected in the 1994, 1995, 1996 and 1997
columns, respectively, for distributions on a cash basis due to
the payment of such distributions in January 1994, 1995, 1996
and 1997, respectively. As a result of 1994, 1995, 1996 and
1997 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994, 1995
and 1996, and June 30, 1997 are not included in the 1994, 1995,
1996 and 1997 totals, respectively.
Note 6: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions
declared for the period. (See Note 5 above)
Note 7: Certain data for columns representing less than 12 months have
been annualized.
C-21
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XV, LTD.
<TABLE>
<CAPTION>
1993 6 months
(Note 1) 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 1,143,586 $ 3,546,320 $ 3,632,699 $ 1,799,379
Equity in earnings of joint ventures 0 8,372 280,606 392,862 117,311
Profit (Loss) from sale of properties
(Note 4) 0 0 (71,023) 0 0
Interest income 0 167,734 88,059 43,049 24,263
Less: Operating expenses 0 (62,926) (228,319) (235,319) (123,377)
Interest expense 0 0 0 0 0
Depreciation and amortization 0 (70,848) (243,175) (248,232) (124,149)
------------ ------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,185,918 3,372,468 3,585,059 1,693,427
============ ============ ============ ============ ============
Taxable income
- from operations 0 1,026,715 2,861,912 2,954,318 1,430,120
============ ============ ============ ============ ============
- from gain on sale 0 0 0 0 47,256
============ ============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 1,116,834 3,239,370 3,434,682 1,673,623
Cash generated from sales (Note 4) 0 0 811,706 0 0
Cash generated from refinancing 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,116,834 4,051,076 3,434,682 1,673,623
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (635,944) (2,650,003) (3,200,000) (1,673,623)
- from sale of properties 0 0 0 0 0
- from cash flow from prior period (6,377)
Cash generated (deficiency) after cash ------------- ------------ ----------- ------------ --------------
distributions 0 480,890 1,401,073 234,682 (6,377)
Special items (not including sales and
refinancing):
Limited partners' capital contra-
bunions 0 40,000,000 0 0 0
General partners' capital contra-
bunions 1,000 0 0 0 0
Syndication costs 0 (3,892,003) 0 0 0
Acquisition of land and buildings 0 (22,152,379) (1,625,601) 0 0
Investment in direct financing
leases 0 (6,792,806) (2,412,973) 0 0
Investment in joint venture 0 (1,564,762) (720,552) (129,939) 0
Return of capital from joint venture 0 0 0 0 51,950
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XV, Ltd. by related parties 0 (1,098,197) (23,507) 0 0
Increase in other assets 0 (187,757) 0 0 0
Other (38) (6,118) 25,150 0 0
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 962 4,786,868 (3,356,410) 104,743 45,573
============ ============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 33 71 73 35
============ ============ ============ ============ ============
- from recapture 0 0 0 0 0
============ ============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 0 1
============ ============ ============ ============ ============
</TABLE>
C-23
<PAGE>
TABLE III - CNL INCOME FUND XV, LTD. (continued)
<TABLE>
<CAPTION>
1993 6 months
(Note 1) 1994 1995 1996 1997
------------ -------------- ------------ -------- -------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 21 66 80 42
- from capital gain 0 0 0 0 0
Total distributions on GAAP basis (Note 5) 0 21 66 80 42
============ ============ ============ ============ =======
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 0 21 66 80 42
------------ ------------ ------------ ------------ =======
Total distributions on cash basis (Note 5) 0 21 66 80 42
============ ============ ============ ============ =======
Total cash distributions as a percentage
of orginal $1,000 investment (Notes 6
and 7). 0 5.00% 7.25% 8.20% 8.00%
Total cumulative cash distributions per
$1,000 investment from inception 0 21 87 167 209
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100% 100%
</TABLE>
Note 1: The registration statement relating to this offering of Units of CNL
Income Fund XV, Ltd. became effective February 23, 1994. Activities
through March 23, 1994, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint venture, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of CNL Income Fund XV, Ltd.
Note 4: During 1995, the partnership sold three of its properties to a tenant
for its original purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The majority of the net sales
proceeds were used to acquire additional properties. As a result of
these transactions, the partnership recognized a loss for financial
reporting purposes of $71,023 primarily due to acquisition fees and
miscellaneous acquisition expenses the partnership had allocated to the
three properties and due to the accrued rental income relating to
future scheduled rent increases that the partnership had recorded and
reversed at the time of sale.
Note 5: Distributions declared for the quarters ended December 31, 1994,
1995 and 1996 are reflected in the 1995, 1996 and 1997 columns,
respectively, due to the payment of such distributions in January 1995,
1996 and 1997, respectively. As a result of distributions being
presented on a cash basis, distributions declared and unpaid as of
December 31, 1994, 1995 and 1996, and June 30, 1997 are not included in
the 1994, 1995, 1996 and 1997 totals, respectively.
Note 6: On December 31, 1996, CNL Income Fund XV, Ltd. declared a special
distribution of cumulative excess operating reserves equal to .20% of
the total invested capital. Accordingly, the total yield for 1996 was
8.20%
Note 7: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 5 above)
Note 8: Certain data for columns representing less than 12 months have been
annualized.
C-25
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XVI, LTD.
<TABLE>
<CAPTION>
1993 6 months
(Note 1) 1994 1995 1996 1997
------------ ------------ ------------ -------- -------------
<S><C>
Gross revenue $ 0 $ 186,257 $ 2,702,504 $ 4,343,390 $ 2,145,424
Equity in earnings from joint venture 0 0 0 19,668 36,620
Profit from sale of properties (Notes 4
and 5) 0 0 0 124,305 41,148
Interest income 0 21,478 321,137 75,160 34,155
Less: Operating expenses 0 (10,700) (274,595) (261,878) (134,647)
Interest expense 0 0 0 0 0
Depreciation and amortization 0 (9,458) (318,205) (552,447) (282,050)
------------ ------------ ------------ ------------ -------------
Net income - GAAP basis 0 187,577 2,430,841 3,748,198 1,840,650
============ ============ ============ ============ =============
Taxable income
- from operations 0 189,864 2,139,382 3,239,830 1,598,010
============ ============ ============ ============ =============
- from gain on sale (Notes 4 and 5) 0 0 0 0 41,148
============ ============ ============ ============ =============
Cash generated from operations
(Notes 2 and 3) 0 205,148 2,481,395 3,753,726 1,888,155
Cash generated from sales (Notes 4 and 5) 0 0 0 775,000 610,384
Cash generated from refinancing 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 205,148 2,481,395 4,528,726 (2,498,539)
Less: Cash distributions to investors
(Note 4)
- from operating cash flow 0 (2,845) (1,798,921) (3,431,251) 1,800,000
- from sale of properties 0 0 0 0 0
------------ ------------ ------------ ------------ ----------
Cash generated (deficiency) after cash
distributions 0 202,303 682,474 1,097,475 698,539
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 0 20,174,172 24,825,828 0 0
General partners' capital contri-
butions 1,000 0 0 0 0
Syndication costs 0 (1,929,465) (2,452,743) 0 0
Acquisition of land and buildings 0 (13,170,132) (16,012,458) (2,355,627) (29,257)
Investment in direct financing 0
leases 0 (975,853) (5,595,236) (405,937)
Investment in joint venture 0 0 0 (775,000) 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XVI, Ltd. by related parties 0 (854,154) (405,569) (2,494) 0
Collection of overpayment of acqui-
sition and syndication costs paid
by related parties on behalf of the
partnership 0 0 0 0 0
Increase in other assets 0 (443,625) (58,720) 0 0
Other (36) (20,714) 20,714 0 0
------------ ------------ ------------ ------------ --------
Cash generated (deficiency) after cash
distributions and special items 964 2,982,532 1,004,290 (2,441,583) 669,282
============ ============ ============ ============ =========
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 17 53 71 35
============ ============ ============ ============ ========
- from recapture 0 0 0 0 0
============ ============ ============ ============ ========
Capital gain (loss) (Notes 4 and 5) 0 0 0 0 1
============ ============ ============ ============ ========
</TABLE>
C-27
<PAGE>
TABLE III - CNL INCOME FUND XVI, LTD. (continued)
<TABLE>
<CAPTION>
1993 6 months
(Note 1) 1994 1995 1996 1997
------------ ------------ ------------ -------- ---------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 45 76 39
- from capital gain 0 0 0 0 1
- from investment income from
prior period 0 0 0 0 0
------------ ------------ ------------ ------------ ------
Total distributions on GAAP basis (Note 6) 0 1 45 76 40
============ ============ ============ ============ ======
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 0 1 45 76 40
------------ ------------ ------------ ------------ ------
Total distributions on cash basis (Note 6) 0 1 45 76 40
============ ============ ============ ============ ======
Total cash distributions as a percentage
of original $1,000 investment (Note 7) 0.00% 4.50% 6.00% 7.88% 8.00%
Total cumulative cash distributions per
$1,000 investment from inception 0 1 46 122 162
Amount (in percentage terms) remaining
invested in program properties at the end
of each year (period) presented (original
total acquisition cost of properties retained,
divided by original total acquisition cost of
all properties in program) (Notes 4 and 5) N/A 100% 100% 100% 99%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XVI, Ltd. ("CNL XVI") and CNL
Income Fund XV, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XV, Ltd. commenced February 23, 1994. Pursuant to the
registration statement, CNL XVI could not commence until the offering
of Units of CNL Income Fund XV, Ltd. was terminated. CNL Income Fund
XV, Ltd. terminated its offering of Units on September 1, 1994, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XV, Ltd., CNL XVI commenced its offering of Units. Activities
through September 22, 1994, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
less cash paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of CNL Income Fund XVI, Ltd.
Note 4: In April 1996, CNL Income Fund XVI, Ltd. sold one of its properties
and received net sales proceeds of $775,000, resulting in a gain of
$124,305 for financial reporting purposes. In October 1996, the
partnership reinvested the net sales proceeds in an additional property
as tenants-in-common with an affiliate of the general partners.
Note 5: In March 1997, CNL Income Fund XVI, Ltd. sold one of its properties and
received net sales proceeds of $610,384, resulting in a gain of $41,148
for financial reporting purposes.
Note 6: Distributions declared for the quarters ended December 31, 1994,
1995 and 1996 are reflected in the 1995, 1996 and 1997 columns,
respectively, due to the payment of such distributions in January 1995,
1996 and 1997, respectively. As a result of distributions being
presented on a cash basis, distributions declared and unpaid as of
December 31, 1994, 1995 and 1996, and June 30, 1997 are not included in
the 1994, 1995, 1996 and 1997 totals, respectively.
Note 7: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 6 above)
Note 8: Certain data for columns representing less than 12 months have been
annualized.
C-29
<PAGE>
TABLE III Operating Results
of Prior Programs CNL AMERICAN
PROPERTIES FUND, INC.
<TABLE>
<CAPTION>
6 months
1994 1995 1996 1997
(Note 1) (Note 2) (Note 2) (Note 2)
------------ ------------ ------------ ----------
<S> <C>
Gross revenue $ 0 $ 539,776 $ 4,363,456 $ 4,972,237
Equity in earnings of joint venture 0 0 0 0
Interest income 0 119,355 1,843,228 1,742,997
Less: Operating expenses 0 (186,145) (908,924) (893,009)
Interest expense 0 0 0 0
Depreciation and amortization 0 (104,131) (521,871) (579,404)
Minority interest in income of
consolidated joint venture 0 (76) (29,927) (15,726)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 368,779 4,745,962 5,227,095
============ ============ ============ ============
Taxable income
- from operations (Note 7) 0 379,935 4,894,262 6,696,419
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 3 and 4) 0 498,459 5,482,540 6,314,003
Cash generated from sales (Note 6) 0 0 0 5,254,083
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 498,459 5,482,540 11,568,086
Less: Cash distributions to investors
- from operating cash flow 0 (498,459) (5,439,404) (6,282,470)
- from sale of properties 0 0 0 0
- from other 0 (136,827) 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 (136,827) 43,136 5,285,616
Special items (not including sales and
refinancing):
Subscriptions received from
stockholders 0 38,454,158 100,792,991 84,646,030
Sale of common stock to CNL Fund
Advisors, Inc. 200,000 0 0 0
Contributions from minority interest 0 200,000 97,419 0
Distributions to holder of minority
interest 0 0 (39,121) (17,035)
Stock issuance costs (19) (3,680,704) (8,486,188) (8,145,622)
Acquisition of land and buildings 0 (18,835,969) (36,104,148) (75,111,847)
Investment in direct financing
leases 0 (1,364,960) (13,372,621) (14,391,675)
Proceeds from sale of equipment direct
financing leases 0 0 0 962,274
Investment in mortgage notes
receivable 0 0 (13,547,264) (4,401,982)
Collections on mortgage notes
receivable 0 0 133,850 117,192
Proceeds of borrowing on line of
credit 0 0 3,666,896 2,888,163
Payment on line of credit 0 0 (145,080) (1,653,321)
Payment of loan costs 0 0 (54,533) (6,101)
Reimbursement of organization, acquisition,
and deferred offering and stock issuance
costs paid on behalf of CNL American Properties
Fund, Inc. by related parties (199,036) (2,500,056) (939,798) (1,524,434)
Increase in other assets 0 (628,142) (1,103,896) 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 945 11,507,500 30,941,643 (11,352,742)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations (Note 7) 0 20 61 38
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-31
<PAGE>
TABLE III - CNL AMERICAN PROPERTIES FUND, INC. (continued)
<TABLE>
<CAPTION>
6 months
1994 1995 1996 1997
(Note 1) (Note 2) (Note 2) (Note 2)
------------ ------------ ------------ ----------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 19 59 29
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 0
- from return of capital 0 14 8 6
------------ ------------ ------------ ------------
Total distributions on GAAP basis 0 33 67 35
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 26 67 35
- from return of capital 0 7 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis 0 33 67 35
============ ============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 5) 0.00% 3.34% 6.73% 7.05%
Total cumulative cash distributions per
$1,000 investment from inception 0 33 100 135
Amount (in percentage terms) remaining
invested in program properties at the end
of each year (period) presented (original
total acquisition cost of properties retained,
divided by original total acquisition cost of
all properties in program) (Note 6) N/A 100% 100% 100%
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective March 29, 1995, CNL American
Properties Fund, Inc. registered for sale $165,000,000 of shares of
common stock (the "Initial Offering of Shares"). The Initial Offering
of Shares of CNL American Properties Fund, Inc. commenced April 19,
1995, and upon completion of the Initial Offering of Shares on February
6, 1997, had received subscription proceeds of $150,591,765 (15,059,177
shares), including $591,765 (59,177 shares) issued pursuant to the
Reinvestment Plan. Pursuant to a Registration Statement on Form S-11,
as amended, effective January 31, 1997, CNL American Properties Fund,
Inc. registered for sale $275,000,000 of shares of common stock (the
"1997 Offering of Shares"). The 1997 Offering of Shares of CNL
American Properties Fund, Inc. commenced following the completion of
the Initial Offering of Shares on February 6, 1997. Activities through
June 1, 1995, were devoted to organization of CNL American Properties
Fund, Inc. and operations had not begun.
Note 2: The amounts shown represent the combined results of the Initial
Offering of Shares and the 1997 Offering of Shares.
Note 3: Cash generated from operations includes cash received from tenants,
less cash paid for expenses, plus interest received.
Note 4: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of CNL American Properties Fund, Inc.
Note 5: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions declared for
the period.
Note 6: In May 1997, CNL American Properties Fund, Inc. sold four of its
properties to the tenant for $5,254,083, which was equal to the
carrying value of the properties at the time of sale. As a result, no
gain or loss was recognized for financial reporting purposes.
Note 7: Taxable income presented is before the dividends paid deduction.
Note 8: Certain data for columns representing less than 12 months have been
annualized.
C-32
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XVII, LTD.
<TABLE>
<CAPTION>
1995 6 months
(Note 1) 1996 1997
------------ ------------ --------
<S> <C>
Gross revenue $ 0 $ 1,195,263 $ 1,237,898
Equity in earnings of unconsolidated
joint ventures 0 4,834 45,358
Interest income 12,153 244,406 48,537
Less: Operating expenses (3,493) (169,536) (103,397)
Interest expense 0 0 0
Depreciation and amortization (309) (179,208) (188,038)
Minority interest in income of
consolidated joint venture 0 (10,432)
------------ ------------ ------------
Net income - GAAP basis 8,351 1,095,759 1,029,926
============ ============ ============
Taxable income
- from operations 12,153 1,114,964 1,138,900
============ ============ ============
- from gain on sale 0 0 0
============ ============ ============
Cash generated from operations
(Notes 2 and 3) 9,012 1,232,948 1,179,142
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales
and refinancing 9,012 1,232,948 1,179,142
Less: Cash distributions to investors
(Note 4)
- from operating cash flow (1,199) (703,681) (1,015,084)
- from sale of properties 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 7,813 529,267 164,058
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 5,696,921 24,303,079 0
General partners' capital contri-
butions 1,000 0 0
Contributions from minority interest 0 140,676 278,170
Syndication costs (604,348) (2,407,317) 0
Acquisition of land and buildings (332,928) (19,735,346) (1,978,419)
Investment in direct financing
leases 0 (1,784,925) (1,009,775)
Investment in joint ventures 0 (201,501) (934,196)
Increase in restricted cash 0 0 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XVII, Ltd. by related parties (347,907) (326,483) (26,068)
Increase in other assets (221,282) 0 0
Distributions to holder of minority
interest 0 0 (16,943)
Other (410) 410 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 4,198,859 517,860 (3,523,173)
============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 36 37 38
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 0 0
============ ============ ============
</TABLE>
C-33
<PAGE>
TABLE III - CNL INCOME FUND XVII, LTD. (continued)
<TABLE>
<CAPTION>
1995 6 months
(Note 1) 1996 1997
------------ ------------ --------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 4 23 34
- from capital gain 0 0 0
- from investment income from
prior period 0 0 0
------------ ------------ ------------
Total distributions on GAAP basis (Note 4) 0 23 34
============ ============ ============
Source (on cash basis)
- from sales 0 0 0
- from refinancing 0 0 0
- from operations 4 23 34
------------ ------------ ------------
Total distributions on cash basis (Note 4) 4 23 34
============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 5) 5.00% 5.50% 7.25%
Total cumulative cash distributions per
$1,000 investment from inception 4 27 61
Amount (in percentage terms) remaining
invested in program properties at the end
of each year (period) presented (original
total acquisition cost of properties retained,
divided by original total acquisition cost of
all properties in program) N/A 98% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, effective August 11, 1995, CNL Income Fund
XVII, Ltd. ("CNL XVII") and CNL Income Fund XVIII, Ltd. each registered
for sale $30,000,000 units of limited partnership interests ("Units").
The offering of Units of CNL Income Fund XVII, Ltd. commenced September
2, 1995. Pursuant to the registration statement, CNL XVIII could not
commence until the offering of Units of CNL Income Fund XVII, Ltd. was
terminated. CNL Income Fund XVII, Ltd. terminated its offering of
Units on September 19, 1996, at which time subscriptions for the
maximum offering proceeds of $30,000,000 had been received. Upon the
termination of the offering of Units of CNL Income Fund XVII, Ltd., CNL
XVIII commenced its offering of Units. Activities through October 11,
1996, were devoted to organization of the partnership and operations
had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XVII, Ltd.
Note 4: Distributions declared for the quarters ended December 31, 1995 and
1996 are reflected in the 1996 and 1997 columns, respectively, due to
the payment of such distributions in January 1996 and 1997,
respectively. As a result of distributions being presented on a cash
basis, distributions declared and unpaid as of December 31, 1996 and
June 30, 1997 are not included in the 1996 and 1997 totals,
respectively.
Note 5: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 4 above)
Note 6: Certain data for columns representing less than 12 months have been
annualized.
C-34
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===================================================================================================================================
Selling Price, Net of
Including Closing and
Closing Costs and GAAP Adjustments
Soft Costs
----------------------
Purchase Total
Cash money Adjustments acquisition
received Mortgage mortgage resulting cost, capital
net of balance taken from Original improvements
Date Date of closing at time back by application mortgage closing and
Property Acquired Sale costs of sale program of GAAP Total financing soft costs (1)
===================================================================================================================================
<S> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA 02/05/87 06/12/92 $1,169,021 0 0 0 $1,169,021 0 $955,000
Wendy's -
Fairfield, CA 07/01/87 10/03/94 1,018,490 0 0 0 1,018,490 0 861,500
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 05/29/87 07/21/93 746,800 0 0 0 746,800 0 642,800
Pizza Hut -
Graham, TX 08/24/87 07/28/94 261,628 0 0 0 261,628 0 205,500
Golden Corral -
Medina, OH 11/18/87 11/30/94 626,582 0 0 0 626,582 0 743,000
Denny's -
Show Low, AZ (8) 05/22/87 01/31/97 620,800 0 0 0 620,800 0 484,185
KFC -
Eagan, MN 06/01/87 06/02/97 623,882 0 42,000 0 665,882 0 601,100
CNL Income Fund III, Ltd.:
Wendy's -
Chicago, IL 06/02/88 01/10/97 496,418 0 0 0 496,418 0 591,362
Perkins -
Bradenton, FL 06/30/88 03/14/97 1,310,001 0 0 0 1,310,001 0 1,080,500
Pizza Hut -
Kissimmee, FL 02/23/88 04/08/97 673,159 0 0 0 673,159 0 474,755
Burger King -
Roswell, GA 06/08/88 06/20/97 257,981 0 685,000 0 942,981 0 775,226
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 03/22/89 04/27/94 712,000 0 0 0 712,000 0 616,501
Burger King -
Hastings, MI 08/12/88 12/15/95 518,650 0 0 0 518,650 0 419,936
Wendy's -
Tampa, FL 12/30/88 09/20/96 1,049,550 0 0 0 1,049,550 0 828,350
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 02/28/90 08/25/95 0 0 1,040,000 0 1,040,000 0 986,418
Ponderosa -
St. Cloud, FL (6) 06/01/89 10/24/96 73,713 0 1,057,299 0 1,131,012 0 996,769
Franklin National Bank -
Franklin, TN 06/26/89 01/07/97 960,741 0 0 0 960,741 0 1,138,164
</TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===========================================================
Cost of Properties
Closing Costs and GAAP Adjustments
Excess
(deficiency)
of property
operating cash
receipts over
cash
Property Total expenditures
========================================================
<S> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA $955,000 $214,021
Wendy's -
Fairfield, CA 861,500 156,990
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 642,800 104,000
Pizza Hut -
Graham, TX 205,500 56,128
Golden Corral -
Medina, OH 743,000 (116,418)
Denny's -
Show Low, AZ (8) 484,185 136,615
KFC -
Eagan, MN 601,100 64,782
CNL Income Fund III, Ltd.:
Wendy's -
Chicago, IL 591,362 (94,944)
Perkins -
Bradenton, FL 1,080,500 229,501
Pizza Hut -
Kissimmee, FL 474,755 198,404
Burger King -
Roswell, GA 775,226 167,755
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 616,501 95,499
Burger King -
Hastings, MI 419,936 98,714
Wendy's -
Tampa, FL 828,350 221,200
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 986,418 53,582
Ponderosa -
St. Cloud, FL (6) 996,769 134,243
Franklin National Bank -
Franklin, TN 1,138,164 (177,423)
</TABLE>
C-35
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===============================================================================================
Including Closing and
Soft Costs
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP
===============================================================================================
<S> <C>
Shoney's -
Smyrna, TN 03/22/89 05/13/97 636,788 0 0 0
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 11/02/89 05/24/94 791,211 0 0 0
Hardee's -
Heber Springs, AR 02/13/90 05/24/94 638,270 0 0 0
Hardee's -
Little Canada, MN 11/28/89 06/29/95 899,503 0 0 0
Jack in the Box -
Dallas, TX 06/28/94 12/09/96 982,980 0 0 0
Denny's -
Show Low, AZ (8) 05/22/87 01/31/97 349,200 0 0 0
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 06/14/90 05/19/92 700,000 0 0 0
Hardee's -
St. Paul, MN 08/09/90 05/24/94 869,036 0 0 0
Perkins -
Florence, SC (3) 08/28/90 08/25/95 0 0 1,160,000 0
Church's Fried Chicken -
Jacksonville, FL (4) 04/30/90 12/01/95 0 0 240,000 0
Shoney's -
Colorado Springs, CO 07/03/90 07/24/96 1,044,909 0 0 0
Hardee's -
Hartland, MI 07/10/90 10/23/96 617,035 0 0 0
Hardee's -
Columbus, IN 09/04/90 05/30/97 223,590 0 0 0
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 03/16/91 07/31/95 1,184,865 0 0 0
Church's Fried Chicken -
Jacksonville, FL (4) 09/28/90 12/01/95 0 0 240,000 0
Church's Fried Chicken -
Jacksonville, FL (5) 09/28/90 12/01/95 0 0 220,000 0
Ponderosa -
Orlando, FL (6) 12/17/90 10/24/96 0 0 1,353,775 0
</TABLE>
<TABLE>
<CAPTION>
=============================================================================================
Cost of Properties
Selling Price, Net of
Closing Costs and GAAP Adjustments
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property Total financing soft costs (1) Total expenditures
=============================================================================================
<S> <C>
Shoney's -
Smyrna, TN 636,788 0 554,200 554,200 82,588
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 791,211 0 605,500 605,500 185,711
Hardee's -
Heber Springs, AR 638,270 0 532,893 532,893 105,377
Hardee's -
Little Canada, MN 899,503 0 821,692 821,692 77,811
Jack in the Box -
Dallas, TX 982,980 0 964,437 964,437 18,543
Denny's -
Show Low, AZ (8) 349,200 0 272,354 272,354 76,846
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 700,000 0 560,202 560,202 139,798
Hardee's -
St. Paul, MN 869,036 0 742,333 742,333 126,703
Perkins -
Florence, SC (3) 1,160,000 0 1,084,905 1,084,905 75,095
Church's Fried Chicken -
Jacksonville, FL (4) 240,000 0 233,728 233,728 6,272
Shoney's -
Colorado Springs, CO 1,044,909 0 898,739 893,739 151,170
Hardee's -
Hartland, MI 617,035 0 841,642 841,642 (224,607)
Hardee's -
Columbus, IN 223,590 0 219,676 219,676 3,914
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 1,184,865 0 949,199 949,199 235,666
Church's Fried Chicken -
Jacksonville, FL (4) 240,000 0 238,153 238,153 1,847
Church's Fried Chicken -
Jacksonville, FL (5) 220,000 0 215,845 215,845 4,155
Ponderosa -
Orlando, FL (6) 1,353,775 0 1,179,210 1,179,210 174,565
</TABLE>
C-36
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===============================================================================================
Including Closing and
Soft Costs
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP
===============================================================================================
<S> <C>
CNL Income Fund IX, Ltd.:
Burger King -
Woodmere, OH 05/31/91 12/12/96 918,445 0 0 0
Burger King -
Alpharetta, GA 09/20/91 06/30/97 1,053,571 0 0 0
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 03/04/92 08/11/95 1,050,186 0 0 0
CNL Income Fund XI, Ltd.:
Burger King -
Philadelphia, PA 09/29/92 11/07/96 1,044,750 0 0 0
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 12/28/92 04/10/96 1,640,000 0 0 0
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 03/31/94 04/24/95 286,411 0 0 0
Checkers -
Richmond, VA 03/31/94 11/21/96 550,000 0 0 0
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 03/31/94 03/01/95 339,031 0 0 0
Checkers -
Dallas, TX 03/31/94 03/01/95 356,981 0 0 0
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 05/27/94 03/01/95 263,221 0 0 0
Checkers -
Leavenworth, KS 06/22/94 03/01/95 259,600 0 0 0
Checkers -
Knoxville, TN 07/08/94 03/01/95 288,885 0 0 0
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================
Cost of Properties
Selling Price, Net of
Closing Costs and GAAP Adjustments
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property Total financing soft costs (1) Total expenditures
==============================================================================================
<S> <C>
CNL Income Fund IX, Ltd.:
Burger King -
Woodmere, OH 918,445 0 918,445 918,445 0
Burger King -
Alpharetta, GA 1,053,571 0 713,866 713,866 339,705
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 1,050,186 0 987,679 987,679 62,507
CNL Income Fund XI, Ltd.:
Burger King -
Philadelphia, PA 1,044,750 0 818,850 818,850 225,900
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 1,640,000 0 1,636,643 1,636,643 3,357
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 286,411 0 286,411 286,411 0
Checkers -
Richmond, VA 550,000 0 413,288 413,288 136,712
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 339,031 0 339,031 339,031 0
Checkers -
Dallas, TX 356,981 0 356,981 356,981 0
TGI Friday's -
Woodridge, NJ (7) 1,753,533 0 1,510,245 1,510,245 243,288
Wendy's -
Woodridge, NJ (7) 747,058 0 672,746 672,746 74,312
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 263,221 0 263,221 263,221 0
Checkers -
Leavenworth, KS 259,600 0 259,600 259,600 0
Checkers -
Knoxville, TN 288,885 0 288,885 288,885 0
TGI Friday's -
Woodridge, NJ (7) 1,753,533 0 1,510,245 1,510,245 243,288
</TABLE>
C-37
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===============================================================================================
Including Closing and
Soft Costs
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP
===============================================================================================
<S> <C>
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 06/24/95 04/24/96 775,000 0 0 0
Checker's -
Oviedo, FL 11/14/94 02/28/97 610,384 0 0 0
CNL American Properties
Fund, Inc.:
TGI Friday's -
Orange, CT 10/30/95 05/08/97 1,312,799 0 0 0
TGI Friday's -
Hazlet, NJ 07/15/96 05/08/97 1,324,109 0 0 0
TGI Friday's -
Marlboro, NJ 08/01/96 05/08/97 1,372,075 0 0 0
TGI Friday's -
Hamden, CT 08/26/96 05/08/97 1,245,100 0 0 0
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================
Cost of Properties
Selling Price, Net of
Closing Costs and GAAP Adjustments
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property Total financing soft costs (1) Total expenditures
==============================================================================================
<S> <C>
Wendy's -
Woodridge, NJ (7) 747,058 0 672,746 672,746 74,312
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 775,000 0 613,838 613,838 161,162
Checker's -
Oviedo, FL 610,384 0 506,311 506,311 104,073
CNL American Properties
Fund, Inc.:
TGI Friday's -
Orange, CT 1,312,799 0 1,310,980 1,310,980 1,819
TGI Friday's -
Hazlet, NJ 1,324,109 0 1,294,237 1,294,237 29,872
TGI Friday's -
Marlboro, NJ 1,372,075 0 1,324,288 1,324,288 47,787
TGI Friday's -
Hamden, CT 1,245,100 0 1,203,136 1,203,136 41,964
</TABLE>
(1) Amounts shown do not include pro rata share of original offering costs or
acquisition fees.
(2) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.25% per annum and provides
for a balloon payment of $1,006,004 in July 2000.
(3) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.25% per annum and provides
for a balloon payment of $1,106,657 in July 2000.
(4) Amounts shown are face value and do not represent discounted current value.
Each mortgage note bears interest at a rate of 10.00% per annum and
provides for a balloon payment of $218,252 in December 2005.
(5) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.00% per annum and provides
for a balloon payment of $200,324 in December 2005.
(6) Amounts shown are face value and do not represent discounted current value.
Each mortgage note bears interest at a rate of 10.75% per annum and
provides for 12 monthly payments of interest only and thereafter, 168 equal
monthly payments of principal and interest.
(7) CNL Income Fund XIV, Ltd. and CNL Income Fund XV, Ltd. each owned a 50
percent interest in Wood-Ridge Real Estate Joint Venture, which owned two
properties. The amounts presented for each of CNL Income Fund XIV, Ltd.
and CNL Income Fund XV, Ltd. represent each partnership's 50 percent
interest in the properties owned by Wood-Ridge Real Estate Joint Venture.
(8) CNL Income Fund II, Ltd. owns a 64 percent interest and CNL Income Fund VI,
Ltd. owns a 36 percent interest in this joint venture. The amounts
presented for each of CNL Income Fund II, Ltd. and CNL Income Fund VI, Ltd.
represent each partnership's percent interest in the properties owned by
Show Low Joint Venture.
C-38
<PAGE>
EXHIBIT D
SUBSCRIPTION AGREEMENT
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
-------------------------------------------------------------------------------
Up to 15,500,000 Shares -- $10.00 per Share
Minimum Purchase -- 250 Shares ($2,500)
100 Shares ($1,000) for IRAs, Keogh, and Qualified Plans
(Minimum purchase may be higher in certain states)
================================================================================
Please read carefully this Subscription Agreement and the Notices (on the back
of the Agreement) before completing this document. TO SUBSCRIBE FOR SHARES,
complete and sign, where appropriate, and deliver the Subscription Agreement,
along with your check, to your Registered Representative. YOUR CHECK SHOULD BE
MADE PAYABLE TO:
SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A.
ALL ITEMS ON THE SUBSCRIPTION AGREEMENT MUST BE COMPLETED IN ORDER FOR YOUR
SUBSCRIPTION TO BE PROCESSED.
==============================================================================
Overnight Packages: Regular Mail Packages:
Attn: Investor Services Attn: Investor Services
400 E. South Street, Suite 500 Post Office Box 1033
Orlando, Florida 32801 Orlando, Florida 32802-1033
For Telephone Inquiries:
CNL SECURITIES CORP.
(407) 422-1574 OR (800) 522-3863
<PAGE>
<TABLE>
<CAPTION>
CNL HEALTH CARE PROPERTIES, INC.
<S> <C>
- ------------------------------------------------------------------------
1.---------------INVESTMENT-----------------------------------
This subscription is in the amount of $_________________ for the purchase of
____________ Shares ($10.00 per Share). The minimum initial subscription is 250
Shares ($2,500); 100 Shares ($1,000) for IRA, Keogh and qualified plan accounts
(except in states with higher minimum purchase requirements). |_| ADDITIONAL
PURCHASE |_| REINVESTMENT PLAN - Investor elects to participate in Plan (See
prospectus for details.)
2.---------------SUBSCRIBER INFORMATION-------------
</TABLE>
<TABLE>
<S> <C>
Name (1st) |_| M |_| F Date of Birth (MM/DD/YY)
----------------------------- -------------------------
Name (2nd) |_| M |_| F Date of Birth (MM/DD/YY)
----------------------------- -------------------------
Address City State Zip Code
---------------------- ------------ -------- ------------------
Custodian Account No. Daytime Phone # ( )
--------------------------- ---- --------------
|_| U.S. Citizen |_| Resident Alien |_| Foreign Resident Country
|_| Check if Subscriber is a U.S. citizen residing outside the U.S.
Income Tax Filing State_______________________
ALL SUBSCRIBERS: State of Residence of Subscriber/Plan Beneficiary (required)________________
Taxpayer Identification Number: For most individual taxpayers, it is their
Social Security number. Note: If the purchase is in more than one name, the
number should be that of the first person listed. For IRAs, Keoghs and
qualified plans, enter both the Social Security number and the custodian
taxpayer identification number.
Social Security # - - Taxpayer ID# -
- ---------------------------------------------------------- ---------
3.---------------INVESTOR MAILING ADDRESS--------------------------------------
For the Subscriber of an IRA, Keogh, or qualified plan to receive informational
mailings, please complete if different from address in Section 2.
Name
------------------------------------------------------------------
Address
------------------------------------------------------------------
City State Zip Code
------------------------------------------------------------------ ----------------- ----------
Daytime Phone #( )
--------------- ----------------------------
- ---------------------- -----------------------------------------------------
4.---------------DIRECT DEPOSIT ADDRESS -----------------------------------------
Investors requesting direct deposit of distribution checks to another financial
institution or mutual fund, please complete below. In no event will
the Company or Affiliates be responsible for any adverse consequences of direct deposit.
Company
--------------------------------------------------------------------------
Address
--------------------------------------------------------------------------
City State Zip Code
------------------------ ------------- -------------
Account No. Phone #( )
------------------- ---------------- --------------
5.---------------FORM OF OWNERSHIP----------------------
(Select only one)
|_|INDIVIDUAL-one signature required (1)
|_|HUSBAND AND WIFE, AS COMMUNITY PROPERTY- two
signatures required (15)
|_|TENANTS IN COMMON-two signatures required (9)
|_|TENANTS BY THE ENTIRETY-two signatures required (31)
|_|S-CORPORATION (22)
|_|C-CORPORATION (5)
|_|IRA-custodian signature required (23)
|_|SEP-custodian signature required (38)
|_|TAXABLE TRUST (7)
|_|TAX-EXEMPT TRUST (20)
|_|JOINT TENANTS WITH RIGHT OF SURVIVORSHIP-all parties must sign (8)
|_|A MARRIED PERSON/SEPARATE PROPERTY-one signature required (34)
|_|KEOGH (H.R.10)-trustee signature required (24)
|_|CUSTODIAN-custodian signature required (33)
|_|PARTNERSHIP (3)
|_|NON-PROFIT ORGANIZATION (12)
|_|PENSION PLAN-trustee signature(s) required (19)
|_|PROFIT SHARING PLAN-trustee signature(s) required (27)
|_|CUSTODIAN UGMA-STATE of -custodian signature required (16)
|_|CUSTODIAN UTMA-STATE of -custodian signature required (42)
|_|ESTATE-Personal Representative signature required (13)
|_|REVOCABLE GRANTOR TRUST-grantor signature required (25)
|_|IRREVOCABLE TRUST-trustee signature required (21)
|_|SUBSCRIBER elects to have the Shares covered by this subscription placed in a
new sponsored IRA account offered by Franklin Bank as custodian. IRA
documents will be sent to subscriber upon receipt of subscription documents.
There is no annual fee involved for CNL Health Care Properties, Inc.
investments.
<PAGE>
6. --------------SUBSCRIBER SIGNATURES--------------------------------------------
If the Subscriber is executing the Subscriber Signature Page, the Subscriber
understands that, BY EXECUTING THIS AGREEMENT A SUBSCRIBER DOES NOT WAIVE ANY
RIGHTS HE MAY HAVE UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE
ACT OF 1934 OR UNDER ANY STATE SECURITIES LAW:
X X
----------------------------------------- ------------------- ---------------------------------------- ----------------
Signature of 1st Subscriber Date Signature of 2nd Subscriber Date
7.--------------BROKER/DEALER INFORMATION--------------------------------------
Broker/Dealer NASD Firm Name
---------------------------------------------
Registered Representative
---------------------------------------------
Branch Mail Address
---------------------------------------------
City State Zip Code |_| Please check if new address
----------------------------------- ---------------- ------------
Phone #( ) Fax #( ) |_| Sold CNL before
-------------- --------------------------- --------------
Shipping Address City State Zip Code
----------------------------------- ---------------- ------- -----------
|_| Telephonic Subscriptions (check here): If the Registered Representative
and Branch Manager are executing the signature page on behalf of the
Subscriber, both must sign below. Registered Representatives and Branch
Managers may not sign on behalf of residents of Florida, Iowa, Maine,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New
Mexico, North Carolina, Ohio, Oregon, South Dakota, Tennessee or
Washington. [NOTE: Not to be executed until Subscriber(s) has (have)
acknowledged receipt of final prospectus.] Telephonic subscriptions may
not be completed for IRA accounts.
|_| Registered Investment Advisor (RIA) (check here): This investment is
made through the RIA in its capacity as an RIA and not in its capacity
as a Registered Representative, if applicable. If an owner or principal
or any member of the RIA firm is an NASD licensed Registered
Representative affiliated with a Broker/Dealer, the transaction should
be conducted through that Broker/Dealer, not through the RIA.
PLEASE READ CAREFULLY THE REVERSE SIDE OF THIS SIGNATURE PAGE AND
SUBSCRIPTION AGREEMENT BEFORE COMPLETING
X
------------------------------------------------------------ ----------------------- -------------------------------------
Principal, Branch Manager or Other Authorized Signature Date Print or Type Name of Person Signing
X
------------------------------------------------------------ ----------------------- -------------------------------------
Registered Representative/Investment Advisor Signature Date Print or Type Name of Person Signing
- -----------------------------------------------------------------------------
Make check payable to : SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A.,
ESCROW AGENT
Please remit check and For overnight delivery, please send to:
subscription document to: For Office Use Only
CNL SECURITIES CORP. CNL SECURITIES CORP.
Attn: Investor Services Attn: Investor Services
P. O. Box 1033 400 E. South Street, Suite 500
Orlando, FL 32802-1033 Orlando, FL 32801
(800) 522-3863 (407) 422-1574
(800) 522-3863
Sub. #
-------------
Admit Date
-------------
Amount
-------------
Region
-------------
- ------------------------------------------------------------------------------
<PAGE>
NOTICE TO ALL INVESTORS:
(a) The purchase of Shares by an IRA, Keogh, or other tax-qualified plan does
not, by itself, create the plan.
(b) The Company, in its sole and absolute discretion, may accept or reject the
Subscriber's subscription which if rejected will be promptly returned to the
Subscriber, without interest. Non-U.S. stockholders (as defined in the
Prospectus) will be admitted as stockholders with the approval of the Advisor.
(c) THE SALE OF SHARES SUBSCRIBED FOR HEREUNDER MAY NOT BE COMPLETED UNTIL AT
LEAST FIVE BUSINESS DAYS AFTER THE DATE THE SUBSCRIBER RECEIVES A FINAL
PROSPECTUS. EXCEPT AS PROVIDED IN THIS NOTICE, THE NOTICE BELOW, AND IN THE
PROSPECTUS, THE SUBSCRIBER WILL NOT BE ENTITLED TO REVOKE OR WITHDRAW HIS
SUBSCRIPTION.
NOTICE TO CALIFORNIA AND FLORIDA RESIDENTS: California and Florida investors
will have the right to withdraw their subscription funds if subscriptions for at
least $2,500,000 have not been accepted by the Company within six months after
the initial offer of Shares of the Company pursuant to the Prospectus and the
Company elects at that time to extend the offering beyond such date. The Company
will promptly notify California and Florida investors if the Company so elects
to extend the offering, and such investors must exercise their right to withdraw
within ten (10) days of such notice by delivering written notice to the Company
of their intention to exercise such right. The subscription funds of withdrawing
California and Florida investors will be promptly returned along with such
investor's pro rata share of interest earned thereon net of any escrow fees
calculated as set forth in the Prospectus and the Escrow Agreement.
NOTICE TO CALIFORNIA RESIDENTS: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER
OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
California investors who do not execute the Subscription Agreement will receive
a confirmation of investment accompanied by a second copy of the final
Prospectus, and will have the opportunity to rescind the investment within ten
(10) days from the date of confirmation.
NOTICE TO NORTH CAROLINA RESIDENTS: By signing this Subscription Agreement,
North Carolina investors acknowledge receipt of the Prospectus and represent
that they meet the suitability standards for North Carolina investors listed in
the Prospectus.
BROKER/DEALER AND FINANCIAL ADVISOR:
By signing this subscription agreement, the signers certify that they recognize
and have complied with their obligations under the NASD's Conduct Rules, and
hereby further certify as follows: (i) a copy of the Prospectus, including the
Subscription Agreement attached thereto as Exhibit D, as amended and/or
supplemented to date, has been delivered to the Subscriber; (ii) they have
discussed such investor's prospective purchase of Shares with such investor and
have advised such investor of all pertinent facts with regard to the liquidity,
valuation, and marketability of the Shares; and (iii) they have reasonable
grounds to believe that the purchase of Shares is a suitable investment for such
investor, that such investor meets the suitability standards applicable to such
investor set forth in the Prospectus and related supplements, if any, that such
investor is legally capable of purchasing such Shares and will not be in
violation of any laws for having engaged in such purchase, and that such
investor is in a financial position to enable such investor to realize the
benefits of such an investment and to suffer any loss that may occur with
respect thereto and will maintain documentation on which the determination was
based for a period of not less than six years; (iv) under penalties of perjury,
(a) the information provided in this Subscription Agreement to the best of our
knowledge and belief is true, correct, and complete, including, but not limited
to, the number shown above as the Subscriber's taxpayer identification number;
(b) to the best of our knowledge and belief, the Subscriber is not subject to
backup withholding either because the Subscriber has not been notified that the
Subscriber is subject to backup withholding as result of failure to report all
interest or dividends or the Internal Revenue Service has notified the
subscriber that the Subscriber is no longer subject to backup withholding under
Section 3406(a)(1)(C) of the Internal Revenue Code of 1986, as amended; and (c)
to the best of our knowledge and belief, the Subscriber is not a nonresident
alien, foreign corporation, foreign trust, or foreign estate for U.S. tax
purposes, and we hereby agree to notify the Company if it comes to the attention
of either of us that the Subscriber becomes such a person within sixty (60) days
of any event giving rise to the Subscriber becoming such a person.
<PAGE>
Franklin Bank, N.A.
- ----------------------------------------------------------------------------------------------------
FRANKLIN BANK, N.A., INDIVIDUAL RETIREMENT ACCOUNT APPLICATION
ACCOUNTHOLDER INFORMATION: NAME ___________________________________
DISCLAIMER:
Franklin Bank, N.A. is a national bank, not associated with CNL Group,
Inc. or any CNL entity. Franklin Bank, N.A. is a custodian for IRAs and will act
in a custodial capacity for all beneficial owners of IRAs. CNL has no
affiliation with Franklin Bank, N.A.
It is not reasonable to project the growth of your IRA investments
include assets other than bank time deposits or savings accounts. Therefore,
your final account balance will depend upon many factors - the amount of your
contributions, the amount of time the funds are invested, the earnings and/or
losses from the investments, expenses incurred such as brokerage commissions and
trustee's fees and the overall performance of your investments.
We expressly state that the growth in the value of your IRA cannot be guaranteed
or projected.
SIGNATURES IMPORTANT: Please read before signing.
I understand the eligibility requirements for the type of
IRA deposit I am making and I state that I do qualify to
make the deposit. I understand that the terms and conditions
which apply to the Individual Retirement Account are
contained in this Application and Form 5305A (which will be
provided within 10 days of our receipt of this application).
I agree to be bound by those terms and conditions. I
understand that I will not be required to pay an annual fee
as long as all investments in this IRA are sponsored by a
CNL entity. Within seven (7) days from the date I establish
the Individual Retirement Account I may revoke it without
penalty by mailing or delivering a written notice to the
Custodian.
I assume complete responsibility for:
1. Determining that I am eligible for an IRA each year I
make a contribution.
2. Insuring that all contributions I make are within
the limits set forth by the tax laws.
3. The tax consequences of any contribution
(including rollover contributions) and distributions.
Signature _______________________________________________
Accountholder
----------------------------------------------- ------------------------------------
Authorized Signature Trustee Date
DESIGNATION OF
BENEFICIARY(IES): I designate the individual(s) named below as my
primary and contingent Beneficiary(ies) of the IRA.
I revoke all prior IRA Beneficiary designations, if
any, made by me. I understand that I may change or
add Beneficiaries at any time by completing and
delivering the proper form to the Custodian. (If
you wish to name more than one Beneficiary, attach
a list of each Beneficiary's name, social security
number, relationship to you and percentage share in
this IRA.) If any primary or contingent Beneficiary
dies before me, his or her interest and the
interest of his or her heirs shall terminate
completely, and the percentage share of any
remaining Beneficiary(ies) shall be increased on a
pro rata basis.
Primary The following individual(s) shall be my Primary Beneficiary(ies):
Beneficiary(ies)
Name________________________________________________________ Social Security #___________________
Address_____________________________________________________ Date of Birth__________ Share______
____________________________________________________________ Relationship________________________
Contingent If none of the Primary Beneficiaries survive me, the
following individual(s) shall be my Beneficiary(ies):
Beneficiary(ies)
Name________________________________________________________ Social Security #___________________
Address_____________________________________________________ Date of Birth__________ Share______
____________________________________________________________ Relationship________________________
Spousal Consent
I am the spouse of IRA accountholder named above. I agree to
my spouse's naming of a primary Beneficiary other than
myself. I acknowledge that I have received a fair and
reasonable disclosure of my spouse's property and financial
obligation. I also acknowledge that I shall have no claim
whatsoever against the Custodian for any payments to my
spouse's Beneficiary(ies).
------------------------------------------------------------------ -------------------------------
Spouse's Signature Date
- ---------------------------------------------------------------------------------------------------------------------------
Custodial Services P.O. Box 7090 Troy, MI 48007-7090
1-800-344-0667
<PAGE>
INVESTMENT OPTIONS:
|_| I would like to receive information regarding mutual fund investments.
|_| I would like to receive information regarding money market accounts.
Note: Franklin Bank, N.A. may consider other investment options for your IRA.
Please provide the following information on your options.
Fund Name___________________________________________________________________
Sponsor Name___________________________________________________________________
Address___________________________________________________________________
Account No.___________________________________________________________________ Telephone #___________________________
Registered Representative information:
Registered Representative's Name______________________________________________
Company______________________________________________________
Address______________________________________________________
Telephone #______________________________________________________
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31. Other Expenses of Issuance and Distribution.
Amount
SEC registration fee................. $ 47,849
NASD filing fee...................... 16,720
Accounting fees and expenses......... 100,000*
Escrow Agent's Fees.................. 5,000*
Sales and advertising expenses....... 3,000,000*
Legal fees and expenses.............. 250,000*
Blue Sky fees and expenses........... 300,000*
Printing expenses.................... 200,000*
Miscellaneous........................ 580,431*
Total........................ $ 4,500,000*
- ---------------------
* Estimated through completion of the offering, assuming sale of 15,000,000
shares.
Item 32. Sales to Special Parties.
The registrant was capitalized through the purchase by the Advisor
of 20,000 shares of Common Stock for aggregate consideration of $200,000.
Item 33. Recent Sales of Unregistered Securities.
See response to Item 31. The offer and sale of the shares is
claimed to be exempt from the registration provisions of the Securities Act of
1933, as amended, by virtue of Section 4(2) thereunder.
Item 34. Indemnification of Directors and Officers.
Pursuant to Maryland corporate law and the Company's Articles of
Incorporation, the Company is required to indemnify and hold harmless a present
or former Director, officer, Advisor, or Affiliate and may indemnify and hold
harmless a present or former employee or agent of the Company (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 while a Director, officer, Advisor,
Affiliate, employee, or agent and in such capacity, provided, that the
Indemnitee has determined, in good faith, that the act or omission which caused
the loss or liability was in the best interests of the Company. The Company will
not indemnify or hold harmless the Indemnitee if: (i) the loss or liability was
the result of negligence or misconduct, or if the Indemnitee is an Independent
Director, the loss or liability was the result of gross negligence or willful
misconduct, (ii) 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,
(iii) the Indemnitee actually received an improper personal benefit in money,
property, or services, (iv) in the case of any criminal proceeding, the
Indemnitee had reasonable cause to believe that the act or omission was
unlawful, or (v) in a proceeding by or in the right of the Company, the
Indemnitee shall have been adjudged to be liable to the Company. In addition,
the Company will not provide indemnification for any loss or liability arising
from an alleged violation of federal or state securities laws 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
II-1
<PAGE>
as to the particular Indemnitee; (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnitee; or (iii) a court of competent jurisdiction approves a
settlement of the claims against a particular 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.
Pursuant to its Articles of Incorporation, the Company is required to pay or
reimburse reasonable expenses incurred by a present or former Director, officer,
Advisor or Affiliate and may pay or reimburse reasonable expenses incurred by
any other Indemnitee in advance of final disposition of a proceeding if the
following are satisfied: (i) the Indemnitee was made a party to the proceeding
by reasons of his or her service as a Director, officer, Advisor, Affiliate,
employee or agent of the Company, (ii) the Indemnitee provides the Company with
written affirmation of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification by the Company as authorized
by the Articles of Incorporation, (iii) 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 (iv) 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.
The Company's Articles of Incorporation further provide that any
indemnification, payment, or reimbursement of the expenses permitted by the
Articles of Incorporation will be furnished in accordance with the procedures in
Section 2-418 of the Maryland General Corporation Law.
Any indemnification may be paid only out of Net Assets of the
Company, and no portion may be recoverable from the stockholders.
The Company will enter into indemnification agreements with each
of the Company's officers and Directors. The indemnification agreements will
require, among other things, that the Company indemnify its officers and
Directors to the fullest extent permitted by law, and advance to the officers
and Directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. In accordance
with this agreement, the Company must indemnify and advance all expenses
incurred by officers and Directors seeking to enforce their rights under the
indemnification agreements. The Company must also cover officers and Directors
under the Company's directors' and officers' liability insurance.
Item 35. Treatment of Proceeds from Securities Being Registered.
Not applicable.
Item 36. Financial Statements and Exhibits.
Financial Statements:
<TABLE>
<S> <C>
The following financial statements are included in the Prospectus.
(1) Report of Independent Accountants for CNL Health Care Properties, Inc.
(2) Balance Sheet of CNL Health Care Properties, Inc. at December 31, 1997
(3) Statement of Stockholder's Equity of CNL Health Care
Properties, Inc. for the period December 22, 1997 (date of
inception) through December 31, 1997
(4) Notes to Financial Statements of CNL Health Care Properties, Inc.
All Schedules have been omitted as the required information is
inapplicable or is presented in the financial statements or related notes.
II-2
<PAGE>
(b) Exhibits:
1.1 Form of Managing Dealer Agreement (Filed herewith.)
1.2 Form of Participating Broker Agreement (Filed herewith.)
1.3 Form of Warrant Purchase Agreement (Filed herewith.)
3.1 CNL Health Care Properties, Inc. Articles of Incorporation (Filed herewith.)
3.2 Form of CNL Health Care Properties, Inc. Amended and Restated Articles of Incorporation (Filed
herewith.)
3.3 Form of CNL Health Care Properties, Inc. Bylaws (Filed herewith.)
4.1 CNL Health Care Properties, Inc. Articles of Incorporation (Filed as Exhibit 3.1 and incorporated
herein by reference.)
4.2 Form of CNL Health Care Properties, Inc. Amended and
Restated Articles of Incorporation (Filed as Exhibit 3.2
and incorporated herein by reference.)
4.3 Form of CNL Health Care Properties, Inc. Bylaws (Filed as Exhibit 3.3 and incorporated herein by
reference.)
4.4 Form of Reinvestment Plan (Included in the Prospectus as
Exhibit A and incorporated herein by reference.)
*5 Opinion of Shaw Pittman Potts & Trowbridge as to the
legality of the securities being registered by CNL Health
Care Properties, Inc.
*8 Opinion of Shaw Pittman Potts & Trowbridge regarding
certain material tax issues relating to CNL Health Care
Properties, Inc.
10.1 Form of Escrow Agreement between CNL Health Care Properties, Inc. and SouthTrust Asset
Management Company of Florida, N.A. (Filed herewith.)
10.2 Form of Advisory Agreement (Filed herewith.)
10.3 Form of Joint Venture Agreement (Filed herewith.)
10.4 Form of Indemnification and Put Agreement (Filed herewith.)
10.5 Form of Unconditional Guaranty of Payment and Performance (Filed herewith.)
10.6 Form of Purchase Agreement (Filed herewith.)
10.7 Form of Lease Agreement including Rent Addendum,
Construction Addendum and Memorandum of Lease (Filed
herewith.)
- --------------------------
* To be filed by amendment.
II-3
<PAGE>
10.8 Form of Reinvestment Plan (Included in the Prospectus as
Exhibit A and incorporated herein by reference.)
23.1 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants, dated February 27, 1998 (Filed
herewith.)
*23.2 Consent of Shaw Pittman Potts & Trowbridge (Contained in
its opinions filed herewith as Exhibits 5 and 8 and
incorporated herein by reference.)
24 Power of Attorney (See "Signatures.")
**27.1 Financial Data Schedule (Filed herewith.)
</TABLE>
- -------------------
* To be filed by amendment.
** Included in electronic filing via EDGAR only.
Item 37. Undertakings.
The registrant undertakes (a) to file any prospectuses required by
Section 10(a)(3) as post-effective amendments to this registration statement,
(b) that, for the purpose of determining any liability under the Securities Act
of 1933, as amended, each such post-effective amendment may be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof, (c) that all post-effective amendments will comply with
the applicable forms, rules and regulations of the Commission in effect at the
time such post-effective amendments are filed, and (d) to remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
The registrant undertakes to send to each stockholder, at least on
an annual basis, a detailed statement of any transactions with the Advisor or
its Affiliates, and of fees, commissions, compensation, and other benefits paid
or accrued to the Advisor or its Affiliates, for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services performed.
The registrant undertakes to provide to the stockholders the
financial statements required by Form 10-K for the first full fiscal year of
operations of the Registrant.
The registrant undertakes to file a sticker supplement pursuant to
Rule 424(b)(3) under the Act during the distribution period describing each
property not identified in the Prospectus at such time as there arises a
reasonable probability that such property will be acquired and to consolidate
all such stickers into a post-effective amendment filed at least once every
three months, with the information contained in such amendment provided
simultaneously to the existing stockholders. Each sticker supplement will
disclose all compensation and fees received by the Advisor and its Affiliates in
connection with any such acquisition. The post-effective amendment will include
audited financial statements meeting the requirements of Rule 3-14 of
Registration S-X only for properties acquired during the distribution period.
The registrant also undertakes to file, after the end of the
distribution period, a current report on Form 8-K containing the financial
statements and any additional information required by Rule 3-14 of Regulation
S-X, to reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the use of
10% or more (on a cumulative basis) of the net proceeds of the offering and to
provide the information contained in such report to the stockholders at least
once each quarter after the distribution period of the offering has ended.
II-4
<PAGE>
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any such action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE>
TABLE VI
ACQUISITION OF PROPERTIES BY PROGRAMS
Table VI presents information concerning the acquisition of real
properties by the public real estate limited partnerships and the unlisted
public REITs sponsored by Affiliates of the Company through June 30, 1997. The
information includes the gross leasable space or number of units and total
square feet of units, dates of purchase, locations, cash down payment and
contract purchase price plus acquisition fee. This information is intended to
assist the prospective investor in evaluating the terms involved in acquisitions
by such prior programs.
<PAGE>
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund, Fund II, Fund III, Fund IV,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ---------- ----------
(Note 2) (Note 3) (Note 4) (Note 5)
<S> <C>
AZ,CA,FL,GA, AL,DC,FL,GA,
AL,AZ,CO,FL, IA,IL,IN,KS, IL,IN,KS,MA,
AL,AZ,CA,FL, GA,IL,IN,LA, KY,MD,MI,MN, MD,MI,MS,NC,
GA,LA,MD,OK, MI,MN,MO,NC, MO,NC,NE,OK, OH,PA,TN,TX,
Locations TX,VA NM,OH,TX,WY TX VA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 20 units 44 units 33 units 45 units
total square feet
of units 67,645 s/f 157,461 s/f 138,102 s/f 159,196 s/f
Dates of purchase 6/17/86 - 2/11/87- 10/04/87- 6/24/88-
12/17/87 6/11/97 6/11/97 12/31/96
Cash down payment (Note 1) $12,296,264 $23,683,368 $20,909,969 $27,611,441
Contract purchase price
plus acquisition fee $12,222,062 $23,524,561 $20,788,872 $27,506,106
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 74,202 158,807 121,097 105,335
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $12,296,264 $23,683,368 $20,909,969 $27,611,441
=========== =========== =========== ===========
</TABLE>
Note 1: This amount was derived from capital contributions from partners and
net sales proceeds reinvested in other properties.
Note 2: The partnership owns a 50% interest in three separate joint ventures
which each own a restaurant property.
Note 3: The partnership owns a 49%, 50% and 64% interest in three separate
joint ventures. Each joint venture owns one restaurant property. In
addition, the partnership owns a 33.87% interest in one restaurant
property held as tenants-in-common with an affiliate.
Note 4: The partnership owns a 73.4% and 69.07% interest in two separate joint
ventures. Each joint venture owns one restaurant property.
Note 5: The partnership owns a 51%, 26.6%, 57%, 96.1% and 68.87% interest in
five separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 53.68% interest in one
restaurant property held as tenants-in-common with affiliates.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund V, Fund VI, Fund VII, Fund VIII,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ---------- ----------
(Note 6) (Note 7) (Note 8) (Note 9)
<S> <C>
AR,AZ,FL,GA,
FL,GA,IL,IN, IN,MA,MI,MN, AZ,CO,FL,GA,
MI,NH,NY,OH, NC,NE,NM,NY, IN,LA,MI,MN, AZ,FL,IN,LA,
SC,TN,TX,UT, OH,OK,PA,TN, OH,SC,TN,TX, MI,MN,NC,NY,
Locations WA TX,VA,WY UT,WA OH,TN,TX,VA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 30 units 48 units 47 units 42 units
total square feet
of units 117,652 s/f 186,888 s/f 166,648 s/f 179,885 s/f
Dates of purchase 2/06/89- 7/13/89- 3/30/90- 9/13/90-
1/05/90 6/11/97 2/5/97 5/31/96
Cash down payment (Note 1) $22,113,522 $34,073,497 $28,968,733 $31,985,071
Contract purchase price
plus acquisition fee $21,706,859 $33,528,770 $28,296,750 $31,450,507
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 406,663 544,727 671,983 534,564
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $22,113,522 $34,073,497 $28,968,733 $31,985,071
=========== =========== =========== ===========
</TABLE>
Note 6: The partnership owns a 43%, 49% and 66.5% interest in three separate
joint ventures. Each joint venture owns one restaurant property.
Note 7: The partnership owns a 3.9%, 14.5%, 36% and a 66.14% interest in four
separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 51.67% and a 17.93%
interest in two restaurant properties held separately as
tenants-in-common with affiliates.
Note 8: The partnership owns a 51%, 83.3%, 4.79%, 18%, and 79% interest in five
separate joint ventures. Four of the joint ventures each own one
restaurant property and the other joint venture owns six restaurant
properties. In addition, the partnership owns a 48.33% interest in one
restaurant property held as tenants-in-common with an affiliate.
Note 9: The partnership owns a 85.5%, 87.68%, 36.8% and a 12% interest in four
separate joint ventures. Three of the joint ventures each own one
restaurant property and the other joint venture owns six restaurant
properties.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund IX, Fund X, Fund XI, Fund XII,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ---------- ----------
(Note 10) (Note 11) (Note 12) (Note 13)
<S> <C>
AL,AZ,CA,CO,
AL,CA,CO,FL, CT,FL,KS,LA,
AL,FL,GA,IL, ID,IL,LA,MI, MA,MI,MS,NC, AL,AZ,CA,FL,
IN,LA,MI,MN, MO,MT,NC,NH, NH,NM,OH,OK, GA,LA,MO,MS,
MS,NC,NH,NY, NM,NY,OH,PA, PA,SC,TX,VA, NC,NM,OH,SC,
Locations OH,SC,TN,TX SC,TN,TX WA TN,TX,WA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 42 units 49 units 40 units 49 units
total square feet
of units 180,843 s/f 203,466 s/f 176,062 s/f 206,865 s/f
Dates of purchase 5/31/91- 10/01/91- 5/18/92- 11/20/92-
12/12/96 1/24/96 1/28/97 5/31/96
Cash down payment (Note 1) $31,763,146 $36,036,814 $36,245,591 $40,840,795
Contract purchase price
plus acquisition fee $31,016,376 $35,320,865 $35,644,633 $40,339,796
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 746,770 715,949 600,958 500,999
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $31,763,146 $36,036,814 $36,245,591 $40,840,795
=========== =========== =========== ===========
</TABLE>
Note 10: The partnership owns a 50%, 45.2% and 27.3% interest in three separate
joint ventures. One of the joint ventures owns one restaurant property
and the other two joint ventures own six restaurant properties each.
Note 11: The partnership owns a 50%, 88.3%, 40.95% and 10.5% interest in four
separate joint ventures. Three of the joint ventures own one
restaurant property each and the other joint venture owns six
restaurant properties. In addition, the partnership owns a 13.37%
interest in one restaurant property held as tenants-in-common with
affiliates.
Note 12: The partnership owns a 62.2%, 77.33%, 85% and 76.6% interest in four
separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 72.5% interest in one
restaurant property held as a tenants-in-common with an affiliate.
Note 13: The partnership owns a 31.13%, 59.05%, 18.61% and 88% interest in four
separate joint ventures. Each joint venture owns one restaurant
property.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XIII, Fund XIV, Fund XV, Fund XVI,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ---------- ----------
(Note 14) (Note 15) (Note 16) (Note 17)
<S> <C>
AL,AR,AZ,CA, AL,AZ,CO,FL, AL,CA,FL,GA, AZ,CA,CO,DC,
CO,FL,GA,IN, GA,KS,LA,MN, KS,KY,MN,MO, FL,GA,ID,IN,
KS,LA,MD,NC, MO,MS,NC,NJ, MS,NC,NJ,NM, KS,MN,MO,NC,
OH,PA,SC,TN, NV,OH,SC,TN, OH,OK,PA,SC, NM,NV,OH,TN,
Locations TX,VA TX,VA TN,TX,VA TX,UT,WI
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 49 units 62 units 54 units 44 units
total square feet
of units 159,378 s/f 184,689 s/f 166,249 s/f 169,867 s/f
Dates of purchase 5/18/93- 9/27/93- 4/28/94- 10/21/94-
1/28/97 1/10/97 1/10/97 10/04/96
Cash down payment (Note 1) $35,455,235 $42,392,436 $38,227,474 $40,197,565
Contract purchase price
plus acquisition fee $35,087,109 $41,961,701 $37,834,633 $39,805,020
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 368,126 430,735 392,841 392,545
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $35,455,235 $42,392,436 $38,227,474 $40,197,565
=========== =========== =========== ===========
</TABLE>
Note 14: The partnership owns a 50% and 28% interest in two separate joint
ventures. Each joint venture owns one restaurant property. In
addition, the Partnership owns a 66.13% and a 63.03% interest in two
restaurant properties held separately as tenants-in-common with
affiliates.
Note 15: The partnership owns a 50% interest in two separate joint ventures and
a 72% interest in one joint venture. Two of the joint ventures each
own one restaurant property and the other joint venture owns six
restaurant properties.
Note 16: The partnership owns a 50% interest in a joint venture which owns six
restaurant properties. In addition, the partnership owns a 15.02%
interest in one restaurant property held as tenants-in-common with
affiliates.
Note 17: The partnership owns a 80.27% interest in one restaurant property held
as tenants-in-common with an affiliate.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
CNL American CNL Income CNL Income
Properties Fund, Fund XVII, Fund XVIII,
Inc. Ltd. Ltd.
---------------- ---------- -----------
(Note 19 and 20) (Note 18)
<S> <C>
AL,AZ,CA,CO,
DE,FL,GA,IA,
ID,IL,IN,KY,
MD,MI,MN,MO,
NC,NE,NM,NV,
OH,OK,OR,PA, CA,FL,GA,IL, CA,GA,KY,MD,
TN,TX,UT,VA, IN,MI,NC,NV, MN,NC,NV,OH,
Locations WA,WV OH,SC,TN,TX TN,TX
Type of property Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 174 units 27 units 17 units
total square feet
of units 811,502 s/f 113,774 s/f 84,401 s/f
Dates of purchase 6/30/95 - 12/20/95 - 12/27/96 -
6/19/97 2/5/97 5/21/97
Cash down payment (Note 1) $159,182,267 $24,443,059 $18,411,910
Contract purchase price
plus acquisition fee $158,707,412 $24,406,400 $18,359,382
Other cash expenditures
expensed - - -
Other cash expenditures
capitalized 474,855 36,659 52,528
------------ ----------- -----------
Total acquisition cost
(Note 1) $159,182,267 $24,443,059 $18,411,910
============ =========== ===========
</TABLE>
Note 18: The partnership owns an 80% and 21% interest in two separate joint
ventures. Each joint venture owns one restaurant property. In
addition, the partnership owns a 19.73%, 27.5% and 36.97% interest in
three restaurant properties held separately as tenants-in-common with
affiliates.
Note 19: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective March 29, 1995, CNL American
Properties Fund, Inc. registered for sale $165,000,000 of shares of
common stock (the "Initial Offering of Shares"). The Initial Offering
of Shares of CNL American Properties Fund, Inc. commenced April 19,
1995, and upon completion of the Initial Offering of Shares on
February 6, 1997, had received subscription proceeds of $150,591,765
(15,059,177 shares), including $591,765 (59,177 shares) issued
pursuant to the Reinvestment Plan. Pursuant to a Registration
Statement on Form S-11, as amended, effective January 31, 1997, CNL
American Properties Fund, Inc. registered for sale $275,000,000 of
shares of common stock (the "1997 Offering of Shares"). The 1997
Offering of Shares of CNL American Properties Fund, Inc. commenced
following the completion of the Initial Offering of Shares on February
6, 1997. The amounts shown represent the combined results of the the
Initial Offering of Shares and the 1997 Offering of Shares as of June
30, 1997.
Note 20: CNL American Properties Fund, Inc. owns an 85.47% interest in a joint
venture which owns one restaurant property.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Orlando, State of Florida, on March 4, 1998.
CNL HEALTH CARE PROPERTIES, INC.
(Registrant)
By: /s/ James M. Seneff, Jr.
James M. Seneff, Jr.
Chairman of the Board and Chief
Executive Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
hereby constitutes and appoints Robert A. Bourne and James M. Seneff, Jr. and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any and all
documents (including both pre- and post-effective amendments in connection with
the registration statement), and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C>
/s/ James M. Seneff, Jr. Chairman of the Board and March 4, 1998
- ---------------------------- Chief Executive Officer
James M. Seneff, Jr. (Principal Executive Officer)
/s/ Robert A. Bourne Director and President March 4, 1998
- ---------------------------- (Principal Financial and
Robert A. Bourne Accounting Officer)
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Page
<S> <C>
1.1 Form of Managing Dealer Agreement (Filed herewith.)
1.2 Form of Participating Broker Agreement (Filed herewith.)
1.3 Form of Warrant Purchase Agreement (Filed herewith.)
3.1 CNL Health Care Properties, Inc. Articles of Incorporation (Filed herewith.)
3.2 Form of CNL Health Care Properties, Inc. Amended and Restated Articles
of Incorporation (Filed herewith.)
3.3 Form of CNL Health Care Properties, Inc. Bylaws (Filed herewith.)
4.1 CNL Health Care Properties, Inc. Articles of Incorporation (Filed as Exhibit
3.1 and incorporated herein by reference.)
4.2 Form of CNL Health Care Properties, Inc. Amended and Restated Articles
of Incorporation (Filed as Exhibit 3.2 and incorporated herein by
reference.)
4.3 Form of CNL Health Care Properties, Inc. Bylaws (Filed as Exhibit 3.3 and
incorporated herein by reference.)
4.4 Form of Reinvestment Plan (Included in the Prospectus as Exhibit A and
incorporated herein by reference.)
*5 Opinion of Shaw Pittman Potts & Trowbridge as to the
legality of the securities being registered by CNL
Health Care Properties, Inc.
*8 Opinion of Shaw Pittman Potts & Trowbridge regarding
certain material tax issues relating to CNL Health Care
Properties, Inc.
10.1 Form of Escrow Agreement between CNL Health Care Properties, Inc. and
SouthTrust Asset Management Company of Florida, N.A. (Filed herewith.)
10.2 Form of Advisory Agreement (Filed herewith.)
10.3 Form of Joint Venture Agreement (Filed herewith.)
10.4 Form of Indemnification and Put Agreement (Filed herewith.)
10.5 Form of Unconditional Guaranty of Payment and Performance (Filed
herewith.)
10.6 Form of Purchase Agreement (Filed herewith.)
10.7 Form of Lease Agreement including Rent Addendum, Construction
Addendum and Memorandum of Lease (Filed herewith.)
10.8 Form of Reinvestment Plan (Included in the Prospectus as Exhibit A and
incorporated herein by reference.)
23.1 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated February 27, 1998 (Filed herewith.)
*23.2 Consent of Shaw Pittman Potts & Trowbridge (Contained
in its opinions filed herewith as Exhibits 5 and 8 and
incorporated herein by reference.)
<PAGE>
24 Power of Attorney (See "Signatures.")
**27.1 Financial Data Schedule (Filed herewith.)
</TABLE>
- -----------------------
* To be filed by amendment.
** Included in electronic filing via EDGAR only.
Exhibit 1.1
Form of Managing Dealer Agreement
<PAGE>
MANAGING DEALER AGREEMENT
THIS AGREEMENT, dated as of ___________, 1998, is made by and between
CNL HEALTH CARE PROPERTIES, INC., a Maryland corporation (the "Company"); and
CNL SECURITIES CORP., a Florida corporation (the "Managing Dealer").
WHEREAS, the Company proposes to offer and sell up to an aggregate of
15,500,000 shares of common stock in the Company (the "Shares") to the public
pursuant to a public offering and 600,000 shares of common stock in the Company
issuable upon the exercise of warrants granted to the Managing Dealer;
WHEREAS, the Managing Dealer is registered with the National
Association of Securities Dealers, Inc. as a broker-dealer, and is presently or,
prior to any offers or sales of Shares, will be licensed in all fifty states,
the District of Columbia, and the Commonwealth of Puerto Rico as a broker-dealer
qualified to offer and sell to the public securities of the type represented by
the Shares; and
WHEREAS, the Company desires to retain the Managing Dealer to use its
best efforts to sell the Shares and to manage the sale by others of the Shares,
and the Managing Dealer is willing and desires to serve as the Managing Dealer
for the Company for the sale of the Shares upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the Company and the Managing
Dealer agree as follows:
SECTION 1
DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
following specified meanings.
1.1 "NASD" means the National Association of Securities Dealers, Inc.
1.2 "Offering" means the offering of up to 15,500,000 Shares of CNL
HEALTH CARE PROPERTIES, INC. to the public pursuant to the terms and conditions
of the Registration Statement.
1.3 "Offering Period" means the period commencing on the effective date
of the Registration Statement and ending on the earliest of the following: (i)
the later of one year after the initial date of the Prospectus or, at the
Company's election, two years after the initial date of the Prospectus; (ii) one
year after the initial date of the Prospectus, unless subscriptions for at least
250,000 Shares are received and accepted within such one-year period (exclusive
of subscriptions from Pennsylvania residents, unless subscriptions for at least
825,000 Shares are received and accepted from all investors); (iii) the
acceptance by the Company of subscriptions for 15,500,000 Shares, with 500,000
of such Shares available only to investors who participate in the Company's
dividend reinvestment plan, subject to Paragraph 3.8 hereof; (iv) the
termination of the Offering by the Company; (v) the termination of the
effectiveness of the Registration Statement; or (vi) the termination of the
Company.
1.4 "Participating Brokers" mean those broker-dealers engaged by the
Managing Dealer to participate in the Offering pursuant to Paragraph 3.2.
<PAGE>
1.5 "Prospectus" means the final prospectus included in the
Registration Statement, pursuant to which the Company will offer Shares to the
public, as the same may be amended or supplemented from time to time after the
effective date of the Registration Statement.
1.6 "Registration Statement" means the registration statement pursuant
to which the Company has registered the Shares with the SEC as provided in the
Securities Act of 1933, as amended, as such registration statement may be
amended or supplemented from time to time.
1.7 "SEC" means the Securities and Exchange Commission.
1.8 "Shares" mean the shares of Common Stock of the Company, par value
$.01 per share, with a purchase price of $10.00 per share. An aggregate of up to
15,500,000 Shares will be offered pursuant to the Registration Statement.
1.9 "Soliciting Dealer Warrant" means a warrant to purchase one share
of common stock of the Company for every 25 Shares sold through the Offering,
which are issuable to the Managing Dealer (all or a portion of which may be
reallowed to Soliciting Dealers with prior written approval from, and in the
sole discretion of, the Managing Dealer and are to be exercised during the
ten-year period commencing with the date the Offering begins (the "Exercise
Period"), at a price of $12.00 per share.
1.10 "State Regulatory Authorities" mean the commissions, departments,
agencies or other authorities in the fifty states, the District of Columbia, and
the Commonwealth of Puerto Rico which regulate the offer and sale of securities.
1.11 "Company" means CNL Health Care Properties, Inc., a Maryland
corporation.
SECTION 2
APPOINTMENT
Subject to the terms and conditions set forth in this Agreement,
including Paragraph 3.8 hereof, the Company hereby appoints the Managing Dealer
as the managing dealer of the Offering to use its best efforts to sell up to
15,500,000 Shares of the Company and to manage the sale by others of such Shares
for the Company's account. The Managing Dealer hereby accepts such appointment.
SECTION 3
SALE OF SHARES
3.1 Best Efforts. The Managing Dealer shall use its best efforts during
the Offering Period to sell or cause to be sold the Shares in such quantities
and to such persons and in accordance with such terms as are set forth in this
Agreement, the Prospectus and the Registration Statement. Notwithstanding
anything herein to the contrary, the Managing Dealer shall have no obligation
under this Agreement to purchase any of the Shares for its own account.
3.2 Association of Other Broker-Dealers. The Company hereby
acknowledges and agrees that the Managing Dealer may engage Participating
Brokers to participate in the Offering, provided that (i) all Participating
Brokers are registered with the NASD and are duly licensed by the State
Regulatory Authorities in the jurisdictions in which they will offer and sell
Shares or exempt from broker-dealer
<PAGE>
registration with the NASD and the State Regulatory Authorities, and (ii) all
such engagements are evidenced by written agreements, the terms and conditions
of which substantially conform to the form of Participating Broker Agreement
approved by the Company and attached hereto as Exhibit A (the "Participating
Broker Agreement"). The Managing Dealer is authorized to reallow so much of the
commissions which it receives under Paragraph 4.1 to Participating Brokers as it
sees fit.
3.3 Telephonic Subscriptions.
(a) The Managing Dealer may permit certain Participating
Brokers to accept telephonic or other oral subscriptions for Shares;
provided, however, that any such Participating Broker agrees that: (i)
the registered representative and branch manager of the Participating
Broker shall execute the subscription agreement on behalf of any
investor who telephonically or orally subscribes for Shares; (ii) the
Participating Broker shall not charge investors who telephonically or
orally subscribe for Shares any additional fees, including but not
limited to fees relating to opening an account with the Participating
Broker; and (iii) the Participating Broker shall not accept telephonic
or oral subscriptions for Shares from any investor unless such investor
has received a copy of the Company's Prospectus prior to making a
decision to invest. The Managing Dealer shall enter into a written
agreement with each Participating Broker who wishes to accept
telephonic or other oral subscriptions for Shares from investors in
certain states more particularly identified in the Prospectus, pursuant
to which the Participating Broker shall agree to explain to such
investor that: (i) the investor shall have the right to rescind such
subscription for a period of ten days following the receipt of the
Confirmation (as hereinafter defined); and (ii) unless the investor
rescinds such subscription within the applicable period of time, the
investor shall be bound by the subscription agreement. The Managing
Dealer shall confirm the receipt of subscriptions for Shares which have
been subscribed for by telephone or other oral instructions by written
notice to the investor (the "Confirmation"). Such Confirmation shall be
mailed to the investor not later than seven (7) days after the date on
which the investor's funds are deposited, shall contain a statement
that the investor has a right to rescind his subscription, and shall be
accompanied by a Prospectus and a Subscriber's Signature Page.
(b) Notwithstanding anything to the contrary contained in
Paragraph 4.3(a) of this Agreement, in the event that the Company pays
any commission to the Managing Dealer for sale by a Participating
Broker of one or more Shares pursuant to a telephonic or other oral
subscription where representatives of such Participating Broker execute
the subscription agreement relating to such Shares, and the
subscription is rescinded as to one or more of the Shares covered by
such subscription, the Company shall decrease the next payment of
commissions or other compensation otherwise payable to the Managing
Dealer by the Company under this Agreement by an amount equal to the
commission rate established in Paragraph 4.1 of this Agreement,
multiplied by the number of Shares as to which the subscription is
rescinded. In the event that no payment of commissions or other
compensation is due to the Managing Dealer after such withdrawal
occurs, the Managing Dealer shall pay the amount specified in the
preceding sentence to the Company within ten (10) days following
receipt of notice by the Managing Dealer from the Company stating the
amount owed as a result of rescinded subscriptions.
3.4 Suitability and Minimum Purchase Requirements.
(a) The Managing Dealer will use every reasonable effort, to
the extent it sells Shares to investors, to assure that any such Shares
are sold only to investors who:
<PAGE>
(i) meet the investor suitability standards,
including the minimum income and net worth standard
established by the Company, and minimum purchase requirements
set forth in the Registration Statement;
(ii) can reasonably benefit from the Company based on
the prospective investor's overall investment objectives and
portfolio structure;
(iii) are able to bear the economic risk of the
investment based on each prospective investor's overall
financial situation; and
(iv) have apparent understanding of: (A) the
fundamental risks of the investment; (B) the risk that the
prospective investor may lose the entire investment; (C) the
lack of liquidity of the Shares; (D) the restrictions on
transferability of the Shares; (E) the background and
qualifications of the officers and directors of CNL Health
Care Advisors, Inc., the advisor to the Company (the
"Advisor"); and (F) the tax consequences of an investment in
the Shares.
(b) The Managing Dealer will make the determinations required
to be made by it pursuant to Paragraph 3.4(a) above based on
information it has obtained from a prospective investor, including, at
a minimum, but not limited to, the prospective investor's age,
investment objectives, investment experience, income, net worth,
financial situation, other investments of the prospective investor, as
well as any other pertinent factors deemed by the Managing Dealer to be
relevant.
(c) The Managing Dealer shall maintain such records evidencing
compliance with the determination of the investor suitability standards
and minimum purchase requirements set forth in the Registration
Statement, as required by Paragraphs 3.4(a) and 3.4(b) above for a
period of not less than six years, or for such greater time period as
shall comply with all applicable federal, state and other regulatory
requirements.
(d) In addition to the foregoing, the Managing Dealer shall
comply fully with all the applicable provisions of the NASD's Conduct
Rules and the following provisions:
(i) the Managing Dealer shall have reasonable grounds
to believe, based upon information provided by the investor
concerning his investment objectives, other investments,
financial situation and needs, and upon any other information
known by the Managing Dealer, that (A) each investor to whom
the Managing Dealer sells Shares is or will be in a financial
position appropriate to enable him to realize to a significant
extent the benefits (including tax benefits) of an investment
in the Shares, (B) each investor to whom the Managing Dealer
sells Shares has a fair market net worth sufficient to sustain
the risks inherent in an investment in the Shares (including
potential loss and lack of liquidity), and (C) the Shares
otherwise are or will be a suitable investment for each
investor to whom the Managing Dealer sells Shares, and the
Managing Dealer shall maintain files disclosing the basis upon
which the determination of suitability was made;
(ii) the Managing Dealer shall not execute any
transaction involving the purchase of Shares in a
discretionary account without prior written approval of the
transaction by the investor;
<PAGE>
(iii) the Managing Dealer shall have reasonable
grounds to believe, based upon the information made available
to it, that all material facts are adequate and accurately
disclosed in the Registration Statement and provide a basis
for evaluating the Shares;
(iv) in making the determination set forth in item
(iii) above, the Managing Dealer shall evaluate items of
compensation, properties, tax aspects, financial stability and
experience of the sponsor, conflicts of interest and risk
factors, and any other information deemed pertinent by it; and
(v) prior to executing a purchase transaction in the
Shares, the Managing Dealer shall have informed the
prospective investor of all pertinent facts relating to the
liquidity and marketability of the Shares.
(e) The Managing Dealer shall comply with the requirements for
determining the suitability of investors who elect to participate in
the Reinvestment Plan (the "Reinvestment Plan") in accordance with the
procedure set forth in Paragraph 6 of such Reinvestment Plan in the
form of Exhibit A to the Prospectus.
3.5 Sales Literature. The Managing Dealer shall use and distribute in
conjunction with the offer and sale of any Shares only the Prospectus and such
sales literature and advertising as shall have been previously approved in
writing by the Company.
3.6 Jurisdictions. The Managing Dealer shall cause Shares to be offered
and sold only in those jurisdictions specified in writing by the Company for
whose account Shares are then offered for sale, and such list of jurisdictions
shall be updated by the Company as additional states are added. The Company
shall specify only such jurisdictions in which the offering and sale of its
Shares has been authorized by appropriate State Regulatory Authorities. No
Shares shall be offered or sold for the account of the Company in any other
states.
3.7 Escrow. All funds received by the Managing Dealer for the sale of
Shares shall be deposited in an escrow account established by the Company at
SouthTrust Asset Management Company of Florida, N.A. (the "Escrow Agent"), by
the close of the first business day following receipt of such funds by the
Managing Dealer. Such escrow account shall be denominated "ESCROW ACCOUNT FOR
THE BENEFIT OF SUBSCRIBERS FOR COMMON STOCK OF CNL HEALTH CARE PROPERTIES, INC."
Until such time (if any) as the funds held in escrow are deliverable to the
Company pursuant to the Escrow Agreement between the Company and the Escrow
Agent, the Managing Dealer shall, and shall cause Participating Brokers to,
instruct subscribers to make checks for subscriptions payable to the order of
"SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A., ESCROW AGENT," and shall
return checks made payable to another party to the Participating Broker or
subscriber who submitted the check. Thereafter, checks may be made payable to
either the Escrow Agent or the Company. The Managing Dealer may authorize
certain Participating Brokers which are "$250,000 broker-dealers" to instruct
their customers to make their checks for Shares subscribed for payable directly
to the Participating Broker. In such case, the Soliciting Dealer will collect
the proceeds of the subscribers' checks and issue a check made payable to the
order of the Escrow Agent for the aggregate amount of the subscription proceeds.
<PAGE>
SECTION 4
COMPENSATION
4.1 Commissions.
(a) The Company shall pay to the Managing Dealer, as
compensation for all services to be rendered by the Managing Dealer
pursuant to this Agreement, a commission equal to seven and one-half
percent (7.5%) of the selling price of each Share for which a sale is
completed, regardless of whether such Share is sold by the Managing
Dealer or a Participating Broker; provided, however, that the Company
will pay reduced commissions or may eliminate commissions on certain
sales of Shares, including the reduction or elimination of commissions
in accordance with, and on the terms set forth in, the Prospectus and
the following paragraph of this Paragraph 4.1, which reduction or
elimination of commissions will not change the net proceeds to the
Company. Shareholders who elect to participate in the Reinvestment Plan
will be charged commissions on Shares purchased for their accounts on
the same basis as investors who otherwise purchase Shares in the
Offering.
(b) A registered principal or representative of the Managing
Dealer or a Participating Broker, employees, officers, and directors of
the Company or the Advisor, any of their Affiliates (and the families
of any of the foregoing persons), and any Plan (as defined in the
Prospectus) established exclusively for the benefit of such persons or
entities may purchase Shares net of 7% commissions, at a per Share
purchase price of $9.30. In addition, clients of an investment adviser
registered under the Investment Advisers Act of 1940, as amended, who
have been advised by such adviser on an ongoing basis regarding
investments other than in the Company, and who are not being charged by
such adviser or its Affiliates, through payment of commissions or
otherwise, for the advice rendered by such adviser in connection with
the purchase of the Shares, may purchase the Shares net of commissions.
In addition, brokers that have a contractual arrangement with their
clients for the payment of fees which is consistent with accepting
selling commissions, in their sole discretion, may elect not to accept
any selling commissions offered by the Company for Shares that they
sell. In that event, such Shares shall be sold to the investor net of
all selling commissions, at a per share purchase price of $9.30.
4.2 Marketing Support and Due Diligence. The Company shall pay to the
Managing Dealer a nonaccountable fee for expenses incurred in selling and
marketing the Shares and for bona fide expenses incurred in connection with due
diligence activities. This marketing support and due diligence expense
reimbursement fee shall be equal to one-half of one percent (0.5%) of the
selling price of each Share for which a sale is completed, regardless of whether
such Share is sold by the Managing Dealer or a Participating Broker. All due
diligence expense reimbursements shall be paid by the Managing Dealer from this
fee.
4.3 Completed Sale.
(a) A sale of a Share shall be deemed to be completed under
Paragraph 4.1 if and only if (i) the Company has received a properly
completed and executed subscription agreement, together with payment of
the full purchase price of each purchased Share, from or, in accordance
with Paragraph 3.3(a), on behalf of an investor who satisfies the
applicable suitability standards and minimum purchase requirements set
forth in the Registration Statement as determined by the Managing
Dealer in accordance with the provisions of this Agreement, (ii) the
Company has
<PAGE>
accepted such subscription, and (iii) such investor has been admitted
as a shareholder of the Company.
(b) The Managing Dealer hereby acknowledges and agrees that:
(i) the Company, in its sole and absolute discretion,
may accept or reject any subscription, in whole or in part,
for any reason whatsoever, and no commission will be paid to
the Managing Dealer with respect to that portion of any
subscription which is rejected;
(ii) unless, within one year after the initial date
of the Prospectus, subscriptions for an aggregate of at least
250,000 Shares have been received and accepted (exclusive of
subscriptions from: (A) Pennsylvania investors, unless
subscriptions for at least 825,000 Shares are received and
accepted from all investors; (B) investors who telephonically
or orally subscribe for Shares, but only if payment for such
subscriptions has not been on deposit in the escrow account of
the Company for at least 15 days; and (C) investors who have
not received a prospectus at least five business days prior to
the determination of the number of available Shares to be
released from escrow as evidenced by the date of execution of
such investor's subscription agreement), no subscriber will be
admitted to the Company, and no commission will be paid to the
Managing Dealer pursuant to Paragraph 4.1 for sales of Shares,
even upon subscriptions that initially were accepted; and
(iii) no commission will be paid to the Managing
Dealer prior to acceptance by the Company of subscriptions for
the minimum number of Shares specified in subparagraph (ii)
above.
4.4 Payment. Except as provided in "The Offering - Plan of
Distribution" of the Prospectus, the commissions specified in Paragraph 4.1 for
the sale of any Share shall be payable in cash by the Company, as specified in
Paragraph 4.1, no later than the end of the calendar month in which the investor
subscribing for the Share is admitted as a shareholder of the Company. Investors
shall first be admitted as shareholders of the Company within 30 days after
acceptance by the Company of subscriptions for at least 250,000 Shares
(exclusive of subscriptions from (a) Pennsylvania investors, unless
subscriptions for at least 825,000 Shares are received and accepted from all
investors, (b) investors who telephonically or orally subscribe for Shares, but
only if payment for such subscriptions have not been on deposit in the escrow
account of the Company for at least 15 days), and (c) investors who do not
telephonically subscribe for Shares and who shall have executed a subscription
agreement and acknowledged receipt of a Prospectus less than five full business
days prior to the proposed admission date. Thereafter, investors whose
subscriptions for Shares are accepted shall be admitted no later than the end of
the calendar month in which such subscriptions are accepted. The Company will
accept or reject all subscriptions within 30 days after receipt. Notwithstanding
anything to the contrary contained herein, in the event that the Company pays
any commission to the Managing Dealer for sale by a Participating Broker of one
or more Shares and the subscription is rescinded as to one or more of the Shares
covered by such subscription, the Company shall decrease the next payment of
commissions or other compensation otherwise payable to the Managing Dealer by
the Company under this Agreement by an amount equal to the commission rate
established in Paragraph 4.1 of this Agreement, multiplied by the number of
Shares as to which the subscription is rescinded. In the event that no payment
of commissions or other compensation is due to the Managing Dealer after such
withdrawal occurs, the Managing Dealer shall pay the amount specified
<PAGE>
in the preceding sentence to the Company within ten (10) days following receipt
of notice by the Managing Dealer from the Company stating the amount owed as a
result of rescinded subscriptions.
Certain stockholders may agree with their participating Soliciting
Dealer and the Managing Dealer to have Selling Commissions relating to their
Shares paid over a seven year period pursuant to a deferred commission
arrangement (the "Deferred Commission Option"). Stockholders electing the
Deferred Commission Option will be required to pay a total of $9.40 per Share
purchased upon subscription, rather than $10.00 per Share, with respect to which
$0.15 per Share will be payable as Selling Commissions due upon subscription,
$0.10 of which may be reallowed to the Soliciting Dealer by the Managing Dealer.
For each of the six years following such subscription on a date to be determined
by the Managing Dealer, $0.10 per Share will be paid by the Company as deferred
Selling Commissions with respect to Shares sold pursuant to the Deferred
Commission Option, which amounts will be deducted from and paid out of
distributions otherwise payable to such stockholders holding such Shares and may
be reallowed to the Soliciting Dealer by the Managing Dealer. The net proceeds
to the Company will not be affected by the election of the Deferred Commission
Option. Under this arrangement, a stockholder electing the Deferred Commission
Option will pay a 1% Selling Commission per year thereafter for the next six
years which will be deducted from and paid by the Company out of distributions
otherwise payable to such stockholder.
4.5 Sales Incentives. The Company or its Affiliates also may provide
incentive items for registered representatives of the Managing Dealer and the
Participating Brokers, which in no event shall exceed an aggregate of $100 per
annum per participating salesperson. In the event other incentives are provided
to registered representatives of the Managing Dealer or the Participating
Brokers, they will only be paid in cash and such payments will only be made to
the Managing Dealer or the Participating Brokers rather than their registered
representatives. Before any such sales incentive program is offered, the Company
agrees to obtain prior approval of the terms of such program from the NASD.
4.6 Wholesaling Compensation. The Company hereby acknowledges that the
Managing Dealer may pay each of its wholesalers 1% of the gross sales price
(computed at $10.00 per Share) of all Shares sold in such wholesaler's
geographic territory (as the same may be established from time to time by
agreement between the Managing Dealer and one or more of its wholesalers) but
not in excess, in the aggregate, of 1% of the gross sales price (computed at
$10.00 per Share) of all Shares sold, or a maximum of 15,500,000 Shares. The
Company and the Managing Dealer hereby agree that the Company shall have no
obligation to pay any portion of such amounts. The Company hereby agrees to
reimburse reasonable out-of-pocket expenses that such wholesalers incur in
connection with the distribution of its Shares from and after such time as at
least 250,000 Shares have been sold for the account of the Company; provided,
however, that in no event will the Managing Dealer or the Company pay any
amounts to any person if (i) such amounts constitute "underwriting
compensation," and (ii) payment of such amounts could cause total underwriting
compensation paid to underwriters, broker-dealers, or affiliates thereof from
any source, and deemed to be in connection with or related to the distribution
of the Offering, to exceed then-applicable compensation NASD guidelines.
4.7 Soliciting Dealer Warrants. The Company shall issue to the Managing
Dealer a Soliciting Dealer Warrant for every 25 Shares sold through the
Offering, up to a maximum of 600,000 Soliciting Dealer Warrants to purchase an
equivalent number of shares of common stock of the Company. The Soliciting
Dealer Warrants will be issued quarterly commencing 60 days after the date on
which the Shares are first sold pursuant to the Offering. All or any part of
such Soliciting Dealer Warrants may be reallowed to certain Soliciting Dealers
with prior written approval from, and in the sole discretion of, the
<PAGE>
Managing Dealer unless prohibited by federal or state securities laws. Each
Soliciting Dealer Warrant will entitle the holder to purchase one share of
common stock from the Company for $12.00 during the ten-year period commencing
with the date the Offering begins (the "Exercise Period"); provided however,
that Soliciting Dealer Warrants will not be exercisable until one year from the
date of issuance. Holders of Soliciting Dealer Warrants may not exercise the
Soliciting Dealer Warrants to the extent such exercise would jeopardize the
Company's status as a REIT.
SECTION 5
TERM OF AGREEMENT
5.1 Commencement and Expiration. This Agreement shall commence as of
the date first above written and, unless sooner terminated pursuant to Paragraph
5.2 or by operation of law or otherwise, shall expire at the end of the Offering
Period.
5.2 Termination. Any party may terminate this agreement at any time and
for any reason by giving 30 days' prior written notice of intention to terminate
to each other party hereto.
5.3 Obligations Surviving Expiration or Termination.
(a) In addition to any other obligations of the Managing
Dealer that survive the expiration or termination of this Agreement,
the Managing Dealer, upon the expiration or termination of this
Agreement, shall (i) promptly deposit any and all funds in its
possession which were received from investors for the sale of Shares
into the appropriate escrow account specified in Paragraph 3.7 or, if
the minimum number of Shares have been sold and accepted by the
Company, into such other account as the Company may designate, and (ii)
promptly deliver to the Company all records and documents in its
possession which relate to the Offering and are not designated as
dealer copies. The Managing Dealer, at its sole expense, may make and
retain copies of all such records and documents, but shall keep all
such information confidential. The Managing Dealer shall use its best
efforts to cooperate with the Company to accomplish an orderly transfer
of management of the Offering to a party designated by the Company.
(b) In addition to any other obligations of the Company that
survive the expiration or termination of this Agreement, the Company,
upon expiration or termination of this Agreement, shall pay to the
Managing Dealer all commissions to which the Managing Dealer is or
becomes entitled under Section 4 at such time or times as such
commissions become payable pursuant to Paragraph 4.3.
SECTION 6
COVENANTS OF THE MANAGING DEALER
The Managing Dealer covenants, warrants and represents, during the full
term of this Agreement, that:
(a) it is (i) a corporation duly organized and validly
existing under the laws of the State of Florida, (ii) a member of the
NASD, and (iii) a broker-dealer registered under the securities laws of
all fifty states, the District of Columbia, and the Commonwealth of
Puerto Rico.
<PAGE>
(b) it will use its best efforts to assure that all Shares are
offered and sold in accordance with (i) the terms of the Registration
Statement, the Prospectus and this Agreement, (ii) the requirements of
applicable federal and state securities laws and regulations, and (iii)
the applicable rules of the NASD, including, without limitation, the
NASD's Conduct Rules;
(c) it will cause the Shares to be offered or sold only in
those jurisdictions specified in writing by the Company;
(d) it will not use any offering or selling materials other
than materials furnished or previously approved in writing by the
Company; and
(e) it either (i) will not purchase Shares for its own account
or (ii) will hold all such Shares for investment.
SECTION 7
COVENANTS OF THE COMPANY
The Company covenants, warrants and represents, during the full term of
this Agreement, that:
(a) it will use its best efforts to maintain the effectiveness
of the Registration Statement, and will file, or cause to be filed,
such amendments to the Registration Statement as may be reasonably
necessary for that purpose;
(b) It will use its best efforts to (i) prevent the issuance
of any order by the SEC, any State Regulatory Authority or any other
regulatory authority which suspends the effectiveness of the
Registration Statement, prevents the use of the Prospectus, or
otherwise prevents or suspends the Offering, and (ii) obtain the
lifting of any such order if issued;
(c) it will give the Managing Dealer written notice when the
Registration Statement becomes effective and shall deliver to the
Managing Dealer a signed copy of the Registration Statement, including
its exhibits, and such number of copies of the Registration Statement,
without exhibits, and the Prospectus, and any supplements and
amendments thereto which are finally approved by the SEC, as the
Managing Dealer may reasonably request for sale of the Shares, which
Prospectus shall not contain any untrue statement of a material fact
required to be stated therein or omit any material statement necessary
to make the statements therein, in light of the circumstances under
which they are made, not misleading;
(d) if at any time any event occurs and becomes known to the
Company prior to the end of the Offering Period, as a result of which
the Registration Statement or Prospectus would include an untrue
statement of a material fact or, in view of the circumstances under
which they were made, omit to state any material fact necessary to make
the statements therein not misleading, the Company will effect the
preparation of an amended or supplemented Registration Statement or
Prospectus which will correct such statement or omission;
(e) it will promptly notify the Managing Dealer of any
post-effective amendments or supplements to the Registration Statement
or Prospectus;
<PAGE>
(f) it will, during the full term of this Agreement, abide by
all applicable provisions of its governing instruments, as the same may
be amended; and
(g) it will use its best efforts to cause, at or prior to the
time the Registration Statement becomes effective, the qualification or
registration of the Shares for offering and sale under the securities
laws of such jurisdictions as shall be determined by the Company.
SECTION 8
PAYMENT OF COSTS AND EXPENSES
8.1 Managing Dealer. The Managing Dealer shall pay all costs and
expenses incident to the performance of its obligations under this Agreement
which are not expressly assumed by the Company under Paragraph 8.2 below.
8.2 Company. The Company shall pay all costs and expenses related to:
(a) the registration of the offer and sale of the Shares with
the SEC, including the cost of preparation, printing, filing and
delivery of the Registration Statement and all copies of the Prospectus
used in the Offering, and any amendments or supplements to such
documents;
(b) the preparation and printing of the form of subscription
agreement to be used in the sale of the Shares;
(c) the qualification or registration of the Shares under
state securities or "blue sky" laws of states where the Shares are to
be offered or sold;
(d) the filing of the Registration Statement and any related
documents, including any amendments or supplements to such documents,
with the NASD;
(e) any filing fees, and fees and disbursements to counsel,
accountants and escrow agents which are in any way related to any of
the above items; and
(f) the preparation, printing and filing of all advertising
originated by it relating to the sale of Shares.
SECTION 9
INDEMNIFICATION
The Managing Dealer agrees to indemnify, defend and hold harmless the
Company from all losses, claims, demands, liabilities and expenses, including
reasonable legal and other expenses incurred in defending such claims or
liabilities, whether or not resulting in any liability to the Company, which the
Company may incur in connection with the offer or sale of any Shares, either by
the Managing Dealer pursuant to this Agreement or any Participating Broker
acting on the Managing Dealer's behalf pursuant to the Participating Broker
Agreement which arise out of or are based upon (i) an untrue statement or
alleged untrue statement of a material fact, or any omission or alleged omission
of a material fact, other than a statement or omission contained in the
Prospectus, the Registration Statement, or any state securities filing which was
not based on information supplied to the Company by the Managing Dealer or a
Participating Broker, or (ii) the breach by the Managing Dealer or any
Participating Broker acting on its
<PAGE>
behalf of any of the terms and conditions of this Agreement or any Participating
Broker Agreement, including, but not limited to, alleged violations of the
Securities Act of 1933, as amended.
SECTION 10
MISCELLANEOUS
10.1 Notices. Any notice, approval, request, authorization, direction
or other communication under this Agreement shall be given in writing and shall
be deemed to be delivered when delivered in person or deposited in the United
States mail, properly addressed and stamped with the required postage,
registered or certified mail, return receipt requested, to the intended
recipient as set forth below.
If to the Company: 400 East South Street
Orlando, Florida 32801
Attention: James M. Seneff, Jr.,
Chairman of the Board
If to the Managing Dealer: CNL Securities Corp.
400 East South Street
Orlando, Florida 32801
Attention: Robert A. Bourne, President
Any party may change its address specified above by giving each other party
notice of such change in accordance with this Paragraph 10.1.
10.2 Invalid Provision. The invalidity or unenforceability of any
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
10.3 No Partnership. Nothing in this Agreement shall be construed or
interpreted to constitute the Managing Dealer as in association with or in
partnership with the Company, and instead, this Agreement only shall constitute
the Managing Dealer as a dealer authorized by the Company to sell and to manage
the sale by others of the Shares according to the terms set forth in the
Registration Statement, the Prospectus or this Agreement.
10.4 No Third Party Beneficiaries. No provision of this Agreement is
intended to be for the benefit of any person or entity not a party to this
Agreement, and no third party shall be deemed to be a beneficiary of any
provision of this Agreement. Further, no third party shall by virtue of any
provision of this Agreement have a right of action or an enforceable remedy
against either party to this Agreement.
10.5 Survival. Paragraph 5.3 and Section 9 and all provisions of this
Agreement which may reasonably be interpreted or construed as surviving the
expiration or termination of this Agreement shall survive the expiration or
termination of this Agreement.
10.6 Entire Agreement. This Agreement constitutes the complete
understanding among the parties hereto, and no variation, modification or
amendment to this Agreement shall be deemed valid or effective unless and until
it is signed by all parties hereto.
<PAGE>
10.7 Successors and Assigns. No party shall assign (voluntarily, by
operation of law or otherwise) this Agreement or any right, interest or benefit
under this Agreement without the prior written consent of each other party.
Subject to the foregoing, this Agreement shall be fully binding upon, inure to
the benefit of, and be enforceable by, the parties hereto and their respective
successors and assigns.
10.8 Nonwaiver. The failure of any party to insist upon or enforce
strict performance by any other party of any provision of this Agreement or to
exercise any right under this Agreement shall be construed as a waiver or
relinquishment to any extent of such party's right to assert or rely upon any
such provision or right in that or any other instance; rather, such provision or
right shall be and remain in full force and effect.
10.9 Applicable Law. This Agreement shall be interpreted, construed
and enforced in all respects in accordance with the laws of the State of
Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Company: CNL HEALTH CARE PROPERTIES, INC.
By: __________________________________
JAMES M. SENEFF, JR., Chairman of the Board
Managing Dealer: CNL SECURITIES CORP.
By: __________________________________
ROBERT A. BOURNE, President
EXHIBIT 1.2
Form of Participating Broker Agreement
<PAGE>
PARTICIPATING BROKER AGREEMENT
CNL HEALTH CARE PROPERTIES, INC.
THIS PARTICIPATING BROKER AGREEMENT (the "Agreement") is made and
entered into as of the day indicated on Exhibit A attached hereto and by this
reference incorporated herein, between CNL SECURITIES CORP., a Florida
corporation (the "Managing Dealer"), and the Participating Broker (the "Broker")
identified in Exhibit A hereto.
WHEREAS, CNL HEALTH CARE PROPERTIES, INC. is a Maryland corporation (the
"Company"); and
WHEREAS, the Company proposes to offer and sell up to 15,500,000 shares
of Common Stock of the Company (the "Shares") to the general public, pursuant to
a public offering (the "Offering") of the Shares pursuant to a prospectus (the
"Prospectus") filed with the Securities and Exchange Commission ("SEC"); and
WHEREAS, the Managing Dealer, which has heretofore entered into a
Managing Dealer Agreement with the Company pursuant to which it has been
designated the managing dealer to sell and manage the sale by others of the
Shares pursuant to the terms of such agreement and the Offering, is a
corporation incorporated in and presently in good standing in the State of
Florida, and is presently registered with the Florida Securities Commission and
with the National Association of Securities Dealers, Inc. ("NASD") as a
securities broker-dealer qualified to offer and sell to members of the public
securities of the type represented by the Shares; and
WHEREAS, the Broker is an entity, as designated in Exhibit A hereto,
organized and presently in good standing in the state or states designated in
Exhibit A hereto, presently registered as a broker-dealer with the NASD, and
presently licensed by the appropriate regulatory agency of each state in which
it will offer and sell the Shares as a securities broker-dealer qualified to
offer and sell to members of the public securities of the type represented by
the Shares or exempt from all such registration requirements; and
WHEREAS, the Company has filed with the SEC a registration statement on
Form S-11, including a preliminary or final prospectus, for the registration of
the Shares under the Securities Act of 1933, as amended (such registration
statement, as it may be amended, and the prospectus and exhibits on file with
the SEC at the time the registration statement becomes effective, including any
post-effective amendments or supplements to such registration statement or
prospectus after the effective date of registration, being herein respectively
referred to as the "Registration Statement" and the "Prospectus"); and
WHEREAS, the offer and sale of the Shares shall be made pursuant to the
terms and conditions of the Registration Statement and the Prospectus and,
further, pursuant to the terms and conditions of all applicable securities laws
of all states in which the Shares are offered and sold; and
WHEREAS, the Managing Dealer desires to retain the Broker to use its
best efforts to sell the Shares, and the Broker is willing and desires to serve
as a broker for the Managing Dealer for the sale of the Shares upon the
following terms and conditions;
NOW, THEREFORE, in consideration of the premises and terms and
conditions thereof, it is agreed between the Managing Dealer and the Broker as
follows.
1. Employment.
(a) Subject to the terms and conditions herein set forth, the
Managing Dealer hereby employs the Broker to use its best efforts to sell for
the account of the Company a portion of the Shares described in the Registration
Statement, as specified on Exhibit A hereto. The Broker hereby accepts such
employment and covenants, warrants and agrees to sell the Shares according to
all of the terms and conditions of the Registration
<PAGE>
Statement, all applicable state and federal laws, including the Securities Act
of 1933, as amended, and any and all regulations and rules pertaining thereto,
heretofore or hereafter issued by the SEC and the NASD. Neither the Broker nor
any other person shall have any authority to give any information or make any
representations in connection with any offer or sale of the Shares other than as
contained in the Prospectus, as amended and supplemented, and as is otherwise
expressly authorized in writing by the Managing Dealer.
(b) The Broker shall use its best efforts, promptly following
receipt of written notice from the Managing Dealer of the effective date of the
Registration Statement, to sell the Shares in such quantities and for the
account of Company as shall be agreed between the Broker and the Managing Dealer
and specified on Exhibit A hereto, and to such persons and according to all such
terms as are contained in the Registration Statement and the Prospectus. The
Broker shall comply with all requirements set forth in the Registration
Statement and the Prospectus. The Broker shall use and distribute, in connection
with the offer and sale of the Shares, only the Prospectus and such sales
literature and advertising as shall conform in all respects to any restrictions
of local law and the applicable requirements of the Securities Act of 1933, as
amended, and which has been approved in writing by the Company or the Managing
Dealer. The Managing Dealer reserves the right to establish such additional
procedures as it may deem necessary to ensure compliance with the requirements
of the Registration Statement, and the Broker shall comply with all such
additional procedures to the extent that it has received written notice thereof.
(c) The Broker shall be permitted to accept subscriptions for
the Shares by telephone from residents of those states identified on Schedule A
attached hereto and made a part hereof provided that: (1) the registered
representative and branch manager of the Broker execute the subscription
agreement on behalf of any investor who subscribes for Shares by telephone; and
(2) the Broker does not charge any additional fees, including but not limited to
fees relating to opening an account with the Broker, to any investor who
telephonically or orally subscribes for Shares. It is understood and agreed
between the Managing Dealer and the Broker that the Managing Dealer may, in its
discretion, change, modify, add to or delete from the list of states identified
on Schedule A. Any such modification shall be effective ten days from the date
written notice to the Broker has been mailed by the Managing Dealer. The Broker
shall not execute a subscription agreement on behalf of any investor who
subscribes for Shares by telephone unless such investor has specifically
authorized the registered representative and the branch manager of the Broker to
execute the subscription agreement on behalf of such investor and has made or
agreed to make full payment for all Shares covered by such subscription
agreement. Notwithstanding anything contained herein to the contrary, the Broker
shall have no authority to make representations on behalf of an investor or to
initial representations contained in the subscription agreement on behalf of an
investor. In connection with telephonic or other oral subscriptions for Shares,
the Broker represents and warrants as follows: (i) that a Prospectus was
delivered to the investor before the investor made a decision to invest; (ii)
that the investor meets the suitability requirements set forth in the
Prospectus; and (iii) that, in compliance with the NASD's Conduct Rules, the
Broker has reasonable grounds to believe that the investment in the Company is
suitable for the investor, based upon information supplied by the investor to
such Broker. Further, the Broker shall explain to any investor from a state
identified in the Prospectus as having such additional requirements, that: (i)
the investor has the right to rescind such subscription for a period of at least
ten days following the date written confirmation of the subscription has been
received by the investor from the Managing Dealer; and (ii) unless the investor
rescinds such subscription within the applicable period of time, the investor
shall be bound by the subscription agreement.
(d) Notwithstanding anything to the contrary contained in
Section 2 of this Agreement, in the event that the Managing Dealer pays any
commission to the Broker for sale of one or more Shares, including, but not
limited to, those Shares sold pursuant to a telephonic or other oral
subscription therefor, where representatives of the Broker execute the
subscription agreement relating to such Shares, and the subscription is
rescinded as to one or more of the Shares covered by such subscription, the
Managing Dealer shall decrease the next payment of commissions or other
compensation otherwise payable to the Broker by the Managing Dealer under this
Agreement by an amount equal to the commission rate established in Section 2 and
Exhibit A of this Agreement, multiplied by the number of Shares as to which the
subscription is rescinded. In the event that no payment of commissions or other
compensation is due to the Broker after such withdrawal occurs, the Broker shall
pay the amount specified in
<PAGE>
the preceding sentence to the Managing Dealer within ten (10) days following
mailing of notice to the Broker by the Managing Dealer stating the amount owed
as a result of rescinded subscriptions.
(e) All monies received for purchase of any of the Shares
shall be forwarded by the Broker to the Managing Dealer for delivery to
SouthTrust Asset Management Company of Florida, N.A. (the "Escrow Agent"), where
such monies will be deposited in an escrow account established by the Company
solely for such subscriptions, except that, until such time (if any) that such
monies are deliverable to the Company pursuant to the Escrow Agreement between
the Company and the Escrow Agent, the Broker shall return any check not made
payable to "SouthTrust Asset Management Company of Florida, N.A., Escrow Agent"
directly to the subscriber who submitted the check. Thereafter, the Broker may
accept checks made payable to either the Company or the Escrow Agent.
Subscriptions will be executed as described in the Registration Statement or as
directed by the Managing Dealer. The monies shall be deposited or transmitted by
the Broker to the Managing Dealer no later than the close of business of the
first business day after receipt of the subscription documents by the Broker;
provided, however, that if the Broker maintains a branch office, the branch
office shall transmit the subscription documents and check to the Broker by the
close of business on the first business day following their receipt by the
branch office and the Broker shall review the subscription documents and check
to ensure their proper execution and form and, if they are acceptable, transmit
the check to the Managing Dealer by the close of business on the first business
day after their receipt by the Broker. Pursuant to the terms of the Managing
Dealer Agreement, the Managing Dealer will transmit the check or monies to the
Escrow Agent by no later than the close of business on the first business day
after the check is received from the Broker.
(f) During the full term of this Agreement the Managing Dealer
shall have full authority to take such action as it may deem advisable in
respect to all matters pertaining to the performance of the Broker under this
Agreement.
(g) The Shares shall be offered and sold by the Broker only
where the Shares may be legally offered and sold, and only to such persons in
such states who shall be legally qualified to purchase the Shares. The Managing
Dealer shall give the Broker written notice at the time of effectiveness of
those states in which the offering and sale of Shares may be made, and shall
amend such notice thereafter as additional states are added; no Shares shall be
offered or sold in any other states.
(h) The Broker shall have no obligation under this Agreement
to purchase any of the Shares for its own account.
(i) The Broker will use every reasonable effort to assure that Shares are
sold only to investors who:
(1) meet the investor suitability standards,
including the minimum income and net worth standard established by the
Company, and minimum purchase requirements set forth in the
Registration Statement;
(2) can reasonably benefit from the Company based on
the prospective investor's overall investment objectives and portfolio
structure;
(3) are able to bear the economic risk of the
investment based on each prospective investor's overall financial
situation; and
(4) have apparent understanding of: (a) the
fundamental risks of the investment; (b) the risk that the prospective
investor may lose the entire investment; (c) the lack of liquidity of
the Shares; (d) the restrictions on transferability of the Shares; (e)
the background and qualifications of the officers and directors of CNL
Health Care Advisors, Inc., the advisor to the Company (the "Advisor");
and (f) the tax consequences of an investment in the Shares.
<PAGE>
(5) The Broker will make the determinations required
to be made by it pursuant to subparagraph (i) based on information it
has obtained from a prospective investor, including, at a minimum, but
not limited to, the prospective investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments of the prospective investor, as well as any other pertinent
factors deemed by the Broker to be relevant.
(j) In addition to the complying with the provisions of
subparagraph (i) above, and not in limitation of any other obligations of the
Broker to determine suitability imposed by state or federal law, the Broker
agrees that it will comply fully with all of the applicable provisions of the
NASD's Conduct Rules, and the following provisions:
(1) The Broker shall have reasonable grounds to
believe, based upon information provided by the investor concerning his
investment objectives, other investments, financial situation and
needs, and upon any other information known by the Broker, that (A)
each investor to whom the Broker sells Shares is or will be in a
financial position appropriate to enable him to realize to a
significant extent the benefits (including tax benefits) of an
investment in the Shares, (B) each investor to whom the Broker sells
Shares has a fair market net worth sufficient to sustain the risks
inherent in an investment in the Shares (including potential loss and
lack of liquidity), and (C) the Shares otherwise are or will be a
suitable investment for each investor to whom it sells Shares, and the
Broker shall maintain files disclosing the basis upon which the
determination of suitability was made;
(2) The Broker shall not execute any transaction
involving the purchase of Shares in a discretionary account without
prior written approval of the transactions by the investor;
(3) The Broker shall have reasonable grounds to
believe, based upon the information made available to it, that all
material facts are adequately and accurately disclosed in the
Registration Statement and provide a basis for evaluating the Shares;
(4) In making the determination set forth in
subparagraph (3) above, the Broker shall evaluate items of
compensation, physical properties, tax aspects, financial stability and
experience of the sponsor, conflicts of interest and risk factors,
appraisals, as well as any other information deemed pertinent by it;
(5) If the Broker relies upon the results of any
inquiry conducted by another member of the NASD with respect to the
obligations set forth in subparagraphs (3) or (4) above, the Broker
shall have reasonable grounds to believe that such inquiry was
conducted with due care, that the member or members conducting or
directing the inquiry consented to the disclosure of the results of the
inquiry and that the person who participated in or conducted the
inquiry is not a sponsor or an affiliate of the sponsor of the Company;
and
(6) Prior to executing a purchase transaction in the
Shares, the Broker shall have informed the prospective investor of all
pertinent facts relating to the liquidity and marketability of the
Shares.
(k) The Broker agrees that it will comply with Rules 2730, 2740 and 2750 of
the NASD's
Conduct Rules.
(l) The Broker agrees to retain in its files, for a period of
at least six years, information which will establish that each purchaser of
Shares falls within the permitted class of investors.
<PAGE>
(m) The Broker shall not, directly or indirectly, pay or award
any finder's fees, commissions or other compensation to any persons engaged by a
potential investor for investment advice as an inducement to such advisor to
advise the potential investor to purchase Shares in the Company.
(n) The Broker either (i) shall not purchase Shares for its
own account or (ii) shall hold for investment any Shares purchased for its own
account.
(o) The Broker hereby confirms that it is familiar with
Securities Act Release No. 4968 and Rule 15c2-8 under the Securities Exchange
Act of 1934, relating to the distribution of preliminary and final prospectuses,
and confirms that it has and will comply therewith.
(p) The Broker shall deliver a copy of the Articles of
Incorporation of the Company with each Prospectus that is delivered to potential
investors in Mississippi.
(q) The Broker shall not in any way participate in, or effect
the sale or transfer of Shares in connection with, a tender offer with respect
to shares of the Company's common stock, whether or not such offer is subject to
Section 14(d)(1) of the Securities Exchange Act of 1934, as amended, other than
with the written consent of the Company and/or the Managing Dealer.
2. Compensation of Broker.
The Managing Dealer shall pay the Broker, as compensation for all
services to be rendered by the Broker hereunder, a commission equal to 7.0% on
sales of Shares by such Broker, as set forth in Exhibit A hereto, subject to
reduction as specified in this Section 2 and the Prospectus. The Managing
Dealer, in its sole discretion, may reallow to the Broker, from its marketing
support and due diligence expense reimbursement fee, up to an additional 0.5% on
sales of Shares by such Broker, based on such factors as the number of Shares
sold by the Broker, the assistance of the Broker in marketing the Offering, and
bona fide due diligence expenses incurred by the Broker. Such commission rates
shall remain in effect during the full term of this Agreement unless otherwise
changed by a written agreement between the parties hereto. A sale of Shares
shall be deemed to be completed only after the Company receives a properly
completed subscription agreement for Shares from the Broker evidencing the fact
that the investor had received a final Prospectus for a period of not less than
five full business days, together with payment of the full purchase price of
each purchased Share from a buyer who satisfies each of the terms and conditions
of the Registration Statement and Prospectus, and only after such subscription
agreement has been accepted in writing by the Company. Such compensation shall
be payable to the Broker by the Managing Dealer after such acceptance of the
subscription agreement; provided, however, that compensation or commissions
shall not be paid by the Managing Dealer: (i) other than from funds received as
compensation or commissions from the Company for the sale of its Shares; (ii)
until such time as subscriptions for a minimum of 250,000 Shares ($2,500,000),
excluding subscriptions from Pennsylvania investors, have been received and
approved by the Company, and deposited into the escrow account provided for in
Paragraph 1(e) hereof; (iii) until any and all compensation or commissions
payable by the Company to the Managing Dealer have been received by the Managing
Dealer; and (iv) if the commission payable to any broker-dealer or salesman
exceeds the amount allowed by any regulatory agency. The Broker shall not
reallow any commissions to non-NASD members. The Company (and the Managing
Dealer) may pay reduced commissions or may eliminate commissions on certain
sales of Shares, including the reduction or elimination of commissions in
accordance with the following paragraph of this Section 2. Any such reduction or
elimination of commissions will not, however, change the net proceeds to the
Company.
The Company also shall issue to the Managing Dealer a warrant (the
"Soliciting Dealer Warrants") for every 25 Shares sold through the Offering, up
to a maximum of 600,000 Soliciting Dealer Warrants to purchase an equivalent
number of shares of common stock of the Company. The Soliciting Dealer Warrants
will be issued quarterly commencing 60 days after the date on which the Shares
are first sold pursuant to the Offering. All or any part of such Soliciting
Dealer Warrants may be reallowed to certain Brokers with prior written approval
from, and
<PAGE>
in the sole discretion of, the Managing Dealer unless prohibited by federal or
state securities laws. Each Soliciting Dealer Warrant will entitle the holder to
purchase one share of common stock from the Company for $12.00 during the
ten-year period commencing with the date the Offering begins (the "Exercise
Period"); provided however, that Soliciting Dealer Warrants will not be
exercisable until one year from the date of issuance. Holders of Soliciting
Dealer Warrants may not exercise the Soliciting Dealer Warrants to the extent
such exercise would jeopardize the Company's status as a REIT. No Soliciting
Dealer Warrants will be issued relating to the Shares sold through the Company's
Reinvestment Plan.
A registered principal or representative of the Managing Dealer or a
Broker, employees, officers, Directors, and directors of the Company or the
Advisor, or any of their Affiliates (and the families of any of the foregoing
persons), and any Plan (as defined in the Prospectus) established exclusively
for the benefit of such persons may purchase Shares net of 7% commissions, at a
per Share purchase price of $9.30. In addition, clients of an investment adviser
registered under the Investment Advisers Act of 1940, as amended, who have been
advised by such adviser on an ongoing basis regarding investments other than in
the Company, and who are not being charged by such adviser or its Affiliates,
through the payment of commissions or otherwise, for the advice rendered by such
adviser in connection with the purchase of the Shares, may purchase the Shares
net of commissions. In addition, brokers that have a contractual arrangement
with their clients for the payment of fees which is consistent with accepting
selling commissions, in their sole discretion, may elect not to accept any
selling commissions offered by the Company for Shares that they sell. In that
event, such Shares shall be sold to the investor net of all selling commissions,
at a per share purchase price of $9.30.
Certain stockholders may agree with their participating Broker and the
Managing Dealer to have commissions relating to their Shares paid over a seven
year period pursuant to a deferred commission arrangement (the "Deferred
Commission Option"). Stockholders electing the Deferred Commission Option will
be required to pay a total of $9.40 per Share purchased upon subscription,
rather than $10.00 per Share, with respect to which $0.15 per Share will be
payable as commissions due upon subscription, $0.10 of which may be reallowed to
the Broker by the Managing Dealer. For each of the six years following such
subscription on a date to be determined by the Managing Dealer, $0.10 per Share
will be paid by the Company as deferred commissions with respect to Shares sold
pursuant to the Deferred Commission Option, which amounts will be deducted from
and paid out of distributions otherwise payable to such stockholders holding
such Shares and may be reallowed to the Broker by the Managing Dealer. The net
proceeds to the Company will not be affected by the election of the Deferred
Commission Option. Under this arrangement, a stockholder electing the Deferred
Commission Option will pay a 1% Broker commission per year thereafter for the
next six years which will be deducted from and paid by the Company out of
distributions otherwise payable to such stockholder.
The Managing Dealer shall pay the Broker commissions on Shares
purchased pursuant to the Company's Reinvestment Plan on the same basis as
commissions paid for Shares otherwise purchased in the Offering. No Broker
commissions will be paid in connection with shares of common stock issued upon
the exercise of the Soliciting Dealer Warrants.
3. Association with Other Dealers.
It is expressly understood between the Managing Dealer and the Broker
that the Managing Dealer may cooperate with other broker-dealers who are
registered as broker-dealers with the NASD and duly licensed by the appropriate
regulatory agency of each state in which they will offer and sell the Shares or
with broker-dealers exempt from all such registration requirements. Such other
participating broker-dealers may be employed by the Managing Dealer as brokers
on terms and conditions identical or similar to this Agreement and shall receive
such rates of commission as are agreed to between the Managing Dealer and the
respective other participating broker-dealers and as are in accordance with the
terms of the Registration Statement. The Broker understands that, to that
extent, such other participating broker-dealers shall compete with the Broker in
the sale of the Shares.
<PAGE>
4. Conditions of the Broker's Obligations.
The Broker's obligations hereunder are subject, during the full term of
this Agreement and the Offering, to (a) the performance by the Managing Dealer
of its obligations hereunder; and (b) the conditions that: (i) the Registration
Statement shall become and remain effective; and (ii) no stop order shall have
been issued suspending the effectiveness of the Offering.
5. Conditions to the Managing Dealer's Obligations.
The obligations of the Managing Dealer hereunder are subject, during
the full term of this Agreement and the Offering, to the conditions that: (a) at
the effective date of the Registration Statement and thereafter during the term
of this Agreement while any Shares remain unsold, the Registration Statement
shall remain in full force and effect authorizing the offer and sale of the
Shares; (b) no stop order suspending the effectiveness of the Offering or other
order restraining the offer or sale of the Shares shall have been issued nor
proceedings therefor initiated or threatened by any state regulatory agency or
the SEC; and (c) the Broker shall have satisfactorily performed all of its
obligations hereunder.
6. Covenants of the Managing Dealer.
The Managing Dealer covenants, warrants and represents, during the full
term of this Agreement, that:
(a) It shall use its best efforts to prevent the sale of the
Shares through persons other than registered NASD broker-dealers.
(b) It shall use its best efforts to cause the Company to
maintain the effectiveness of the Registration Statement and to file such
applications or amendments to the Registration Statement as may be reasonably
necessary for that purpose.
(c) It shall advise the Broker whenever and as soon as it
receives or learns of any order issued by the SEC, any state regulatory agency
or any other regulatory agency which suspends the effectiveness of the
Registration Statement or prevents the use of the Prospectus or which otherwise
prevents or suspends the offering or sale of the Shares, or receives notice of
any proceedings regarding any such order.
(d) It shall use its best efforts to prevent the issuance of
any order described herein at subparagraph (c) hereof and to obtain the lifting
of any such order if issued.
(e) It shall give the Broker written notice when the
Registration Statement becomes effective and shall deliver to the Broker such
number of copies of the Prospectus, and any supplements and amendments thereto,
which are finally approved by the SEC, as the Broker may reasonably request for
sale of the Shares.
(f) It shall promptly notify the Broker of any post-effective
amendments or supplements to the Registration Statement or Prospectus, and shall
furnish the Broker with copies of any revised Prospectus and/or supplements and
amendments to the Prospectus.
(g) To the extent to which the Managing Dealer has knowledge,
it shall keep the Broker fully informed of any material development to which the
Company is a party or which concerns the business and condition of the Company.
(h) In conjunction with the Company, it shall use its best
efforts to cause, at or prior to the time the Registration Statement becomes
effective, the qualification of the Shares for offering and sale under the
securities laws of such states as the Company shall elect.
<PAGE>
7. Payment of Costs and Expenses.
The Broker shall pay all costs and expenses incident to the performance
of its obligations under this Agreement, including:
(a) All expenses incident to the preparation, printing and filing of all
advertising originated by it related to the sale of the Shares; and
(b) All other costs and expenses incurred in connection with
its sales efforts related to the sales of the Shares which are not expressly
assumed by the Company in its Managing Dealer Agreement with the Managing
Dealer.
8. Indemnification.
The Broker agrees to indemnify, defend and hold harmless the Company,
its affiliates and their or its officers, directors, trustees, employees and
agents, including the Managing Dealer, against all losses, claims, demands,
liabilities and expenses, joint or several, including reasonable legal and other
expenses incurred in defending such claims or liabilities, whether or not
resulting in any liability to the Company, its affiliates and their or its
officers, directors, trustees, employees or agents, which they or any of them
may incur arising out of the offer or sale by the Broker, or any person acting
on its behalf, of any Shares pursuant to this Agreement if such loss, claim,
demand, liability, or expense arises out of or is based upon (i) an untrue
statement or alleged untrue statement of a material fact, or any omission or
alleged omission of a material fact, other than a statement, omission, or
alleged omission by the Broker which is also, as the case may be, contained in
or omitted from the Prospectus or the Registration Statement and which statement
or omission was not based on information supplied to the Company or the Managing
Dealer by such Broker, or (ii) the breach by the Broker, or any person acting on
its behalf, of any of the terms and conditions of this Agreement. This indemnity
provision shall survive the termination of this Agreement.
(a) The Managing Dealer agrees to indemnify, defend and hold
harmless the Broker, its officers, directors, employees and agents, against all
losses, claims, demands, liabilities and expenses, including reasonable legal
and other expenses incurred in defending such claims or liabilities, which they
or any of them may incur, including, but not limited to, alleged violations of
the Securities Act of 1933, as amended, but only to the extent that such losses,
claims, demands, liabilities and expenses shall arise out of or be based upon
(i) any untrue statement of a material fact contained in the Prospectus or the
Registration Statement, as filed and in effect with the SEC, or in any amendment
or supplement thereto, or in any application prepared or approved in writing by
counsel to the Company and filed with any state regulatory agency in order to
register or qualify the Shares under the securities laws thereof (the "Blue Sky
applications"), or (ii) any omission or alleged omission to state therein a
material fact required to be stated in the Prospectus or the Registration
Statement or the Blue Sky applications, or necessary to make such statements,
and any part thereof, not misleading; provided, further, that any such untrue
statement, omission or alleged omission is not based on information included in
any such document which was supplied to the Managing Dealer, the Company, or any
officer of the Company by such Broker. This indemnity provision shall survive
the termination of this Agreement.
(b) No indemnifying party shall be liable under the indemnity
agreements contained in subparagraphs (a) and (b) above unless the party to be
indemnified shall have notified such indemnifying party in writing promptly
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the party to be indemnified, but
failure to notify an indemnifying party of any such claim shall not relieve it
from any liabilities which it may have to the indemnified party against whom
action is brought other than on account of its indemnity agreement contained in
subparagraphs (a) and (b) above. In the case of any such claim, if the party to
be indemnified notified the indemnifying party of the commencement thereof as
aforesaid, the indemnifying party shall be entitled to participate at its own
expense in the defense of such claim. If it so elects, in accordance with
arrangements satisfactory to any other indemnifying party or parties similarly
notified, the
<PAGE>
indemnifying party has the option to assume the entire defense of the claim,
with counsel who shall be satisfactory to such indemnified party and all other
indemnified parties who are defendants in such action; and after notice from the
indemnifying party of its election so to assume the defense thereof and the
retaining of such counsel by the indemnifying party, the indemnifying party
shall not be liable to such indemnified party under subparagraphs (a) and (b)
above for any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof, other than for the reasonable
costs of investigation.
9. Term of Agreement.
This Agreement shall become effective at 8:00 A.M. (Eastern Standard
Time) on the first full business day following the day on which the Registration
Statement becomes effective, or if later, the date on which this Agreement is
executed by the Managing Dealer and the Broker. The Broker and the Managing
Dealer may each prevent this Agreement from becoming effective, without
liability to the other, by written notice before the time this Agreement would
otherwise become effective. After this Agreement becomes effective, either party
may terminate it at any time for any reason by giving thirty (30) days' written
notice to the other party; provided, however, that this Agreement shall in any
event automatically terminate at the first occurrence of any of the following
events: (a) the Registration Statement for offer and sale of the Shares shall
cease to be effective; (b) the Company shall be terminated; or (c) the Broker's
license or registration to act as a broker-dealer shall be revoked or suspended
by any federal, self-regulatory or state agency and such revocation or
suspension is not cured within ten (10) days from the date of such occurrence.
In any event, this Agreement shall be deemed suspended during any period for
which such license is revoked or suspended.
10. Notices.
All notices and communications hereunder shall be in writing and shall
be deemed to have been given and delivered when deposited in the United States
mail, postage prepaid, registered or certified mail, to the applicable address
set forth below.
If sent to the Managing Dealer:
CNL SECURITIES CORP.
400 East South Street
Orlando, Florida 32801
Attention: Robert A. Bourne, President
If sent to the Broker: to the person whose name and address are identified
in Exhibit A hereto.
11. Successors.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, and shall not be assigned or transferred by the Broker by
operation of law or otherwise.
12. Miscellaneous.
(a) This Agreement shall be construed in accordance with the applicable
laws of the State of Florida.
(b) Nothing in this Agreement shall constitute the Broker as
in association with or in partnership with the Managing Dealer. Instead, this
Agreement shall only authorize the Broker to sell the Shares according to the
terms as expressly set forth herein; provided, further, that the Broker shall
not in any event have
<PAGE>
any authority to act as the agent or broker of the Managing Dealer except
according to the terms expressly set forth herein.
(c) This Agreement, including Exhibit A and Schedule A hereto,
embodies the entire understanding between the parties to the Agreement, and no
variation, modification or amendment to this Agreement shall be deemed valid or
effective unless it is in writing and signed by both parties hereto.
(d) If any provision of this Agreement shall be deemed void,
invalid or ineffective for any reason, the remainder of the Agreement shall
remain in full force and effect.
(e) This Agreement may be executed in counterpart copies, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument comprising this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year indicated on Exhibit A hereto.
MANAGING DEALER FOR:
BROKER: CNL HEALTH CARE PROPERTIES, INC.
_______________________________________ CNL SECURITIES CORP.
(Name of Broker)
By:_____________________________________ By________________________________
Print Name:______________________________ Print Name:_______________________
Title:___________________________________ Title:____________________________
Witness:_________________________________ Witness:__________________________
<PAGE>
EXHIBIT A
TO
PARTICIPATING BROKER AGREEMENT
OF
CNL HEALTH CARE PROPERTIES, INC.
This Exhibit A is attached to and made a part of that certain
Participating Broker Agreement, dated as of the ___ day of ___________________,
19__, by and between CNL SECURITIES CORP., as Managing Dealer, and
__________________________________, as Broker.
1. Date of Agreement: ____________________________________________________
2. Identity of Broker:
Name:__________________________________________________________________
Firm NASD (CRD) No:____________________________________________________
Type of Entity_______________________________________________ (To be
completed by Broker, e.g., corporation, partnership or sole
proprietorship.)
State Organized in:____________________________________________________
(To be completed by Broker)
Qualified To Do Business and in Good Standing in the Following
Jurisdictions (including your state of organization) (Note:
Qualification to do business in any jurisdiction is generally a
requirement imposed by the secretary of state or other authority of
jurisdictions in which you do business, and is not related to your
holding a license as a securities broker-dealer in such jurisdictions.
Questions concerning this matter should be directed to you or your
legal counsel.):
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Do any subsidiaries of your firm fall within the scope of this
agreement? Yes______ No______
If so, please attach the name, address, contact person and list of
representatives of such entities.
(To be completed by Broker)
Licensed as Broker-Dealer in The Following States: ____________________
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(To be completed by Broker)
A-1
[Exhibit A
Page 1 of 2]
<PAGE>
3. Schedule of Commissions Payable to Participating Broker (see Section 2 of
Agreement):
<TABLE>
<CAPTION>
Number of Shares
Purchased In Sales Price As a Percentage
Individual Order To Subscriber of the Sales Price(1) Dollar Amount
------------------- -------------- --------------------- -------------
<S> <C> <C> <C> <C>
1 or more $10.00 7.0% $0.70
</TABLE>
<TABLE>
<S> <C>
4. Name and Address for Notice Purposes (see Paragraph 10 of Agreement):
Name: ____________________________________________________________________________________
Title: __________________________________________________________________________________
Company: _________________________________________________________________________________
Address: _________________________________________________________________________________
City, State and Zip Code:_________________________________________________________________
Telephone Number (including area code): __________________________________________________
5. Please complete the following for our records:
(a) Please name those individuals who hold the following positions:
President:_______________________________________________________________________
Due Diligence Officer:___________________________________________________________
Marketing Director:______________________________________________________________
In-House Editor:_________________________________________________________________
(b) How many representatives are registered with your broker-dealer?_________________
PLEASE ENCLOSE A CURRENT LIST, INCLUDING ADDRESSES AND TELEPHONE
NUMBERS. ALL INFORMATION WILL BE HELD IN CONFIDENCE.
(c) Does your company hold national or regional conferences? Yes _____ No _____
If so, when?_____________________________________________________________________
Who is the coordinator?__________________________________________________________
(d) Does your firm publish a newsletter? Yes _____ No _____
Person responsible:______________________________________________________________
</TABLE>
- --------
(1) Subject to reduction as set forth in Section 2 of the Participating
Broker Agreement.
A-2
[Exhibit A
Page 2 of 2]
<PAGE>
What is/are the frequency of the publication(s)?
_____ Weekly
_____ Monthly
_____ Quarterly
_____ Bi-weekly
_____ Bi-monthly
_____ Other (please specify)
PLEASE PLACE CNL ON YOUR MAILING
LIST AND PROVIDE A SAMPLE OF THE
PUBLICATION IF AVAILABLE.
(e) Does your firm have regular internal mailings, or bulk package
mailings to representatives?
Yes _____ No _____
PLEASE PLACE CNL ON YOUR MAILING LIST AND PROVIDE A
SAMPLE OF THE PUBLICATION IF AVAILABLE.
(f) Does your firm have a computerized electronic mail (E-Mail)
system for your representatives?
Yes _____ No _____
If so, please provide e-mail address: ________________________
(g) Website address: _____________________________________________
Person responsible: __________________________________________
A-3
[Exhibit A
Page 3 of 2]
<PAGE>
SCHEDULE A
TO
PARTICIPATING BROKER AGREEMENT
OF
CNL HEALTH CARE PROPERTIES, INC.
This Schedule A is attached to and made a part of that certain
Participating Broker Agreement, dated as of the ___ day of ____________________,
19__, by and between CNL SECURITIES CORP., as Managing Dealer, and
_____________________________________________, as Broker.
TELEPHONIC SUBSCRIPTION AUTHORIZATION
The list of states in which the Broker is permitted to accept
telephonic subscriptions shall be those states identified by Item 2 of Exhibit
A, as amended from time to time, to the Broker Agreement between the parties
hereto, as states in which the Broker is licensed as a Broker-Dealer, except for
the following states in which the Broker is specifically prohibited from
accepting telephonic subscriptions: Florida, Iowa, Maine, Massachusetts,
Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Mexico, North
Carolina, Ohio, Oregon, South Dakota, Tennessee and Washington.
Initials: ______________ -- CNL SECURITIES CORP.
______________ -- PARTICIPATING BROKER
EXHIBIT 1.3
Form of Warrant Purchase Agreement
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
600,000 Shares of Common Stock
$.01 Par Value
[FORM OF]
WARRANT PURCHASE AGREEMENT
___________, 1998
This Warrant Purchase Agreement (the "Agreement") is made by and
between CNL Health Care Properties, Inc., a Maryland corporation (the
"Company"), and CNL Securities Corp., a Florida corporation (the
"Warrantholder").
The Company hereby agrees to issue and sell, and the Warrantholder
agrees to purchase, for the price of $.0008 per warrant, warrants as hereinafter
described (the "Soliciting Dealer Warrants") to purchase one share of the
Company's Common Stock, $.01 par value (the "Shares") for each 25 Shares sold by
the Managing Dealer and/or Soliciting Dealers, up to a maximum of 600,000
Soliciting Dealer Warrants. The price per Share at which the Soliciting Dealer
Warrants are exercisable and the number of Shares purchasable per Soliciting
Dealer Warrant are subject to adjustment pursuant to Section 8 hereof. The
Soliciting Dealer Warrants are being purchased in connection with a "best
efforts" offering of 15,000,000 Shares (the "Offering"), pursuant to that
certain Managing Dealer Agreement (the "Managing Dealer Agreement"), dated
_______, 1998 between the Company and the Warrantholder as the Managing Dealer
and as representative of the Soliciting Dealers who may receive warrants. Unless
otherwise defined, capitalized terms used herein shall have the same meaning as
in the Registration Statement on Form S-11 relating to the Offering.
The issuance of the Soliciting Dealer Warrants shall occur quarterly
commencing 60 days after the date on which Shares are first sold pursuant to the
Offering and such issuances shall be subject to the terms and conditions set
forth in the Managing Dealer Agreement.
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Soliciting Dealer Warrants and the respective rights
and obligations thereunder, the Company and the Warrantholder, for value
received, hereby agree as follows:
1. FORM AND TRANSFERABILITY OF SOLICITING DEALER WARRANTS.
(a) REGISTRATION. The Soliciting Dealer Warrant(s) shall be
numbered and shall be registered on the books of the Company when issued.
(b) FORM OF SOLICITING DEALER WARRANTS. The text and form of
the Soliciting Dealer Warrants and of the Election to Purchase shall be
substantially as set forth in Exhibit "A" and Exhibit "B" respectively, attached
hereto and incorporated herein. The price per Share (the "Warrant Price") and
the number of Shares issuable upon exercise of the Soliciting Dealer Warrants
are subject to adjustment upon the occurrence of certain events, all as
hereinafter provided. The Soliciting Dealer Warrants shall be dated as of the
date of signature thereof by the Company either upon initial issuance or upon
division, exchange, substitution or transfer.
(c) TRANSFER. The Soliciting Dealer Warrants shall be
transferable only on the books of the Company maintained at its principal office
or that of its designated transfer agent, if designated, upon delivery thereof
duly endorsed by the Warrantholder or by its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver a new Soliciting Dealer Warrant to the person entitled
thereto. Assignments or transfers shall be made pursuant to the form of
Assignment attached as Exhibit "C" hereto.
<PAGE>
(d) LIMITATIONS ON TRANSFER OF SOLICITING DEALER WARRANT. The
Soliciting Dealer Warrants shall not be sold, transferred, assigned, exchanged
or hypothecated (collectively a "Transfer") by the Warrantholder, except to: (i)
one or more persons, each of whom on the date of transfer is an officer or
director of the Warrantholder or an officer or director or partner of a
successor to the Warrantholder as provided in clause (iv) of this Subsection
(d); (ii) a partnership or partnerships, all of the partners of which are a
Warrantholder and one or more persons, each of whom on the date of transfer is
an officer (including an officer-director) of a Warrantholder or an officer
(including an officer-director) or partner of a successor to a Warrantholder;
(iii) broker-dealer firms which have executed, and are not then in default of, a
"Participating Broker Agreement" entered into with the Managing Dealer (the
"Selling Group") and one or more persons, each of whom on the date of transfer
is an officer or partner of a member of the Selling Group or an officer
(including an officer-director) or partner of a successor to a member of the
Selling Group; (iv) a successor to a Warrantholder through merger or
consolidation; (v) a purchaser of all or substantially all of a Warrantholder's
assets; or (vi) stockholders of a Warrantholder or the stockholders or partners
of its transferee in the event of liquidation or dissolution of a Soliciting
Dealer; provided, however, that commencing one year from the date of issuance, a
Transfer may be made to a third party solely for the purpose of immediate
exercise of the Soliciting Dealer Warrant and sale of the underlying Shares by
such third party. The Soliciting Dealer Warrant may be divided or combined, upon
written request to the Company by the Warrantholder, into a certificate or
certificates representing the right to purchase the same aggregate number of
shares.
Unless the context indicates otherwise, the term
"Warrantholder" shall include any transferee of the Soliciting Dealer Warrant,
and the term "Warrant" shall include any and all Soliciting Dealer Warrants
outstanding pursuant to this Agreement, including those evidenced by a
certificate or certificates issued upon division, exchange, substitution or
transfer pursuant to this Agreement.
(e) EXCHANGE OR ASSIGNMENT OF SOLICITING DEALER WARRANT. Any Soliciting
Dealer Warrant certificate may be assigned or exchanged without expense for
another certificate or certificates entitling the Warrantholder to purchase a
like aggregate number of Shares as the certificate or certificates surrendered
then entitled such Warrantholder to purchase. Any Warrantholder desiring to
exchange a Soliciting Dealer Warrant certificate shall make a request in writing
delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the Soliciting Dealer Warrant to be so assigned or
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Soliciting Dealer Warrant certificate as so requested.
Any Warrantholder desiring to assign a Soliciting Dealer
Warrant shall make such request in writing delivered to the Company, and shall
surrender, properly endorsed, the certificate evidencing the Soliciting Dealer
Warrant to be so assigned, with an instrument of assignment duly executed
accompanied by proper evidence of assignment, succession or authority to
transfer, and funds sufficient to pay any transfer tax, whereupon the Company
shall, without charge, execute and deliver a new Soliciting Dealer Warrant
certificate in the name of the assignee named in such instrument of assignment
and the original Soliciting Dealer Warrant certificate shall promptly be
canceled.
2. TERMS AND EXERCISE OF SOLICITING DEALER WARRANTS.
(a) EXERCISE PERIOD. Subject to the terms of this Agreement,
the Warrantholder shall have the right to purchase one Share from the Company at
a price of $12.00 (120% of the offering price per Share) during the time period
beginning one year from the date the Soliciting Dealer Warrants are issued and
ending on ___________, 2008 (the "Exercise Period"), or if any such date is a
day on which banking institutions are authorized by law to close, then on the
next succeeding day which shall not be such a day, to purchase from the Company
up to the number of fully paid and nonassessable Shares which the Warrantholder
may at the time be entitled to purchase pursuant to the Soliciting Dealer
Warrant, a form of which is attached hereto as Exhibit "A."
(b) METHOD OF EXERCISE. The Soliciting Dealer Warrant shall be
exercised by surrender to the Company, at its principal office in Orlando,
Florida or at the office of the Company's stock transfer agent, if any, or at
such other address as the Company may designate by notice in writing to the
Warrantholder at the address of the Warrantholder appearing on the books of the
Company, of the certificate evidencing the Soliciting
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<PAGE>
Dealer Warrant to be exercised, together with the form of Election to Purchase,
included as Exhibit "B" hereto, duly completed and signed, and upon payment to
the Company of the Warrant Price (as determined in accordance with the
provisions of Sections 7 and 8 hereof), for the number of Shares with respect to
which such Soliciting Dealer Warrant is then exercised together with all taxes
applicable upon such exercise. Payment of the aggregate Warrant Price shall be
made in cash or by certified check or cashier's check, payable to the order of
the Company. A Soliciting Dealer Warrant may not be exercised if the Shares to
be issued upon the exercise of the Soliciting Dealer Warrant have not been
registered (or be exempt from registration) in the state of residence of the
holder of the Soliciting Dealer Warrant or if a Prospectus required under the
laws of such state cannot be delivered to the buyer on behalf of the Company. In
addition, holders of Soliciting Dealer Warrants may not exercise the Soliciting
Dealer Warrant to the extent such exercise will cause them to exceed the
ownership limits set forth in the Company's Articles of Incorporation. If any
Soliciting Dealer Warrant has not been exercised by the end of the Exercise
Period, it will terminate and the Warrantholder will have no further rights
thereunder.
(c) PARTIAL EXERCISE. The Soliciting Dealer Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that the Soliciting Dealer Warrant is
exercised with respect to less than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate evidencing the remaining
Soliciting Dealer Warrants shall be issued by the Company.
(d) SHARE ISSUANCE UPON EXERCISE. Upon such surrender of the
Soliciting Dealer Warrant certificate and payment of such Warrant Price, the
Company shall issue and cause to be delivered with all reasonable dispatch to
the Warrantholder in such name or names as the Warrantholder may designate in
writing, a certificate of certificates for the number of full Shares so
purchased upon the exercise of the Soliciting Dealer Warrant, together with
cash, as provided in Section 9 hereof, with respect to any fractional Shares
otherwise issuable upon such surrender. Such certificate or certificates shall
be deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of such Shares as of the close of
business on the date of the surrender of the Soliciting Dealer Warrant and
payment of the Warrant Price, as hereinafter defined, notwithstanding that the
certificates representing such Shares shall not actually have been delivered or
that the stock transfer books of the Company shall then be closed.
3. MUTILATED OR MISSING SOLICITING DEALER WARRANT.
In case the certificate or certificates evidencing the Soliciting
Dealer Warrant shall be mutilated, lost, stolen or destroyed, the Company shall,
at the request of the Warrantholder, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated certificate or
certificates, or in lieu of and in substitution for the certificate or
certificates lost, stolen or destroyed, a new Soliciting Dealer Warrant
certificate or certificates of like tenor and date and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Soliciting Dealer
Warrant, and of reasonable bond of indemnity, if requested, also satisfactory in
form and amount and at the applicant's cost.
4. RESERVATION OF SHARES.
There has been reserved, and the Company shall at all times keep
reserved so long as the Soliciting Dealer Warrant remains outstanding, out of
its authorized Common Stock, such number of Shares as shall be subject to
purchase under the Soliciting Dealer Warrant.
5. LEGEND ON SOLICITING DEALER WARRANT SHARES.
Each certificate for Shares initially issued upon exercise of the
Soliciting Dealer Warrant, unless at the time of exercise such Shares are
registered with the Securities and Exchange Commission (the "Commission"), under
the Securities Act of 1933, as amended (the "Act"), shall bear the following
legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THESE SHARES SHALL BE
MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED.
-3-
<PAGE>
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act of
the securities represented thereby) shall also bear the above legend unless, in
the opinion of such counsel as shall be reasonably approved by the Company, the
securities represented thereby need no longer be subject to such restrictions.
6. PAYMENT OF TAXES.
The Company shall pay all documentary stamp taxes, if any, attributable
to the initial issuance of the Shares; provided, however, that the Company shall
not be required to pay any tax or taxes which may be payable with respect to any
secondary transfer of the Soliciting Dealer Warrant or the Shares.
7. WARRANT PRICE.
The price per Share at which Shares shall be purchasable on the
exercise of the Soliciting Dealer Warrant shall be $12.00 (the "Warrant Price").
8. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Soliciting Dealer Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) In case the Company shall: (i) pay a dividend in Common
Stock or make a distribution in Common Stock; (ii) subdivide its outstanding
Common Stock; (iii) combine its outstanding Common Stock into a smaller number
of shares of Common Stock, or (iv) issue by reclassification of its Common Stock
other securities of the Company, the number and kind of securities purchasable
upon the exercise of the Soliciting Dealer Warrant immediately prior thereto
shall be adjusted so that the Warrantholder shall be entitled to receive the
number and kind of securities of the Company which it would have owned or would
have been entitled to receive after the happening of any of the events described
above had the Soliciting Dealer Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this Subsection (a) shall become effective on the effective
date of such event retroactive to the record date, if any, for such event.
(b) No adjustment in the number of securities purchasable
hereunder shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of securities (calculated to
the nearest full Share thereof) then purchasable upon the exercise of the
Soliciting Dealer Warrant or, if the Soliciting Dealer Warrant is not then
exercisable, the number of securities purchasable upon the exercise of the
Soliciting Dealer Warrant on the first date thereafter that the Soliciting
Dealer Warrant becomes exercisable; provided, however, that any adjustment which
by reason of this Subsection (b) is not required to be made immediately shall be
carried forward and taken into account in any subsequent adjustment.
(c) Whenever the number of Shares purchasable upon the
exercise of the Soliciting Dealer Warrant is adjusted as herein provided, the
Warrant Price shall be adjusted by multiplying such Warrant Price immediately
prior to such adjustment by a fraction, of which the numerator shall be the
number of Shares purchasable upon the exercise of the Soliciting Dealer Warrant
immediately prior to such adjustment, and of which the denominator shall be the
number of Shares so purchasable immediately thereafter.
(d) For the purpose of this Section 8, the term "Common Stock"
shall mean: (i) the class of stock designated as the Common Stock of the Company
at the date of this Agreement; or (ii) any other class of stock resulting from
successive changes or reclassification of such Common Stock consisting solely of
changes in par value, or from par value to no par value, or from no par value to
par value. In the event that at any time, as a result of an adjustment made
pursuant to this Section 8, the Warrantholder shall become entitled to purchase
any shares of the Company other than Common Stock, thereafter the number of such
other shares so purchasable upon the exercise of the Soliciting Dealer Warrant
and the Warrant Price shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in this Section 8.
-4-
<PAGE>
(e) Whenever the number of Shares and/or securities
purchasable upon the exercise of the Soliciting Dealer Warrant or the Warrant
Price is adjusted as herein provided, the Company shall cause to be promptly
mailed to the Warrantholder by first class mail, postage prepaid, notice of such
adjustment setting forth the number of Shares and/or securities purchasable upon
the exercise of the Soliciting Dealer Warrant or the Warrant Price after such
adjustment, a brief statement of the facts requiring such adjustment and the
computation by which such adjustment was made.
(f) In case of any reclassification, capital reclassification,
capital reorganization or other change in the outstanding shares of Common Stock
of the Company (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of an issuance of
Common Stock by way of dividend or other distribution, or of a subdivision or
combination of the Common Stock), or in case of any consolidation or merger of
the Company with or into another corporation or entity (other than a merger with
a subsidiary in which merger the Company is the continuing corporation and which
does not result in any reclassification, capital reorganization or other change
in the outstanding shares of Common Stock of the Company) as a result of which
the holders of the Company's Common Stock become holders of other shares of
securities of the Company or of another corporation or entity, or such holders
receive cash or other assets, or in case of any sale or conveyance to another
corporation of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, as the case may be, shall execute with the Warrantholder an
agreement that the Warrantholder shall have the right thereafter upon payment of
the Warrant Price in effect immediately prior to such action to purchase upon
the exercise of the Soliciting Dealer Warrant the kind and number of securities
and property which it would have owned or have been entitled to have received
after the happening of such reclassification, capital reorganization, change in
the outstanding shares of shares of Common Stock of the Company, consolidation,
merger, sale or conveyance had the Soliciting Dealer Warrant been exercised
immediately prior to such action.
The agreement referred to in this Subsection (f) shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8. The provisions of this Subsection
(f) shall similarly apply to successive reclassification, capital
reorganizations, changes in the outstanding shares of Common Stock of the
Company, consolidations, mergers, sales or conveyances.
(g) Except as provided in this Section 8, no adjustment with
respect to any dividends shall be made during the term of the Soliciting Dealer
Warrant or upon the exercise of the Soliciting Dealer Warrant.
(h) No adjustments shall be made in connection with the public
sale and issuance of the Shares pursuant to the Managing Dealer Agreement or the
sale or issuance of Shares upon the exercise of the Soliciting Dealer Warrant.
(i) Irrespective of any adjustments in the Warrant Price or
the number or kind of securities purchasable upon the exercise of the Soliciting
Dealer Warrant, the Soliciting Dealer Warrant certificate or certificates
theretofore or thereafter issued may continue to express the same price or
number or kind of securities stated in the Soliciting Dealer Warrant initially
issuable pursuant to this Agreement.
9. FRACTIONAL INTEREST.
The Company shall not be required to issue fractional Shares or
securities upon the exercise of the Soliciting Dealer Warrant. If any such
fractional Share would, except for the provisions of this Section 9, be issuable
upon the exercise of the Soliciting Dealer Warrant (or specified portion
thereof), the Company may, at its election, pay an amount in cash equal to the
then current market price multiplied by such fraction. For purposes of this
Agreement, the term "current market price" shall mean: (a) if the Shares are
traded in the over-the-counter market and not on the Nasdaq National Market
("NNM") or on any national securities exchange, the average between the per
share closing bid and asked prices of the Shares for the 30 consecutive trading
days immediately preceding the date in questions, as reported by the NNM or an
equivalent generally accepted reporting service; or (b) if the Shares are traded
on the NNM or on a national securities exchange, the average for the 30
consecutive trading days immediately preceding the date in question of the daily
per share closing prices of the Shares on the NNM or on the principal national
stock exchange on which it is listed, as the case may be. The closing price
referred to in clause
-5-
<PAGE>
(b) above shall be the last reported sales price or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices on the NNM or on the principal national securities exchange on which the
Shares are then listed, as the case may be. If the Shares are not publicly
traded, then the "current market price" shall mean $10 for the first three years
following the termination of the Offering.
10. NO RIGHTS AS STOCKHOLDER; NOTICES OF WARRANTHOLDER.
Nothing contained in this Agreement or in the Soliciting Dealer Warrant
shall be construed as conferring upon the Warrantholder or its transferee any
rights as a stockholder of the Company, either at law or in equity, including
the right to vote, receive dividends, consent or notices as a stockholder with
respect to any meeting of stockholders for the election of directors of the
Company or for any other matter.
11. REGISTRATION OF SOLICITING DEALER WARRANTS AND SHARES
PURCHASABLE THEREUNDER.
The Soliciting Dealer Warrants and the Shares purchasable thereunder
are being registered as part of the Offering. The Company undertakes to make
additional filings with the Commission to the extent required to keep the Shares
issuable pursuant to the Soliciting Dealer Warrants referenced in this Section
11 registered through ____________, 2008.
12. INDEMNIFICATION.
In the event of the filing of any registration statement with respect
to the Soliciting Dealer Warrants or the Shares pursuant to Section 11 above,
the Company and the Warrantholder (and/or selling Warrantholder or such holder
of Shares, as the case may be), shall agree to indemnify and hold harmless the
other to the same extent and in the same manner as provided in the Managing
Dealer Agreement.
13. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act
in any case in which: (a) the Warrantholder or any holder of Shares makes a
claim for indemnification pursuant to Section 12 hereof, but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right to appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 12 hereof
provide for indemnification in such case; or (b) contribution under the Act may
be required on the part of the Warrantholder or any holder of Shares, the
Company and the Warrantholder, or such holder of Shares, shall agree to
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, including, but
not limited to, all costs of defense and investigation and all attorneys' fees),
in either such case (after contribution from others) on the basis of relative
fault as well as any other relevant equitable considerations in the same manner
as provided by the parties in the Managing Dealer Agreement.
14. NOTICES.
Any notice given pursuant to this Agreement by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given if
delivered or mailed by certified mail, return receipt requested:
(a) If to the Warrantholder, addressed to:
CNL Securities Corp.
400 East South Street
Orlando, Florida 32801
Attention: Robert A. Bourne, President
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<PAGE>
(b) If to the Company, addressed to:
CNL Health Care Properties, Inc.
400 East South Street
Orlando, Florida 32801
Attention: James M. Seneff, Jr., Chief Executive Officer
Each party hereto may, from time to time, change the address to which
notices to it are to be delivered or mailed hereunder by notice in accordance
herewith to the other party.
15. PARTIES IN INTEREST.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company, the Warrantholder and, to the extent
expressed, any holder of Shares, any person controlling the Company or the
Warrantholder or any holder of Shares, directors of the Company, nominees for
directors (if any) named in the Prospectus, or officers of the Company who have
signed the registration statement, any legal or equitable right, remedy or claim
under this Agreement, and this Agreement shall be for the sole an exclusive
benefit of the aforementioned parties.
16. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the parties listed in Section 15 above shall bind and inure to the
benefit of their respective executors, administrators, successors and assigns
hereunder; provided, however, that the rights of the Warrantholder or holder of
Shares shall be assignable only to those persons and entities specified in
Section 1, Subsection (d) hereof, in which event such assignee shall be bound by
each of the terms and conditions of this Agreement.
17. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company shall not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless it complies with the provisions of Section 8, Subsection
(f).
18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All statements contained in any schedule, exhibit, certificate or other
instrument delivered by or on behalf of the parties hereto, or in connection
with the transactions contemplated by this Agreement, shall be deemed to be
representations and warranties hereunder. Notwithstanding any investigations
made by or on behalf of the parties to this Agreement, all representations,
warranties and agreements made by the parties to this Agreement or pursuant
hereto shall survive.
19. CHOICE OF LAW.
This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of Florida,
including all matters of construction, validity, performance and enforcement,
and without giving effect to the principles of conflict of laws.
20. JURISDICTION.
The parties submit to the jurisdiction of the Courts of the State of
Florida or a Federal Court empaneled in the State of Florida for the resolution
of all legal disputes arising under the terms of this Agreement.
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<PAGE>
21. ENTIRE AGREEMENT.
Except as provided herein, this Agreement, including exhibits, contains
the entire agreement of the parties, and supersedes all existing negotiations,
representations or agreements and all other oral, written or other
communications between them concerning the subject matter of this Agreement.
22. SEVERABILITY.
If any provision of this Agreement is unenforceable, invalid or
violates applicable law, such provision shall be deemed stricken and shall not
affect the enforceability of any other provisions of this Agreement.
23. CAPTIONS.
The captions in this Agreement are inserted only as a matter of
convenience and for reference and shall not be deemed to define, limit, enlarge
or describe the scope of this Agreement or the relationship of the parties, and
shall not affect this Agreement or the construction of any provisions herein.
24. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
CNL Health Care Properties, Inc.
a Maryland corporation
By: ______________________________
- -----------------------------------
Name and Title
CNL Securities Corp.,
a Florida corporation
By: _____________________________
- ----------------------------------
Name and Title
-8-
<PAGE>
EXHIBIT A
CNL HEALTH CARE PROPERTIES, INC.
SOLICITING DEALER WARRANT NO. ______
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS WARRANT OR THE
SHARES PURCHASABLE HEREUNDER SHALL BE MADE EXCEPT PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR PURSUANT
TO AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT REGISTRATION
IS NOT REQUIRED. TRANSFER OF THIS WARRANT IS ALSO RESTRICTED BY THAT
CERTAIN WARRANT PURCHASE AGREEMENT DATED AS OF _____________, 1998 A
COPY OF WHICH IS AVAILABLE FROM THE ISSUER.
WARRANT TO PURCHASE ________________ SHARES OF COMMON STOCK OF CNL
HEALTH CARE PROPERTIES, INC.
Exercisable commencing on ___________, 199__
Void after 5:00 P.M. Eastern Standard Time on ____________, 2008 (the
"Exercise Closing Date").
THIS CERTIFIES that, for value received, _________________________ (the
"Warrantholder"), or registered assigns, is entitled, subject to the terms and
conditions set forth in this Warrant (the "Warrant"), to purchase from CNL
Health Care Properties, Inc., a Maryland corporation (the "Company"), ________
fully paid and nonassessable Shares of common stock (the "Shares") of the
Company at any time during the period commencing on ___________, 199__ and
continuing up to 5:00 P.M. eastern standard time on _____________, 2008 at
$12.00 per Share, and is subject to all the terms thereof, including the
limitations on transferability as set forth in that certain Warrant Purchase
Agreement between CNL Securities Corp. and the Company dated _________________,
1998.
THIS WARRANT may be exercised by the holder thereof, in whole or in
part, by the presentation and surrender of this Warrant with the form of
Election to Purchase duly executed, with signature(s) guaranteed, at the
principal office of the Company (or at such other address as the Company may
designate by notice to the holder hereof at the address of such holder appearing
on the books of the Company), and upon payment to the Company of the purchase
price in cash or by certified check or bank cashier's check. The Shares so
purchased shall be deemed to be issued to the holder hereof as the record owner
of such Shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for such Shares. The Shares so
purchased shall be registered to the holder (and, if requested, certificates
issued) promptly after this Warrant shall have been so exercised and unless this
Warrant has expired or has been exercised, in full, a new Warrant identical in
form, but representing the number of Shares with respect to which this Warrant
shall not have been exercised, shall also be issued to the holder hereof.
NOTHING CONTAINED herein shall be construed to confer upon the holder
of this Warrant, as such, any of the rights of a Stockholder of the Company.
CNL Health Care Properties, Inc.,
a Maryland corporation
By: _________________________________
---------------------------------
Name and Title
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<PAGE>
EXHIBIT B
CNL HEALTH CARE PROPERTIES, INC.
ELECTION TO PURCHASE
SOLICITING DEALER WARRANT
CNL Health Care Properties, Inc.
400 East South Street
Orlando, Florida 32801
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached warrant (the "Warrant"), to purchase
thereunder ____ shares of the common stock of CNL Health Care Properties, Inc.
(the "Shares") provided for therein and hereby tenders $_________ ($12.00 per
Share) in payment of the actual exercise price thereof, and requests that the
Shares be issued in the name of
- --------------------------------------------------------------------------------
(Please Print Name, Address and SSN or EIN of Stockholder below)
- --------------------------------------------------------------------------------
and, if said number of Shares shall not be the total possible number of Shares
purchasable hereunder, that a new Warrant certificate for the balance of the
Shares purchasable under the attached Warrant certificate be registered in the
name of the undersigned Warrantholder or his assignee as indicated below and
delivered at the address stated below:
Dated: ____________________
Name of Warrantholder or Assignee: ____________________________________________
(Please Print)
Address: ______________________________________________________________________
- --------------------------------------------------------------------------------
Signature: ____________________________________________________________________
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<PAGE>
EXHIBIT C
CNL HEALTH CARE PROPERTIES, INC.
SOLICITING DEALER WARRANT
ASSIGNMENT
(To be signed only upon assignment of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
- --------------------------------------------------------------------------------
(Please Print Name, Address and SSN or EIN of Assignee Below)
- --------------------------------------------------------------------------------
the attached Soliciting Dealer Warrant No. ____, to purchase ________ shares of
common stock of CNL Health Care Properties, Inc. (the "Company"), hereby
irrevocably constituting and appointing the Company and/or its transfer agent as
its attorney to transfer said Warrant on the books of the Company, with full
power of substitution.
Dated: ____________
----------------------------------------
Signature of Registered Holder
Signature Guaranteed:
----------------------------------------
Note: The above signature must correspond with the name as written upon
the face of the attached Warrant certificate in every particular
respect, without alteration, enlargement or any change whatever, unless
this Warrant has been duly assigned.
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Exhibit 3.1
Articles of Incorporation of CNL Health
Care Properties, Inc.
<PAGE>
ARTICLES OF INCORPORATION
OF
CNL HEALTH CARE PROPERTIES, INC.
FIRST: I, Kimberly V. Mann, whose post office address is 2300 N Street,
N.W., Washington, D.C. 20037, being at least eighteen years of age, do hereby
form a corporation under the laws of the State of Maryland.
SECOND: The name of the corporation is:
CNL HEALTH CARE PROPERTIES, INC.
THIRD: The purposes for which the corporation 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 health care facilities; and
(iii) to enter into any partnership, joint venture or other similar arrangement
to engage in any of the foregoing.
FOURTH: The post office address of the principal office of the
corporation in Maryland is 32 South Street, Baltimore, Maryland 21202. The name
and address of the resident agent is The Corporation Trust Incorporated, 32
South Street, Baltimore, Maryland 21202. Said resident agent is a Maryland
corporation.
FIFTH: The total number of shares of stock which the corporation shall
have authority to issue is One Hundred Thousand (100,000) shares of common
stock, all of one class, of the par value of One Cent ($.01) each and of the
aggregate par value of One Thousand Dollars ($1,000).
SIXTH: The number of directors of the corporation shall be two (2), which
number may be increased or decreased pursuant to the Bylaws of the corporation
and in accordance with the
<PAGE>
laws of the State of Maryland. The name of the initial directors who shall act
until the first annual meeting or until their respective successors are duly
chosen and qualified are: James M. Seneff, Jr. and Robert A. Bourne.
SEVENTH: The corporation shall indemnify and hold harmless a director,
officer, advisor or affiliate against any or all losses or liabilities
reasonably incurred in connection with or by reason of any act or omission
performed or omitted to be performed on behalf of the corporation in such
capacity, and shall pay or reimburse reasonable expenses incurred by a director,
officer, advisor or affiliate in connection with any proceeding related to such
act or omission, to the extent permitted under the laws of the State of
Maryland.
EIGHTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the corporation and of the
directors and stockholders:
The board of directors of the corporation is hereby empowered to
authorize the issuance from time to time of shares of its stock of any class,
whether now or hereafter authorized, or securities convertible into shares of
its stock of any class or classes, whether now or hereafter authorized.
No holder of shares of stock of any class shall be entitled as a matter
of right to subscribe for or purchase or receive any part of any new or
additional issue of shares of stock of any class or of securities convertible
into shares of stock of any class, whether now or hereafter authorized or
whether issued for money, for consideration other than money, or by way of
dividend.
NINTH: Stockholders of the corporation shall not have preemptive rights to
acquire additional shares of the corporation.
TENTH: The duration of the corporation shall be perpetual.
2
<PAGE>
ELEVENTH: Notwithstanding any other provision of these Articles of
Incorporation or any contrary provision of law, the Maryland Business
Combination Statute, found in Title 3, subtitle 6 of the Maryland General
Corporation Law ("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 corporation and any person.
TWELFTH: 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 corporation by any person.
IN WITNESS WHEREOF, the undersigned incorporator of CNL HEALTH CARE
PROPERTIES, INC., who executed the foregoing Articles of Incorporation, hereby
acknowledges the same to be her act and further acknowledges that, to the best
of her knowledge, the matters and facts set forth therein are true in all
material respects under the penalties of perjury.
Dated this 22nd day of December, 1997.
/s/ Kimberly V. Mann
Kimberly V. Mann
Incorporator
3
Exhibit 3.2
Form of CNL Health Care Properties, Inc.
Amended and Restated Articles of Incorporation
<PAGE>
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
CNL HEALTH CARE PROPERTIES, INC.
CNL Health Care Properties, 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 December 22, 1997 in accordance with the
Maryland General Corporation Law (the "MGCL"), are as follows.
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CNL HEALTH CARE PROPERTIES, INC.
* * * * * * * * * *
ARTICLE 1
THE COMPANY; DEFINITIONS
SECTION 1.1 Name. The name of the corporation (the "Company") is:
CNL Health Care 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 Health Care
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.
Under circumstances in which the Directors determine that the use of
the name "CNL Health Care Properties, Inc." is not practicable, they may use any
other designation or name for the Company.
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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 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 Purposes. 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 Health Care Facilities; (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
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or 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
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size, type, and location of the property. The total of all real estate
commissions paid by the 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
Health Care Facilities by operators of Health Care Facilities.
"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.
"Health Care Facilities" means facilities at which health care services
are provided, including, but not limited to, congregate living, assisted living,
and skilled nursing facilities for seniors, continuing care retirement
communities and life care communities, and medical office buildings and walk-in
clinics.
"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
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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 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 initially 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.
"Managing 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.
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"Mortgages" 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 Asset Management Fee, (c) the Performance
Fee, and (d) the Subordinated Incentive Fee, but excluding (i) the expenses of
raising capital such as Organizational and Offering Expenses, legal, audit,
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accounting, underwriting, brokerage, listing, 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 and the 0.5% marketing support and due
diligence expense reimbursement 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 and the 0.5% marketing support and due
diligence reimbursement 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 (i) to acquire Assets, (ii) to
pay the Secured Equipment Lease Servicing Fee, (iii) to pay a fee of 4.5% of any
Permanent Financing, excluding amounts to fund Secured Equipment Leases, as
Acquisition Fees, and (iv) 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 by such
underwriter of such Equity Shares in such public offering, or (ii) CNL Health
Care Advisors, Inc., during the period ending December 31, 1998, provided that
the foregoing exclusions shall apply only if the ownership of such Equity Shares
by an underwriter or CNL Health Care Advisors, Inc. would not cause the Company
to fail to qualify as a REIT by reason
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of being "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.
"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 RollUp 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 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.
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"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 Health Care Facilities 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 15,500,000 Shares of common stock of the
Company to be sold in the Initial Public Offering.
"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
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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.
"Stockholders' 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.
"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.
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"Termination Date" means the date of termination of the Advisory
Agreement.
"Total Proceeds" means Gross Proceeds plus loan proceeds from Permanent
Financing and amounts outstanding on the Line of Credit, if any, at the time of
Listing, but 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 2
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.
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.
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SECTION 2.4 Initial Board; Term. The initial Directors are James M.
Seneff, Jr., Robert A. Bourne, ______________, ______________, and
______________. 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
[Director to be named] 400 E. South Street
Orlando, Florida 32801
[Director to be named] 400 E. South Street
Orlando, Florida 32801
[Director to be named] 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 3
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 express
limitations 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
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of any kind wherever located, or rights or interests therein or in connection
therewith, all without regard 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
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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 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 Health
Care Facilities, 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,
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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.
(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) Allocation; 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.
(xiii) 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,
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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 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.
(xvi) 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.
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(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 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
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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.
ARTICLE 4
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
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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 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.
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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 payable 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.
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
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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 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
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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 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 Equipment 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.
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ARTICLE 5
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 fixed increases in base rent or increases in the base rent
based on increases in consumer price indices over the term of the lease 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, 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 Health Care Facilities 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.
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(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 Health Care Facilities 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 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.
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(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.
(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.
(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. 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.
(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
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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.
(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
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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.
ARTICLE 6
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 health care
properties to be leased on a "triple-net" basis to operators of Health Care
Facilities; (b) offer Mortgage Loans; and (c) offer Secured Equipment Leases.
The Advisor and its Affiliates also
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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
health care properties to be leased on a "triple-net" basis to operators of
Health Care Facilities 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). The
Advisor or its Affiliates currently are and in the future may offer interests in
one or more public or 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 health care facilities
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.
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(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 7
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 to issue is two hundred six million (206,000,000) shares
of beneficial interest, consisting of one hundred million (100,000,000) 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 one hundred
three million (103,000,000) 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
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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 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
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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:
(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.
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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, 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.
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"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 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.
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"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 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.
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"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 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
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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 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
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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 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
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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 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:
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(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 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
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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%).
(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
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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 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
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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 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
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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
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).
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(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
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
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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 jurisdiction over the issue, the validity and
enforceability of the remaining provisions of this
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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 8
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
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unrelated to the Stockholder's interest in the Company. The remedies provided
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 9
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.
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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 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:
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(a) The compensation is not in excess of their
compensation paid for any comparable services; and
(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 e 2-419 and other applicable law.
ARTICLE 10
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,
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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 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:
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(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.
The Company is prohibited from participating in any proposed Roll-Up
Transaction:
(iii) which would result in the Stockholders having democracy
rights in a RollUp 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 11
DURATION OF COMPANY
SECTION 11.1 The Company automatically will terminate and dissolve on
December 31, 2008, 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.
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ARTICLE 12
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 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
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<PAGE>
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 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 ___ day of ______________, 1998, 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 HEALTH CARE PROPERTIES, INC.
By: ______________________________
Name: Robert A. Bourne
Title: President
Attest:
By: ______________________________
Name: Lynn E. Rose
Title: Secretary
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Exhibit 3.3
Form of CNL Health Care Properties, Inc. Bylaws
<PAGE>
FORM OF BYLAWS OF
CNL HEALTH CARE PROPERTIES, INC.
The Bylaws of CNL HEALTH CARE PROPERTIES, INC., a corporation organized
under the laws of the State of Maryland (the "Company"), having The Corporation
Trust Incorporated as its resident agent located at 32 South Street, Baltimore,
Maryland 21202, are as follows:
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Company shall be
located at such place or places as the Board of Directors may designate in the
State of Maryland.
SECTION 2. ADDITIONAL OFFICES. The Company may have additional offices at
such places as the Board of Directors may from time to time determine or the
business of the Company may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE. All meetings of stockholders shall be held at the
principal office of the Company or at such other place within the United States
as shall be stated in the notice of the meeting.
SECTION 2. ANNUAL MEETING. An annual meeting of the
stockholders for the election of Directors, as such term is defined below, and
the transaction of any business within the powers of the Company shall be held
upon reasonable notice and not less than 30 days after delivery of the annual
report.
SECTION 3. SPECIAL MEETINGS. Subject to the rights of the
holders of any series of Preferred Shares (as such term is defined in the
Company's Articles of Incorporation, as amended (the "Articles of
Incorporation")) to elect additional Directors under specified circumstances,
special meetings of the stockholders may be called by (i) the chairman of the
Board of Directors; (ii) a majority of the Board of Directors; (iii) a majority
of the Independent Directors (as such term is defined herein); or (iv) the
secretary at the request in writing of stockholders holding outstanding Equity
Shares (as such term is defined in the Articles of Incorporation) representing
at least 10% of all votes entitled to be cast on any issue proposed to be
considered at any such special meeting, not less than 15 nor more than 60 days
after such request is received. Written or printed notice of any special meeting
called pursuant to subsection (iv) will be provided to all stockholders within
ten days after any such request is received, stating the time and place of the
meeting specified in the request, which shall be a time and place convenient to
the stockholders.
SECTION 4. NOTICE. Not less than 15 nor more than 60 days
before each meeting of stockholders, the secretary shall give to each
stockholder entitled to vote at such meeting, and to each stockholder not
entitled to vote who is entitled to notice of the meeting, written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting or as otherwise may be required by statute or these Bylaws, the purpose
for which the meeting is called, either by mail to the address of such
stockholder as it appears on the records of the Company, or by presenting it to
such stockholder personally or by leaving it at his residence or usual place of
business. If mailed, such
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notice shall be deemed to be given when deposited in the United States mail
addressed to the stockholder at his post office address as it appears on the
records of the Company, with postage thereon prepaid.
SECTION 5. SCOPE OF NOTICE. Any business of the Company may be
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by statute to be
stated in such notice. No business shall be transacted at a special meeting of
stockholders except as specifically designated in the notice.
SECTION 6. QUORUM. At any meeting of stockholders, the
presence in person or by proxy of stockholders holding 50% of the then
outstanding shares shall constitute a quorum; but this section shall not affect
any requirement under any statute, any other provision of these Bylaws, or the
Articles of Incorporation for the vote necessary for the adoption of any
measure. If, however, such quorum shall not be present at any meeting of the
stockholders, the stockholders entitled to vote at such meeting, present in
person or by proxy, shall have power to adjourn the meeting from time to time to
a date not more than 120 days after the original record date without notice
other than announcement at the meeting. At such adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 7. VOTING. A majority of all the votes cast at a
meeting of stockholders duly called and at which a quorum is present shall be
sufficient to elect a Director, notwithstanding the concurrence of the Board of
Directors to such action. Each share 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. A majority of the votes cast at a meeting of stockholders duly
called and at which a quorum is present shall be sufficient to approve any other
matter which may properly come before the meeting, unless more than a majority
of the votes cast is required by statute or by the Articles of Incorporation.
Unless otherwise provided in the Articles of Incorporation, each Equity Share
owned of record on the applicable record date shall be entitled to one vote on
each matter submitted to a vote at a meeting of stockholders. The Company's
Advisor (as such term is defined in the Articles of Incorporation), the
Directors and any affiliates are prohibited from voting on or consenting to
matters submitted to the stockholders regarding the removal of the Advisor,
Directors or any affiliate or any transaction between the Company and any of
them, nor will such shares be counted in determining a quorum or a majority in
such circumstances.
SECTION 8. PROXIES. A stockholder may vote the Equity Shares
owned of record by him, either in person or by proxy executed in writing by the
stockholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the secretary of the Company before or at the time of the meeting. No
proxy shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
SECTION 9. VOTING OF SHARES BY CERTAIN HOLDERS. Equity Shares
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the chief executive officer or a vice
president, a general partner, trustee or other fiduciary thereof, as the case
may be, or a proxy appointed by any of the foregoing individuals, unless some
other person who has been appointed to vote such shares pursuant to a bylaw or a
resolution of the board of directors of such corporation or other entity
presents a certified copy of such bylaw or resolution, in which case such person
may vote such shares. Any trustee or other fiduciary may vote shares registered
in his name as such fiduciary, either in person or by proxy.
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Equity Shares of the Company directly or indirectly owned by it shall
not be voted at any meeting and shall not be counted in determining the total
number of outstanding shares entitled to be voted at any given time, unless they
are held by it in a fiduciary capacity, in which case they may be voted and
shall be counted in determining the total number of outstanding shares at any
given time.
The Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Company that any Equity Shares
registered in the name of the stockholder are held for the account of a specific
person other than the stockholder. The resolution shall set forth: the class of
stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the share transfer books, the time after the record date or closing
of the share transfer books within which the certification must be received by
the Company; and any other provisions with respect to the procedure which the
Directors consider necessary or desirable. On receipt of such certification, the
person specified in the certification shall be regarded as, for the purposes set
forth in the certification, the stockholder of record of the specified shares in
place of the stockholder who makes the certification.
SECTION 10. INSPECTORS. At any meeting of stockholders, the
chairman of the meeting may, or upon the request of any stockholder shall,
appoint one or more persons as inspectors for such meeting. Such inspectors
shall ascertain and report the number of Equity Shares represented at the
meeting based upon their determination of the validity and effect of proxies,
count all votes, report the results and perform such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
stockholders.
Each report of an inspector shall be in writing and signed by him or by
a majority of them if there is more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
SECTION 11. REPORTS TO STOCKHOLDERS.
(a) Not later than 120 days after the close of each fiscal
year of the Company, the Directors shall deliver or cause to be delivered a
report of the business and operations of the Company during such fiscal year to
the stockholders, containing (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
Company's Advisor and any affiliate of the Advisor by the Company and including
fees or charges paid to the Advisor and any affiliate of the Advisor by third
parties doing business with the Company; (iv) the Operating Expenses (as such
term is defined in the Articles of Incorporation) of the Company, stated as a
percentage of, for a specified period, the average of the aggregate book value
of the assets of the Company invested, directly or indirectly, in Properties and
loans secured by real estate before reserves for depreciation or bad debts or
other similar non-cash reserves are subtracted, computed by taking the average
of such values at the end of each month during such period as a percentage of
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, and excluding the gain from the sale of the
Company's assets; (v) a report from the Independent Directors that the
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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 (vii)
Distributions, as such term is defined in the Company's Articles of
Incorporation, 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 60 days after the end of the fiscal year in
which the distribution was made) and such further information as the Board of
Directors may determine is required pursuant to any law or regulation to which
the Company is subject. A signed copy of the annual report and the accountant's
certificate shall be filed by the Directors with the State Department of
Assessments and Taxation of Maryland, and with such other governmental agencies
as may be required by law and as the Directors may deem appropriate. Such report
shall be submitted at the annual meeting of stockholders and, within 20 days
after such meeting, placed on file at the Company's principal office.
(b) Not later than 45 days after the end of each of the first
three quarterly periods of each fiscal year and upon written request by a
stockholder, the Directors shall deliver or cause to be delivered an interim
report to such requesting stockholder containing unaudited financial statements
for such quarter and for the period from the beginning of the fiscal year to the
end of such quarter, and such further information as the Directors may determine
is required pursuant to any law or regulation to which the Company is subject.
SECTION 12. NOMINATIONS AND STOCKHOLDER BUSINESS.
(a) Annual Meetings of Stockholders.
(1) With respect to an annual meeting of stockholders, nominations of
persons for election to the Board of Directors and the proposal of business to
be considered by the stockholders may be made only (i) by or at the direction of
the Board of Directors or (ii) by any stockholder of the Company who was a
stockholder of record at the time of giving of notice, who is entitled to vote
at the meeting and who complied with the notice procedures set forth in this
Section 12(a).
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (ii) of
paragraph (a)(1) of this Section 12, the stockholder must have given timely
notice thereof in writing to the secretary of the Company. To be timely, a
stockholder's notice shall be delivered to the secretary at the principal
executive offices of the Company not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such annual
meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice shall
set forth: (i) as to each person whom the stockholder proposes to nominate for
election or re-election as a Director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (including such
person's written consent to being named in the proxy statement as a nominee
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and to serving as a Director if elected); (ii) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, the name and
address of such stockholder, as they appear on the Company's books, and of such
beneficial owner and the class and number of shares of the Company which are
owned beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of Section 12(a)(2) to
the contrary, in the event that the number of Directors to be elected to the
Board of Directors is increased and there is no public announcement naming all
of the nominees for Director or specifying the size of the increased Board of
Directors made by the Company at least 70 days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by this
Section 12(a) shall also be considered timely, but only with respect to nominees
for any new positions created by such increase, if it shall be delivered to the
secretary at the principal executive offices of the Company not later than the
close of business on the tenth day following the day on which such public
announcement is first made by the Company.
(b) Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Company's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which Directors are to be elected pursuant to the Company's
notice of meeting (i) by or at the direction of the Board of Directors or (ii)
provided that the Board of Directors has determined that Directors shall be
elected at such special meeting, by any stockholder of the Company who is a
stockholder of record at the time of giving of notice provided for in this
Section 12(b), who is entitled to vote at the meeting and who complied with the
notice procedures set forth in this Section 12(b). In the event the Company
calls a special meeting of stockholders for the purpose of electing one or more
Directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be) for election to such position as specified in
the Company's notice of meeting, if the stockholder's notice complies with the
requirements of Section 12(a)(2) and is delivered to the secretary at the
principal executive offices of the Company not earlier than the 90th day prior
to such special meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the tenth day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Directors to be elected at such meeting.
(c) General.
(1) Only such persons who are nominated in accordance with the procedures
set forth in this Section 12 shall be eligible to serve as Directors and only
such business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 12. The presiding officer of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought before
the meeting was made in accordance with the procedures set forth in this Section
12 and, if any proposed nomination or business is not in compliance with this
Section 12, to declare that such defective nomination or proposal be
disregarded.
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(2) For purposes of this Section 12, "public
announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service or in a document publicly filed by the Company
with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
(3) Notwithstanding the foregoing provisions of this
Section 12, a stockholder
also shall comply with all applicable requirements of state law and of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 12. Nothing in this Section 12 shall be deemed
to affect any rights of stockholders to request inclusion of proposals in the
Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 13. VOTING BY BALLOT. Voting on any question or in any election may
be viva voce unless the presiding officer shall order or any stockholder shall
demand that voting be by ballot.
SECTION 14. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Subject
to the rights of the holders of any series of Preferred Shares to elect
additional Directors under specific circumstances, any action required or
permitted to be taken by the stockholders of the Company must be effected at an
annual or special meeting of stockholders and may not be effected by any consent
in writing by such stockholders.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS; NUMBER; QUALIFICATIONS. The
business and affairs of the Company shall be managed under the direction of its
Board of Directors (also referred to herein as "Director" or "Directors").
Notwithstanding the other requirements set forth herein and in the Articles of
Incorporation, a Director shall be an individual at least 21 years of age who is
not under legal disability. The number of Directors which shall constitute the
whole board shall not be less than three nor more than fifteen. Within such
limits, the actual number of directors which shall constitute the whole board
shall be as fixed from time to time by resolution of the Board of Directors.
SECTION 2. INDEPENDENT DIRECTORS; QUALIFICATIONS. A majority
of Directors of the Company shall be Independent Directors. To qualify as an
independent director, an individual must not be and within the last two 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 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. A business or professional relationship is considered material
if the gross revenue derived by the Director from the Advisor and Affiliates
exceeds five percent (5%) of either the Director's annual gross revenue during
either of the last two years or the Director's net worth on a fair market value
basis. 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.
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SECTION 3. REGULAR MEETINGS. A meeting of the Directors shall
be held quarterly in person or by telephone. The Directors may provide, by
resolution, the time and place, either within or without the State of Maryland,
for the holding of regular meetings of the Directors without other notice than
such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of Directors may
be called by or at the request of the chief executive officer or by a majority
of the Directors then in office. The person or persons authorized to call
special meetings of the Directors may fix any place, either within or without
the State of Maryland, as the place for holding any special meeting of the
Directors called by them.
SECTION 5. NOTICE. Notice of any annual, regular or special
meeting shall be given by written notice delivered personally, transmitted by
facsimile, telegraphed or mailed to each Director at his business or residence
address. Personally delivered, facsimile transmitted or telegraphed notices
shall be given at least two days prior to the meeting. Notice by facsimile or
telegraph shall be promptly followed by mailed notice. Notice by mail shall be
given at least five days prior to the meeting. If mailed, such notice shall be
deemed to be given when deposited in the United States mail properly addressed,
with postage thereon prepaid. If given by telegram, such notice shall be deemed
to be given when the telegram is delivered to the telegraph company. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Directors need be stated in the notice, unless specifically
required by statute or these Bylaws.
SECTION 6. QUORUM. A whole number of Directors equal to at
least a majority of the whole Board of Directors, including a majority of
Independent Directors, shall constitute a quorum for transaction of business at
any meeting of the Directors; provided, that if less than a quorum are present
at said meeting, a majority of the Directors present may adjourn the meeting
from time to time without further notice; and provided further, that if,
pursuant to the Articles of Incorporation or these Bylaws, the vote of a
majority of a particular group of Directors is required for action, a quorum
must also include a majority of such group.
The Directors present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Directors to leave less than a quorum.
SECTION 7. VOTING. The action of the majority of the Directors
present at a meeting at which a quorum is present shall be the action of the
Directors, unless the concurrence of a particular group of Directors or of a
greater proportion is required for such action by applicable statute, the
Articles of Incorporation or these Bylaws.
SECTION 8. TELEPHONE MEETINGS. Directors may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
SECTION 9. INFORMAL ACTION BY DIRECTORS. Any action required
or permitted to be taken at any meeting of the Directors may be taken without a
meeting, if a consent in writing to such action is signed by each Director and
such written consent is filed with the minutes of proceedings of the Directors.
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SECTION 10. VACANCIES. If for any reason any or all the
Directors cease to be Directors, such event shall not terminate the Company or
affect these Bylaws or the powers of the remaining Directors hereunder (even if
fewer than three Directors remain). Any vacancy created by an increase in the
number of Directors shall be filled, at any regular meeting or at any special
meeting called for that purpose, by a majority of the Directors. Any other
vacancy shall 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
outstanding and entitled to vote. Any individual so elected as Director shall
hold office for the unexpired term of the Director he is replacing. In the event
of a vacancy among the Independent Directors, the remaining Independent
Directors shall nominate replacements for such position.
SECTION 11. COMPENSATION. Each Director is entitled to receive
$6,000 annually for serving on the Board of Directors, as well as fees of $750
per meeting attended ($375 for each telephonic meeting in which the Director
participates), including committee meetings. The Company will not pay any
compensation to the officers and Directors of the Company who also serve as
officers and directors of the Advisor (as such term is defined in the Articles
of Incorporation).
SECTION 12. ELECTION AND REMOVAL OF DIRECTORS; TERM. The
stockholders may, at any time, remove any Director in the manner provided in the
Articles of Incorporation. The term of service for a Director is one year,
without limit on successive terms.
SECTION 13. LOSS OF DEPOSITS. No Director shall be liable for
any loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with which moneys or shares
have been deposited.
SECTION 14. SURETY BONDS. Unless required by law, no Director shall be
obligated to give any bond or surety or other security for the performance of
any of his duties.
SECTION 15. RELIANCE. Each Director, officer, employee and
agent of the Company shall, in the performance of his duties with respect to the
Company, be fully justified and protected with regard to any act or failure to
act in reliance in good faith upon the books of account or other records of the
Company, upon an opinion of counsel or upon reports made to the Company by any
of its officers or employees or by the advisers, accountants, appraisers or
other experts or consultants selected by the Directors or officers of the
Company, regardless of whether such counsel or expert may also be a Director.
SECTION 16. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES
AND AGENTS. The Directors shall have no responsibility to devote their full time
to the affairs of the Company. Any Director, officer, employee or agent of the
Company, in his personal capacity or in a capacity as an affiliate, employee, or
agent of any other person, or otherwise, may have business interests and engage
in business activities similar to or in addition to those of or relating to the
Company, subject to the adoption of any policies relating to such interests and
activities adopted by the Directors and applicable law.
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ARTICLE IV
COMMITTEES
SECTION 1. NUMBER, TENURE AND QUALIFICATIONS. The Directors
may, by resolution or resolutions passed by a majority of the whole Board,
appoint from among its members an Audit Committee and other committees, composed
of two or more Directors to serve at the pleasure of the Directors. At such
time, if any, as the Shares become listed on a national securities exchange or
over-the-counter market, the Company will form a Compensation Committee. At
least a majority of the members of each committee of the Company's Board of
Directors, or if a committee numbers two or less, both directors must be
Independent Directors.
SECTION 2. POWERS. The Directors may delegate to committees
appointed under Section 1 of this Article IV any of the powers of the Board of
Directors; provided, however, that the Directors may not delegate to committee
the power to declare dividends or other Distributions, elect Directors, issue
Equity Shares in the Company other than as provided in the next sentence,
recommend to the stockholders any action which requires stockholder approval,
amend the Bylaws or approve any merger or share exchange which does not require
stockholder approval. If the Board of Directors has given general authorization
for the issuance of Equity Shares in the Company to a committee of the Board, in
accordance with a general formula or method specified by the Board by resolution
or by adoption of an option or other plan, such committee may fix the terms of
the Equity Shares subject to classification or reclassification and the terms on
which the shares may be issued, including all terms and conditions required or
permitted to be established or authorized by the Board of Directors.
SECTION 3. COMMITTEE PROCEDURES. Each committee may fix rules
of procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the action of a majority
of those present at a meeting at which a quorum is present shall be action of
the committee. In the absence of any member of any committee, the members
thereof present at any meeting, whether or not they constitute a quorum, may
appoint another Director to act in the place of such absent member, subject to
the requirements of Section 1 of this Article IV. Any action required or
permitted to be taken at a meeting of a committee may be taken without a
meeting, if a unanimous written consent which sets forth the action to be taken
is signed by each member of the committee and filed with the minutes of the
proceedings of such committee. The members of a committee may conduct any
meeting thereof by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other at the
same time. Participation in a meeting by such means shall constitute presence in
person at the meeting.
ARTICLE V
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Company may
consist of a chairman of the board, a chief executive officer, a president, a
chief operating officer, one or more vice presidents, a chief financial officer
and treasurer, a secretary, and one or more assistant secretaries, as determined
by the Directors. In addition, the Directors may from time to time appoint such
other officers with such powers and duties as they shall deem necessary or
desirable. The officers of the Company shall be elected annually by the
Directors at the first meeting of the Directors held after each annual meeting
of stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as may be convenient. Each
officer shall hold
9
<PAGE>
office until his or her successor is elected and qualifies or until his or her
death, resignation or removal in the manner hereinafter provided. Any two or
more offices except (i) chief executive officer and vice president, or (ii)
president and vice president, may be held by the same person, although any
person holding more than one office in the Company may not act in more than one
capacity to execute, acknowledge or verify an instrument required by law to be
executed, acknowledged or verified by more than one officer. In their
discretion, the Directors may leave unfilled any office except that of the chief
executive officer, the president, the treasurer and the secretary. Election of
an officer or agent shall not of itself create contract rights between the
Company and such officer or agent.
SECTION 2. REMOVAL AND RESIGNATION. Any officer or agent of
the Company may be removed by a majority of the members of the whole Board of
Directors, with or without cause, if in their judgment the best interests of the
Company would be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed. Any officer of the
Company may resign at any time by giving written notice of his resignation to
the Directors, the chairman of the board, the chief executive officer or the
secretary. Any resignation shall take effect at any time subsequent to the time
specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a resignation
shall not be necessary to make it effective unless otherwise stated in the
resignation.
SECTION 3. VACANCIES. A vacancy in any office may be filled by the
Directors for the balance of the term.
SECTION 4. CHAIRMAN OF THE BOARD. The chairman of the board
shall preside over the meetings of the Directors and of the stockholders at
which he or she shall be present. The chairman of the board shall perform such
other duties as may be assigned to him or her by the Directors. Except where by
law the signature of the chief executive officer or the president is required,
the chairman of the board shall possess the same power as the chief executive
officer or the president to sign deeds, mortgages, bonds, contracts or other
instruments.
SECTION 5. CHIEF EXECUTIVE OFFICER. The Directors may
designate a chief executive officer from among the elected officers. In the
absence of such designation, the chairman of the board shall be the chief
executive officer of the Company. The chief executive officer shall in general
supervise the management of the business affairs of the Company and the
implementation of the policies of the Company, as determined by the Directors.
He or she may execute any deed, mortgage, bond, contract or other instrument,
except in cases where the execution thereof shall be expressly delegated by the
Directors or by these Bylaws to some other officer or agent of the Company or
shall be required by law to be otherwise executed; and in general shall perform
all duties incident to the office of chief executive officer and such other
duties as may be prescribed by the Directors from time to time.
SECTION 6. PRESIDENT. The president, subject to the control of
the Board of Directors and with the chief executive officer, shall in general
supervise and control all of the business and affairs of the Company. He or she
shall, when present and in the absence of the chairman of the board and the
chief executive officer, preside at all meetings of the stockholders and the
Board of Directors. He or she may sign (i) with the secretary or the chief
financial officer and treasurer, certificates for shares of the Company, and
(ii) with the secretary or any other proper officer of the Company authorized by
the Board of Directors, deeds, mortgages, bonds, contracts, or other instru-
10
<PAGE>
ments which the Board of Directors has authorized to be executed, except in
cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these Bylaws to some other officer of agent of the
Company, or shall be required by law to be otherwise signed or executed; and in
general shall perform all duties incident to the office of president and such
other duties as may be prescribed by the chief executive officer or the
Directors from time to time.
SECTION 7. CHIEF OPERATING OFFICER. The chief operating
officer, under the direction of the chief executive officer, shall have general
management authority and responsibility for the day-to-day implementation of the
policies of the Company. He or she may execute any deed, mortgage, bond,
contract or other instrument, except in cases where the execution thereof shall
be expressly delegated by the Directors or by these Bylaws to some other officer
or agent of the Company or shall be required by law to be otherwise executed;
and in general shall perform all duties incident to the office of chief
operating officer and such other duties as may be prescribed by the Directors
from time to time.
SECTION 8. VICE PRESIDENTS. In the absence of the chief
executive officer, the president, the chief operating officer or in the event of
a vacancy in all such offices, the vice president (or in the event there be more
than one vice president, the vice presidents in the order designated at the time
of their election or, in the absence of any designation, then in the order of
their election) shall perform the duties of the chief executive officer or the
president and when so acting shall have all the powers of and be subject to all
the restrictions upon the chief executive officer and the president; and shall
perform such other duties as from time to time may be assigned to him by the
chief executive officer, by the president, by the chief operating officer or by
the Directors. The Directors may designate one or more vice presidents as
executive vice president or as vice president for particular areas of
responsibility.
SECTION 9. SECRETARY. The secretary shall: (i) keep the
minutes of the proceedings of the stockholders, the Directors and committees of
the Directors in one or more books provided for that purpose; (ii) see that all
notices are duly given in accordance with the provisions of the Articles of
Incorporation, these Bylaws or as required by law; (iii) be custodian of the
trust records and of the seal (if any) of the Company; (iv) keep a register of
the post office address of each stockholder which shall be furnished to the
secretary by such stockholder; (v) have general charge of the share transfer
books of the Company; and (vi) in general perform such other duties as from time
to time may be assigned to him or her by the chief executive officer, by the
president, by the chief operating officer or by the Directors.
SECTION 10. CHIEF FINANCIAL OFFICER AND TREASURER. The chief
financial officer and treasurer shall have the custody of the funds and
securities of the Company and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Company and shall deposit all moneys
and other valuable effects in the name and to the credit of the Company in such
depositories as may be designated by the Directors. The chief financial officer
shall disburse the funds of the Company as may be ordered by the Directors,
taking proper vouchers for such disbursements, and shall render to the chief
executive officer and Directors, at their regular meetings of the Directors or
whenever they may require it, an account of all his or her transactions as chief
financial officer and of the financial condition of the Company.
If required by the Directors, he or she shall give the Company a bond
in such sum and with such surety or sureties as shall be satisfactory to the
Directors for the faithful performance of the
11
<PAGE>
duties of his or her office and for the restoration to the Company, in case of
his or her death, resignation, retirement or removal from office, all books,
papers, vouchers, moneys and other property of whatever kind in his or her
possession or under his or her control belonging to the Company.
SECTION 11. ASSISTANT SECRETARIES. The assistant secretaries, in general,
shall perform such duties as shall be assigned to them by the secretary, or by
the chief executive officer, the president, or the Directors.
SECTION 12. SALARIES. The salaries of the officers shall be
fixed from time to time by the Directors, and no officer shall be prevented from
receiving such salary by reason of the fact that he or she is also a Director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Directors may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Company and such authority may be general or
confined to specific instances. Any agreement, deed, mortgage, lease or other
document executed by one or more of the Directors or by an authorized person
shall be deemed valid and binding upon the Directors and upon the Company when
so authorized or ratified by action of the Directors.
SECTION 2. CHECKS AND DRAFTS. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Company shall be signed by such officer or officers, agent or
agents of the Company and in such manner as shall from time to time be
determined by the Directors.
SECTION 3. DEPOSITS. All funds of the Company not otherwise
employed shall be deposited from time to time to the credit of the Company in
such banks, trust companies or other depositories as the Directors may
designate.
ARTICLE VII
EQUITY SHARES
SECTION 1. CERTIFICATES. The Company will not issue share
certificates. A stockholder's investment will be recorded on the books of the
Company. A stockholder wishing to transfer his or her Shares will be required to
send only an executed form to the Company, and the Company will provide the
required form upon a stockholder's request. The executed form and any other
required documentation must be received by the Company at least one calendar
month prior to the last date of the current quarter.
SECTION 2. TRANSFERS. Transfers of Equity Shares shall be
effective, and the transferee of the Equity Shares will be recognized as the
holder of such Shares as of the first day of the following quarter on which the
Company receives properly executed documentation. Stockholders who are residents
of New York may not transfer fewer than 250 shares at any time.
The Company shall be entitled to treat the holder of record of any
Equity Shares as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or
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<PAGE>
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of the State of Maryland.
SECTION 3. NOTICE OF ISSUANCE OR TRANSFER. Upon issuance or
transfer of Equity Shares, the Company shall send the stockholder a written
statement that complies with the requirements of Section 7.6(xii) of Articles of
Incorporation and reflects such investment or transfer. In addition such written
statement shall set forth (i) the name of the Company; (ii) the name of the
stockholder or other person to whom it is issued or transferred; (iii) the class
of shares and number of shares purchased; (iv) the designations and any
preferences, conversions and other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms and conditions of
redemption of the shares of each class which the Company is authorized to issue;
(v) the differences in the relative rights and preferences between the shares of
each series of shares to the extent they have been set; (vi) the authority of
the Board of Directors to set the relative rights and preferences; (vii) the
restrictions on transferability of the shares sold or transferred (without
affecting ss. 8-204 of the Commercial Law Article of the Maryland General
Corporation Law (the "MGCL"); and (viii) any other information required by law.
The Company, alternatively, may furnish notice that a full statement of the
information contained in the foregoing subsections (i) through (viii) and
otherwise complying with Section 7.6(xii) of the Articles of Incorporation will
be provided to any stockholder upon request and without charge.
SECTION 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
The Directors may set, in advance, a record date for the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders, or
stockholders entitled to receive payment of any Distribution or the allotment of
any other rights, or in order to make a determination of stockholders for any
other proper purpose. Such date, in any case, shall not be prior to the close of
business on the day the record date is fixed and shall not be more than 90 days
and, in the case of a meeting of stockholders, not less than ten days, before
the date on which the meeting or particular action requiring such determination
of stockholders is to be held or taken.
In the context of fixing a record date, the Directors may provide that
the share transfer books shall be closed for a stated period but not longer than
20 days. If the share transfer books are closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders, such
books shall be closed at least ten days before the date of such meeting.
If no record date is fixed and the share transfer books are not closed
for the determination of stockholders, (i) the record date for the determination
of stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the date on which notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting, and (ii) the record date for the determination of stockholders entitled
to receive payment of a Distribution or an allotment of any other rights shall
be the close of business on the day on which the resolution of the Directors
declaring the Distribution or allotment of rights is adopted, but the payment or
allotment of rights may not be made more than 60 days after the date on which
the resolution is adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this Section 4, such determination
shall apply to any adjournment thereof, except where the determination has been
made through the closing of the transfer books and the stated period of closing
has expired.
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SECTION 5. SHARE LEDGER. The Company shall maintain at its
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger, in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection, containing the name and address of each stockholder and the number
of shares of each class held by such stockholder.
SECTION 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. Directors may
issue fractional shares or provide for the issuance of scrip, all on such terms
and under such conditions as they may determine. Notwithstanding any other
provision of the Articles of Incorporation or these Bylaws, the Directors may
issue units consisting of different securities of the Company. Any security
issued in a unit shall have the same characteristics as any identical securities
issued by the Company, except that the Directors may provide that for a
specified period securities of the Company issued in such unit may be
transferred on the books of the Company only in such unit.
Before issuance of any shares classified or reclassified or otherwise
issued in a unit, the Board of Directors will file articles supplementary with
the Maryland State Department of Assessments and Taxation that describe such
shares, including (a) the preferences, conversion and other rights, voting
powers, restrictions, limitations as to distributions, qualifications, and terms
and conditions of redemption, as set or changed by the Board of Directors; and
(b) a statement that the shares have been classified or reclassified by the
Board of Directors pursuant to its authority under the Company's charter. The
articles supplementary will be executed in the manner provided by Title 7 of the
Maryland General Corporation Law (the "MGCL").
ARTICLE VIII
ACCOUNTING YEAR
The Directors shall have the power, from time to time, to fix the
fiscal year of the Company by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
SECTION 1. DECLARATION. Distributions upon the Equity Shares of the Company
may be declared by the Directors, subject to the provisions of law and the
Articles of Incorporation. Distributions may be paid in cash or other property
of the Company, subject to the provisions of law and the Articles of
Incorporation.
SECTION 2. CONTINGENCIES. Before payment of any Distributions,
there may be set aside out of any funds of the Company available for
Distributions such sum or sums as the Directors may from time to time, in their
absolute discretion, think proper as a reserve fund for the contingencies, for
equalizing Distributions, for repairing or maintaining any property of the
Company or for such other purpose as the Directors shall determine to be in the
best interest of the Company, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
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<PAGE>
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the Articles of Incorporation, the
Directors may from time to time adopt, amend, revise or terminate any policy or
policies with respect to investments by the Company as they shall deem
appropriate in their sole discretion. In addition, the Independent Directors
shall review the Company's investment policies at least annually to determine
that the policies are in the best interests of the stockholders.
ARTICLE XI
SEAL
SECTION 1. SEAL. The Directors may authorize the adoption of a seal by the
Company. The seal shall have inscribed thereon the name of the Company and the
year of its organization. The Directors may authorize one or more duplicate
seals and provide for the custody thereof.
SECTION 2. AFFIXING SEAL. Whenever the Company is required to
place its seal to a document, it shall be sufficient to meet the requirements of
any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Company.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Articles of
Incorporation or these Bylaws or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting shall constitute a
waiver of notice of such meeting, except where such person attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE XIII
AMENDMENT OF BYLAWS
SECTION 1. AMENDMENTS. These Bylaws may be amended or repealed
by either the affirmative vote of a majority of all Equity Shares outstanding
and entitled to vote generally in the election of Directors, voting as a single
group or by an affirmative vote of a majority of the Directors (including a
majority of the Independent Directors), provided that such amendments are not
inconsistent with the Articles of Incorporation, and further provided that the
Directors may not amend these 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.
SECTION 2. LOCATION OF BYLAWS. The original or a certified
copy of these Bylaws, including any amendments thereto, shall be kept at the
Company's principal office, as determined pursuant to Article I, Section 1 of
these Bylaws.
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The foregoing are certified as the Bylaws of the Company adopted by the
Directors (including a majority of the Independent Directors) as of
________________, 1998.
--------------------------------
Secretary
16
Exhibit 10.1
Form of Escrow Agreement between CNL Health Care Properties, Inc.
and SouthTrust Asset Management Company of Florida, N.A.
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is dated this ___ day of
_____________, 1998, by and among CNL HEALTH CARE PROPERTIES, INC., a Maryland
corporation (the "Company"), CNL SECURITIES CORP., a Florida corporation (the
"Managing Dealer"), and SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A.
(the "Escrow Agent"). This Agreement shall be effective as of the effective date
of the Company's Registration Statement filed with the Securities and Exchange
Commission (the "Effective Date").
WHEREAS, the Company proposes to offer and sell, on a best-efforts
basis through the Managing Dealer and selected broker-dealers registered with
the National Association of Securities Dealers, Inc. (the Managing Dealer and
such selected broker-dealers are hereinafter referred to collectively as the
"Soliciting Dealers") up to 15,500,000 shares of common stock of the Company
(the "Shares") to investors at $10.00 per Share pursuant to a registration
statement (the "Registration Statement") filed with the Securities and Exchange
Commission;
WHEREAS, the Company has agreed that the subscription price paid in
cash by subscribers for Shares will be refunded to such subscribers if less than
an aggregate of 250,000 Shares of the Company have been sold (which 250,000
Shares shall not include subscriptions from Pennsylvania investors unless
subscriptions for at least 777,500 Shares are received and accepted from all
investors), and payment therefor received, within one year of the initial
effective date of the Company's prospectus (each date referred to herein
individually as the "Closing Date"); and
WHEREAS, the Company and the Managing Dealer desire to establish an
escrow in which funds received from subscribers will be deposited until the
Closing Date or such earlier date on which subscriptions for at least 250,000
Shares have been received (which 250,000 Shares shall not include subscriptions
from Pennsylvania investors), and the Escrow Agent is willing to serve as Escrow
Agent upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, the parties covenant and agree as follows.
1. Establishment of Escrow Accounts. On or prior to the Effective Date,
the Company and the Managing Dealer shall establish an interest-bearing escrow
account with the Escrow Agent, which escrow account shall be entitled "ESCROW
ACCOUNT FOR THE BENEFIT OF SUBSCRIBERS FOR COMMON STOCK OF CNL HEALTH CARE
PROPERTIES, INC." (the "Escrow Account"). All monies deposited in the Escrow
Account are hereinafter referred to as the "Escrowed Funds." The Managing Dealer
will, and will cause selected broker-dealers acting as Soliciting Dealers to,
instruct subscribers to make checks for subscriptions payable to the order of
the Escrow Agent until such time (if any) as the Escrowed Funds are deliverable
to the Company pursuant to the provisions of Paragraph 5(a) below. From and
after such time, checks may be made payable to either the Escrow Agent or the
Company. Any checks received prior to the time, if any, that the Escrowed Funds
are deliverable to the
<PAGE>
Company pursuant to the provisions of Paragraph 5(a) below that are made payable
to a party other than the Escrow Agent shall be returned to the Soliciting
Dealer who submitted the check. The Managing Dealer may authorize certain
Soliciting Dealers which are "$250,000 clearing broker-dealers" to instruct
their customers to make their checks for Shares subscribed for payable directly
to the Soliciting Dealer. In such case, the Soliciting Dealer will collect the
proceeds of the subscribers' checks and issue a check made payable to the order
of the Escrow Agent for the aggregate amount of the subscription proceeds.
2. Deposits into the Escrow Account. The Managing Dealer will promptly
deliver all monies received from subscribers for the payment of Shares to the
Escrow Agent for deposit in the Escrow Account. Until such time that the
Escrowed Funds are deliverable to the Company pursuant to the provisions of
Paragraph 5(a) below, the Managing Dealer also will deliver to the Escrow Agent
a written account of each sale, which account shall set forth, among other
things, the following information: (i) the subscriber's name and address, (ii)
the number of Shares purchased by such subscriber, and (iii) the amount paid for
by such subscriber for such Shares. The Company is aware and understands that,
during the escrow period, it is not entitled to any funds received into escrow
and no amounts deposited in the Escrow Account shall become the property of the
Company or any other entity, or be subject to the debts of the Company or any
other entity.
3. Collection Procedure.
(a) The Escrow Agent is hereby authorized to forward each
check for collection and, upon collection of the proceeds of each
check, to deposit the collected proceeds in the Escrow Account or,
alternatively, the Escrow Agent may telephone the bank on which the
check is drawn to confirm that the check has been paid.
(b) Any check returned unpaid to the Escrow Agent shall be
returned to the Soliciting Dealer that submitted the check. In such
cases the Escrow Agent will promptly notify the Company of such return.
(c) In the event that (i) the Company rejects any subscription
for Shares or (ii) an investor who has telephonically or orally
subscribed for Shares properly withdraws such subscription within
fifteen (15) days from the date written confirmation has been mailed to
the subscriber, and, in either such event, the Escrow Agent has already
collected funds for such subscription, the Escrow Agent shall promptly
issue a refund check to the drawer of the check submitted by or on
behalf of the rejected or withdrawing subscriber. If either of the
events specified in the clauses (i) or (ii) of the preceding sentence
occur and, in either such event, the Escrow Agent has not yet collected
funds for such subscription but has submitted the check relating to
such subscription for collection, the Escrow Agent shall promptly issue
a check in the amount of such check to the rejected or withdrawing
subscriber after the Escrow Agent has cleared such funds. If the Escrow
Agent has not yet submitted the check relating to the subscription of
the rejected or
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<PAGE>
withdrawing subscriber, the Escrow Agent shall promptly remit such
check directly to the drawer of the check submitted by or on behalf of
the subscriber.
4. Investment of Escrowed Funds. The Escrow Agent, immediately upon
receipt of each check remitted to it, shall deposit such check in
interest-bearing savings accounts, in short-term certificates of deposit issued
by a bank, or in other short-term securities directly or indirectly issued or
guaranteed by the United States government, all as directed by the Company.
Interest and dividends earned on such investments shall be similarly reinvested.
Following the distribution of Escrowed Funds to the Company pursuant to
Paragraph 5 below, any funds remaining in the Escrow Account shall be invested
in bank money market funds or other similar instruments as directed by the
Company.
5. Distribution of Escrowed Funds. The Escrow Agent shall distribute
the Escrowed Funds in the amounts, at the times, and upon the conditions
hereinafter set forth in this Agreement.
(a) Subject to the last three sentences of this Paragraph
5(a), if at any time on or prior to the Closing Date, an aggregate of
250,000 Shares of the Company have been sold, then upon the happening
of such event, the Escrow Agent shall deliver the Escrowed Funds to the
Company. An affidavit or certification from an officer of the Company
stating that, after excluding all Shares covered by the subscriptions
described in the last three sentences of this Paragraph 5(a), 250,000
Shares have been timely sold, together with the receipt by the Escrow
Agent of a minimum of $2,500,000 in cleared funds attributable to sales
of Shares shall constitute sufficient evidence for the purposes of this
Agreement that such event has occurred. Thereafter, the Escrow Agent
shall release from the Escrow Account to the Company any and all
Escrowed Funds therein, together with all interest earned thereon, upon
the written request of an officer of the Company, except as expressly
provided otherwise in the next three sentences. First, subscriptions
from investors who are Pennsylvania residents shall not be included in
determining whether the minimum 250,000 Shares have been sold, and such
subscription funds shall not be released from escrow until the Escrow
Agent has received $7,775,000 in Escrowed Funds (including any funds
included in reaching the $2,500,000 minimum) attributable to sales of
Shares. Second, subscriptions from investors who have subscribed for
Shares orally, where representatives of a Soliciting Dealer have
executed the Subscription Agreement relating to such Shares on behalf
of the investor, shall not be included in determining whether the
minimum 250,000 Shares have been sold for a period of ten (10) days
from the date written confirmation has been received by the subscriber,
provided that such subscriptions shall not be released from escrow
until the expiration of a period fifteen (15) days from the date
written confirmation has been mailed to the subscriber relating to such
subscriptions. Third, subscriptions from investors who received a
prospectus less than five (5) business days prior to the determination
under this subparagraph (a) of the number of available Shares to be
released from escrow as evidenced by the date of
--3--
<PAGE>
execution of such investor's subscription agreement shall not be
included in determining whether the minimum 250,000 Shares have been
sold.
(b) If the Escrowed Funds do not, on or prior to the Closing
Date, become deliverable to the Company pursuant to subparagraph (a)
above, the Escrow Agent shall return the Escrowed Funds to the
respective subscribers in amounts equal to the subscription amount
theretofore paid by each of them, together with interest calculated as
described in Paragraph 6 below and without deduction, penalty or
expense to the subscriber. The Escrow Agent shall notify the Company
and the Managing Dealer of any such return of subscription amounts. The
purchase money returned to each subscriber shall be free and clear of
any and all claims of the Company or any of its creditors.
(c) The Escrow Agent shall return to any California or Florida
investor who properly withdraws his subscription in accordance with the
terms set forth in the Prospectus the Escrowed Funds of such
withdrawing investor, as the case may be, together with interest
calculated as described in Paragraph 6 below.
6. Distribution of Interest. If the Escrowed Funds become deliverable
to subscribers pursuant to Paragraphs 5(b) or 5(c) above, the Escrow Agent shall
compute and distribute to each investor a pro rata share of the investment
earnings of the Escrowed Funds. Each subscriber's pro rata share of investment
earnings shall be computed as follows:
Individual Subscription
amount x days held
-----------------------
Investment Earnings x Total subscription
amounts x days held
Such pro rata share of investment earnings shall be distributed to each
subscriber with the return of their subscription amounts.
7. Liability of Escrow Agent.
(a) In performing any of its duties under this Agreement, or
upon the claimed failure to perform its duties hereunder, the Escrow
Agent shall not be liable to anyone for any damages, losses, or
expenses which it may incur as a result of the Escrow Agent so acting,
or failing to act; provided, however, the Escrow Agent shall be liable
for damages arising out of its willful default or misconduct or its
gross negligence under this Agreement. Accordingly, the Escrow Agent
shall not incur any such liability with respect to (i) any action taken
or omitted to be taken in good faith upon advice of its counsel or
counsel for the Company which is given with respect to any questions
relating to the duties and responsibilities of the Escrow Agent
hereunder, or (ii) any action taken or omitted to be taken in reliance
upon any document, including any written notice or instructions
provided for in this Escrow Agreement, not only as to its due execution
and
--4--
<PAGE>
to the validity and effectiveness of its provisions but also as to the
truth and accuracy of any information contained therein, if the Escrow
Agent shall in good faith believe such document to be genuine, to have
been signed or presented by a proper person or persons, and to conform
with the provisions of this Agreement.
(b) The Company hereby agrees to indemnify and hold harmless
the Escrow Agent against any and all losses, claims, damages,
liabilities and expenses, including, without limitation, reasonable
costs of investigation and counsel fees and disbursements which may be
incurred by it resulting from any act or omission of the Company;
provided, however, that the Company shall not indemnify the Escrow
Agent for any losses, claims, damages, or expenses arising out of the
Escrow Agent's willful default, misconduct, or gross negligence under
this Agreement.
(c) If a dispute ensues between any of the parties hereto
which, in the opinion of the Escrow Agent, is sufficient to justify its
doing so, the Escrow Agent shall be entitled to tender into the
registry or custody of any court of competent jurisdiction, including
the Circuit Court of Orange County, Florida, all money or property in
its hands under the terms of this Agreement, and to file such legal
proceedings as it deems appropriate, and shall thereupon be discharged
from all further duties under this Agreement. Any such legal action may
be brought in any such court as the Escrow Agent shall determine to
have jurisdiction thereof. The Company shall indemnify the Escrow Agent
against its court costs and attorneys' fees incurred in filing such
legal proceedings.
8. Inability to Deliver. In the event that checks for subscriptions
delivered to the Escrow Agent by the Company pursuant to this Agreement are not
cleared through normal banking channels within 120 days after such delivery, the
Escrow Agent shall deliver such uncleared checks to the Company unless the
Escrowed Funds are returned to subscribers pursuant to Paragraphs 5(b) or 5(c)
above, in which case the Escrow Agent shall mail such uncleared checks to the
subscribers.
9. Notice. All notices, requests, demands and other communications or
deliveries required or permitted to be given hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally, given by
prepaid telegram or deposited for mailing, first class, postage prepaid,
registered or certified mail, as follows:
<TABLE>
<S> <C>
If to the subscribers for Shares: To their respective
addresses as specified in
their Subscription
Agreements.
If to the Company: 400 East South Street
Orlando, Florida 32801
Attention: Mr. James M. Seneff, Jr.,
Chairman of the Board
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<PAGE>
If to the Managing Dealer: 400 East South Street
Orlando, Florida 32801
Attention: Mr. Robert A.
Bourne, President
If to the Escrow Agent: SOUTHTRUST ASSET MANAGEMENT
COMPANY OF FLORIDA, N.A.
135 West Central Boulevard, Suite 1200
Orlando, Florida 32801
Attention: Mr. William Legg
</TABLE>
10. Fees to Escrow Agent. In consideration of the services to be
provided by the Escrow Agent hereunder, the Company agrees to pay the following
fees to the Escrow Agent.
(a) In the event that by the Closing Date an aggregate of
250,000 Shares have not been sold for the account of the Company, the
Company will pay the Escrow Agent a fee in an amount equal to $15 per
investor, with a minimum fee of $1,500, payable within 30 days
following the Closing Date.
(b) In the event that an aggregate of at least 250,000 Shares
are sold by the Closing Date, the Company will pay the Escrow Agent a
fee for its services hereunder (the "Escrow Fee"). The Escrow Fee shall
be $350 for each month or any portion thereof that the Escrow Account
continues for the Company. The first payment of the Escrow Fee by the
Company shall be due on the earlier of (i) the date on which the
Escrowed Funds become distributable to the Company pursuant to
Paragraph 5 hereof, or (ii) six months from the effective date of this
Agreement; or (iii) the closing of the offering of Shares in the
Company. Subsequent payments by the Company, if any, shall be due and
payable no less frequently than six-month intervals while the escrow
continues for the Company. In no event shall the total Escrow Fees
payable by the Company pursuant to this Agreement be less than $2,100,
nor more than $4,200, for any 12-month period. Notwithstanding anything
contained in this Agreement to the contrary, in no event shall any fee,
reimbursement for costs and expenses, indemnification for any damages
incurred by the Escrow Agent, or monies whatsoever be paid out of or
chargeable to the Escrowed Funds in the Escrow Account.
11. General.
(a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Florida.
(b) The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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<PAGE>
(c) This Agreement sets forth the entire agreement and
understanding of the parties with regard to this escrow transaction and
supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof.
(d) This Agreement may be amended, modified, superseded or
cancelled, and any of the terms or conditions hereof may be waived,
only by a written instrument executed by each party hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any
party at any time or times to require performance of any provision
hereof shall in no manner affect the right at a later time to enforce
the same. No waiver in any one or more instances by any party of any
condition, or of the breach of any term contained in this Agreement,
whether by conduct or otherwise, shall be deemed to be, or construed
as, a further or continuing waiver of any such condition or breach, or
a waiver of any other condition or of the breach of any other terms of
this Agreement.
(e) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(f) This Agreement shall inure to the benefit of the parties
hereto and their respective administrators, successors, and assigns.
12. Representation of the Company. The Company hereby acknowledges that
the status of the Escrow Agent with respect to the offering of the Shares is
that of agent only for the limited purposes herein set forth, and hereby agrees
it will not represent or imply that the Escrow Agent, by serving as the Escrow
Agent hereunder or otherwise, has investigated the desirability or advisability
of an investment in the Shares, or has approved, endorsed or passed upon the
merits of the Shares, nor shall the Company use the name of the Escrow Agent in
any manner whatsoever in connection with the offer or sale of the Shares, other
than by acknowledgement that it has agreed to serve as Escrow Agent for the
limited purposes herein set forth.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
"Company"
CNL HEALTH CARE PROPERTIES, INC.
By: _________________________________
JAMES M. SENEFF, JR.,
Chairman of the Board
"MANAGING DEALER"
CNL SECURITIES CORP.
Attest: By: _________________________________
ROBERT A. BOURNE, President
"ESCROW AGENT"
SOUTHTRUST ASSET MANAGEMENT
COMPANY OF FLORIDA, N.A.
Attest: By: _________________________________
------------------------
Name: _________________________________
Title: _________________________________
--8--
Exhibit 10.2
Form of Advisory Agreement
<PAGE>
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT, dated as of ________________, 1998, is between
CNL HEALTH CARE PROPERTIES, INC., a corporation organized under the laws of the
State of Maryland (the "Company") and CNL HEALTH CARE ADVISORS, INC., a
corporation organized under the laws of the State of Florida (the "Advisor").
W I T N E S S E T H
WHEREAS, the Company has filed with the Securities and Exchange
Commission a Registration Statement (No. 333-_____) on Form S-11 covering
15,500,000 of its common shares ("Shares"), par value $.01, to be offered to the
public, and the Company may subsequently issue securities other than such Shares
("Securities") or otherwise raise additional capital;
WHEREAS, the Company intends to qualify as a REIT (as defined below),
and to invest its funds in investments permitted by the terms of the
Registration Statement and Sections 856 through 860 of the Code (as defined
below);
WHEREAS, the Company desires to avail itself of the experience, sources
of information, advice, assistance and certain facilities available to the
Advisor and to have the Advisor undertake the duties and responsibilities
hereinafter set forth, on behalf of, and subject to the supervision, of the
Board of Directors of the Company all as provided herein; and
WHEREAS, the Advisor is willing to undertake to render such services,
subject to the supervision of the Board of Directors, on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
(1) Definitions. As used in this Advisory Agreement (the "Agreement"),
the following terms have the definitions hereinafter indicated:
Acquisition Expenses. 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 Fees. 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
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<PAGE>
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. CNL Health Care Advisors, Inc., a Florida corporation, any
successor advisor to the Company, or any person or entity to which CNL Health
Care Advisors, Inc. or any successor advisor subcontracts substantially all of
its functions.
Affiliate or Affiliated. 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 or
controlling 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.
Appraised Value. Value according to an appraisal made by an Independent
Appraiser.
Articles of Incorporation. The Articles of Incorporation of the Company
under Title 2 of the Corporations and Associations Article of the Annotated Code
of Maryland, as amended from time to time.
Asset Management Fee. 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 this Agreement.
Assets. Properties, Mortgage Loans and Secured Equipment Leases,
collectively.
Average Invested Assets. 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.
Board of Directors or Board. The persons holding such office, as of any
particular time, under the Articles of Incorporation of the Company, whether
they be the Directors named therein or additional or successor Directors.
Bylaws. The bylaws of the Company, as the same are in effect from time to
time.
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<PAGE>
Cause. With respect to the termination of this Agreement, fraud,
criminal conduct, willful misconduct or willful or negligent breach of fiduciary
duty by the Advisor, breach of this Agreement, a default by the Sponsor under
the guarantee by the Sponsor to the Company or the bankruptcy of the Sponsor.
Change of Control. A change of control of the Company of such a nature
that would be required to be reported in response to the disclosure requirements
of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended, as enacted and in force on the date hereof (the "Exchange
Act"), whether or not the Company is then subject to such reporting
requirements; provided, however, that, without limitation, a change of control
shall be deemed to have occurred if: (i) any "person" (within the meaning of
Section 13(d) of the Exchange Act) is or becomes the "beneficial owner" (as that
term is defined in Rule 13d-3, as enacted and in force on the date hereof, under
the Exchange Act) of securities of the Company representing 8.5% or more of the
combined voting power of the Company's securities then outstanding; (ii) there
occurs a merger, consolidation or other reorganization of the Company which is
not approved by the Board of Directors of the Company; (iii) there occurs a
sale, exchange, transfer or other disposition of substantially all of the assets
of the Company to another entity, which disposition is not approved by the Board
of Directors of the Company; or (iv) there occurs a contested proxy solicitation
of the Stockholders of the Company that results in the contesting party electing
candidates to a majority of the Board of Directors' positions next up for
election.
Code. 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. CNL Health Care Properties, Inc., a corporation organized under
the laws of the State of Maryland.
Company Property. Any and all property, real, personal or otherwise,
tangible or intangible, including Mortgage Loans and Secured Equipment Leases,
which is transferred or conveyed to the Company (including all rents, income,
profits and gains therefrom), and which is owned or held by, or for the account
of, the Company.
Competitive Real Estate Commission. 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 Company to all Persons
(including the Subordinated 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 of the gross sales price of the Property or Properties.
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<PAGE>
Contract Purchase Price. The amount actually paid or allocated (as of
the date of purchase) to the purchase, development, construction or improvement
of property, exclusive of Acquisition Fees and Acquisition Expenses.
Contract Sales Price. The total consideration received by the Company for
the sale of Company Property.
Director. A member of the Board of Directors of the Company.
Distributions. Any distributions of money or other property by the
Company to owners of Equity Shares, including distributions that may constitute
a return of capital for federal income tax purposes.
Equipment. The furniture, fixtures and equipment used at Health Care
Facilities by operators of Health Care Facilities.
Equity Interest. The stock of or other interests in, or warrants or
other rights to purchase the stock of or other interests in, any entity that has
borrowed money from the Company or that is a tenant of the Company or that is a
parent or controlling Person of any such borrower or tenant.
Equity Shares. Transferable shares of beneficial interest of the Company of
any class or series, including common shares or preferred shares.
Good Reason. With respect to the termination of this Agreement, (i) any
failure to obtain a satisfactory agreement from any successor to the Company to
assume and agree to perform the Company's obligations under this Agreement; or
(ii) any material breach of this Agreement of any nature whatsoever by the
Company.
Gross Proceeds. The aggregate purchase price of all Shares sold for the
account of the Company through the Offering, 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.
Health Care Facilities. Facilities at which health care services are
provided, including, but not limited to, congregate living, assisted living, and
skilled nursing facilities for seniors, continuing care retirement communities
and life care communities, and medical office buildings and walk-in clinics.
Independent Appraiser. A qualified appraiser of real estate as determined
by the Board. Membership in a nationally recognized appraisal society such as
the American Institute of Real
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<PAGE>
Estate Appraisers ("M.A.I.") or the Society of Real Estate Appraisers
("S.R.E.A.") shall be conclusive evidence of such qualification.
Independent Director. A Director who is not and within the last two
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 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. A business or professional relationship is considered
material if the gross revenue derived by the Director from the Advisor and
Affiliates exceeds 5% of either the Company's annual gross revenue during either
of the last two years or the Director's net worth on a fair market value basis.
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 are or have been associated
with the Advisor, any of its Affiliates, or the Company.
Independent Expert. 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.
Invested Capital. 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. The joint venture or general partnership arrangements in
which the Company is a co-venturer or general partner which are established to
acquire Properties.
Line of Credit. A line of credit initially 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. The listing of the Shares of the Company on a national securities
exchange or over-the-counter market.
Managing Dealer. CNL Securities Corp., an Affiliate of the Advisor, or such
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.
Mortgage Loans. In connection with mortgage financing provided by the
Company, the notes or other evidence of indebtedness or obligations which are
secured or collateralized by real estate owned by the borrower.
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<PAGE>
Net Income. 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 (as defined herein) shall exclude the gain from the sale of
the Company's assets.
Net Sales Proceeds. 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 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 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, or Secured
Equipment Leases, to repay outstanding indebtedness, or to establish reserves.
Offering. The initial public offering of Shares.
Operating Expenses. 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 Asset Management Fee, (c) the Performance Fee and (d) the
Subordinated Incentive Fee, but excluding (i) the expenses of raising capital
such as Organizational and Offering Expenses, legal, audit, accounting,
underwriting, brokerage, listing, 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 loan reserves, (v) the Advisor's subordinated 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).
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<PAGE>
Organizational and Offering Expenses. Any and all costs and expenses,
other than Selling Commissions and the 0.5% marketing support and due diligence
expense reimbursement 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.
Performance Fee. The fee payable to the Advisor upon termination of
this Agreement under certain circumstances if certain performance standards have
been met and the Subordinated Incentive Fee has not been paid.
Permanent Financing. The financing (i) to acquire Assets, (ii) to pay
the Secured Equipment Lease Servicing Fee, (iii) to pay a fee of 4.5% of any
Permanent Financing, excluding amounts to fund Secured Equipment Leases, as
Acquisition Fees, and (iv) to refinance outstanding amounts on the Line of
Credit.
Person. 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 Exchange Act, 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 by such underwriter of such Equity Shares in
such public offering, or (ii) CNL Health Care Advisors, Inc., during the period
ending December 31, 1998, provided that the foregoing exclusions shall apply
only if the ownership of such Equity Shares by an underwriter or CNL Health Care
Advisors, Inc. would not cause the Company to fail to qualify as a REIT by
reason of being "closely held" within the meaning of Section 856(a) of the Code
or otherwise cause the Company to fail to qualify as a REIT.
Property or Properties. (i) The real properties, including the
buildings located thereon, or (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. "Prospectus" means the same as that term as 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.
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Real Estate Asset Value. The amount actually paid or allocated to the
purchase, development, construction or improvement of a Property, exclusive of
Acquisition Fees and Acquisition Expenses.
Registration Statement. The Registration Statement (No. 333-_____) on Form
S-11 registering the Shares to be sold in the Offering.
REIT. A "real estate investment trust" under Sections 856 through 860 of
the Code.
Sale or Sales. (i) 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 or Secured Equipment
Lease or portion thereof, including any event with respect to any Mortgage Loan
or Secured Equipment Lease which gives rise to a significant amount of insurance
proceeds or similar awards, but (ii) not including 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 180 days thereafter.
Secured Equipment Leases. The Equipment financing made available by the
Company to operators of Health Care Facilities pursuant to which the Company
will finance, through loans or direct financing leases, the Equipment.
Secured Equipment Lease Servicing Fee. 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. Any Equity Shares, Excess Shares, as such term is defined
in the Company's Articles of Incorporation, 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.
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Shares. The up to 15,500,000 shares of the common stock of the Company to
be sold in the Offering.
Soliciting Dealers. Broker-dealers who are members of the National
Association of Securities Dealers, Inc., or that are exempt from broker-dealer
registration, and who, in either case, have executed participating broker or
other agreements with the Managing Dealer to sell Shares.
Sponsor. 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 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.
Stockholders. The registered holders of the Company's Equity Shares.
Stockholders' 8% Return. As of each date, an aggregate amount equal to
an 8% cumulative, noncompounded, annual return on Invested Capital.
Subordinated Disposition Fee. The Subordinated Disposition Fee as defined
in Paragraph 9(c).
Subordinated Incentive Fee. The fee payable to the Advisor under certain
circumstances if the Shares are listed on a national securities exchange or
over-the-counter market.
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Termination Date. The date of termination of the Agreement.
Total Proceeds. The Gross Proceeds plus loan proceeds from Permanent
Financing and amounts outstanding on the Line of Credit, if any, at the time of
Listing, but excluding loan proceeds used to finance Secured Equipment Leases.
Total Property Cost. With regard to any Company Property, an amount
equal to the sum of the Real Estate Asset Value of such Property plus the
Acquisition Fees paid in connection with such Property.
2%/25% Guidelines. The requirement pursuant to the guidelines of the
North American Securities Administrators Association, Inc. that, in any 12 month
period, total Operating Expenses not exceed the greater of 2% of the Company's
Average Invested Assets during such 12 month period or 25% of the Company's Net
Income over the same 12 month period.
Valuation. An estimate of value of the assets of the Company as determined
by an Independent Expert.
(2) Appointment. The Company hereby appoints the Advisor to serve as
its advisor on the terms and conditions set forth in this Agreement, and the
Advisor hereby accepts such appointment.
(3) Duties of the Advisor. The Advisor undertakes to use its best
efforts to present to the Company potential investment opportunities and to
provide a continuing and suitable investment program consistent with the
investment objectives and policies of the Company as determined and adopted from
time to time by the Directors. In performance of this undertaking, subject to
the supervision of the Directors and consistent with the provisions of the
Registration Statement, Articles of Incorporation and Bylaws of the Company, the
Advisor shall, either directly or by engaging an Affiliate:
(a) serve as the Company's investment and financial
advisor and provide research and economic and
statistical data in connection with the Company's
assets and investment policies;
(b) provide the daily management of the Company and
perform and supervise the various administrative
functions reasonably necessary for the management of
the Company;
(c) investigate, select, and, on behalf of the Company,
engage and conduct business with such Persons as the
Advisor deems necessary to the proper performance of
its obligations hereunder, including but not limited
to consultants, accountants, correspondents, lenders,
technical advisors, attorneys, brokers, underwriters,
corporate fiduciaries, escrow agents, depositaries,
custodians, agents for collection, insurers,
insurance agents,
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banks, builders, developers, property owners,
mortgagors, and any and all agents for any of the
foregoing, including Affiliates of the Advisor, and
Persons acting in any other capacity deemed by the
Advisor necessary or desirable for the performance of
any of the foregoing services, including but not
limited to entering into contracts in the name of the
Company with any of the foregoing;
(d) consult with the officers and Directors of the
Company and assist the Directors in the formulation
and implementation of the Company's financial
policies, and, as necessary, furnish the Directors
with advice and recommendations with respect to the
making of investments consistent with the investment
objectives and policies of the Company and in
connection with any borrowings proposed to be
undertaken by the Company;
(e) subject to the provisions of Paragraphs 3(g) and 4
hereof, (i) locate, analyze and select potential
investments in Properties, Mortgage Loans and
potential lessees of Secured Equipment Leases, (ii)
structure and negotiate the terms and conditions of
transactions pursuant to which investment in
Properties and Mortgage Loans will be made and
Secured Equipment Leases will be offered by the
Company; (iii) make investments in Properties and
Mortgage Loans and enter into Secured Equipment
Leases on behalf of the Company in compliance with
the investment objectives and policies of the
Company; (iv) arrange for financing and refinancing
and make other changes in the asset or capital
structure of, and dispose of, reinvest the proceeds
from the sale of, or otherwise deal with the
investments in, Property, Mortgage Loans and Secured
Equipment Leases; and (v) enter into leases and
service contracts for Company Property and, to the
extent necessary, perform all other operational
functions for the maintenance and administration of
such Company Property;
(f) provide the Directors with periodic reports regarding
prospective investments in Properties, Mortgage Loans
and prospective lessees or borrowers of Secured
Equipment Leases;
(g) obtain the prior approval of the Directors (including
a majority of all Independent Directors) for any and
all investments in Properties, Mortgage Loans, and in
connection with the offering of Secured Equipment
Leases;
(h) negotiate on behalf of the Company with banks or
lenders for loans to be made to the Company and
negotiate on behalf of the Company with investment
banking firms and broker-dealers or negotiate private
sales of Shares and Securities or obtain loans for
the Company, but in no event in such a way so that
the Advisor shall be acting as broker-dealer or
underwriter; and provided, further, that any fees and
costs payable to third
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parties incurred by the Advisor in connection with
the foregoing shall be the responsibility of the
Company;
(i) obtain reports (which may be prepared by the Advisor
or its Affiliates), where appropriate, concerning the
value of investments or contemplated investments of
the Company in Properties, Mortgage Loans, and/or
Secured Equipment Leases;
(j) from time to time, or at any time reasonably
requested by the Directors, make reports to the
Directors of its performance of services to the
Company under this Agreement;
(k) provide the Company with all necessary cash
management services;
(l) do all things necessary to assure its ability to
render the services described in this Agreement;
(m) deliver to or maintain on behalf of the Company
copies of all appraisals obtained in connection with
the investments in Properties and Mortgage Loans;
(n) notify the Board of all proposed material
transactions before they are completed; and
(o) administer the Secured Equipment Lease program on
behalf of the Company.
(4) Authority of Advisor.
(a) Pursuant to the terms of this Agreement (including the
restrictions included in this Paragraph 4 and in Paragraph 7), and subject to
the continuing and exclusive authority of the Directors over the management of
the Company, the Directors hereby delegate to the Advisor the authority to (1)
locate, analyze and select investment opportunities, (2) structure the terms and
conditions of transactions pursuant to which investments will be made or
acquired for the Company, (3) acquire Properties, make Mortgage Loans and offer
Secured Equipment Leases in compliance with the investment objectives and
policies of the Company, (4) arrange for financing or refinancing Property,
Mortgage Loans and Secured Equipment Leases, (5) enter into leases and service
contracts for the Company's Property, and perform other property management
services, (6) oversee non-affiliated property managers and other non-affiliated
Persons who perform services for the Company; and (7) undertake accounting and
other record-keeping functions at the Property level.
(b) Notwithstanding the foregoing, any investment in
Properties or Mortgage Loans; or extension of a Secured Equipment Lease,
including any acquisition of Property by the
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Company (as well as any financing acquired by the Company in connection with
such acquisition), will require the prior approval of the Directors (including a
majority of the Independent Directors).
(c) If a transaction requires approval by the Independent
Directors, the Advisor will deliver to the Independent Directors all documents
required by them to properly evaluate the proposed investment in the Property,
Mortgage Loan or Secured Equipment Lease.
The prior approval of a majority of the Independent Directors and a
majority of the Directors not otherwise interested in the transaction will be
required for each transaction with the Advisor or its Affiliates.
The Directors may, at any time upon the giving of notice to the
Advisor, modify or revoke the authority set forth in this Paragraph 4. If and to
the extent the Directors so modify or revoke the authority contained herein, the
Advisor shall henceforth submit to the Directors for prior approval such
proposed transactions involving investments in Property as thereafter require
prior approval, provided, however, that such modification or revocation shall be
effective upon receipt by the Advisor and shall not be applicable to investment
transactions to which the Advisor has committed the Company prior to the date of
receipt by the Advisor of such notification.
(5) Bank Accounts. The Advisor may establish and maintain one or more
bank accounts in its own name for the account of the Company or in the name of
the Company and may collect and deposit into any such account or accounts, and
disburse from any such account or accounts, any money on behalf of the Company,
under such terms and conditions as the Directors may approve, provided that no
funds shall be commingled with the funds of the Advisor; and the Advisor shall
from time to time render appropriate accountings of such collections and
payments to the Directors and to the auditors of the Company.
(6) Records; Access. The Advisor shall maintain appropriate records of
all its activities hereunder and make such records available for inspection by
the Directors and by counsel, auditors and authorized agents of the Company, at
any time or from time to time during normal business hours. The Advisor shall at
all reasonable times have access to the books and records of the Company.
(7) Limitations on Activities. Anything else in this Agreement to the
contrary notwithstanding, the Advisor shall refrain from taking any action
which, in its sole judgment made in good faith, would (a) adversely affect the
status of the Company as a REIT, (b) subject the Company to regulation under the
Investment Company Act of 1940, or (c) violate any law, rule, regulation or
statement of policy of any governmental body or agency having jurisdiction over
the Company, its Equity Shares or its Securities, or otherwise not be permitted
by the Articles of Incorporation or Bylaws of the Company, except if such action
shall be ordered by the Directors, in which case the Advisor shall notify
promptly the Directors of the Advisor's judgment of the potential impact of such
action and shall refrain from taking such action until it receives further
clarification or instructions from the Directors. In such event the Advisor
shall
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<PAGE>
have no liability for acting in accordance with the specific instructions of the
Directors so given. Notwithstanding the foregoing, the Advisor, its directors,
officers, employees and stockholders, and stockholders, directors and officers
of the Advisor's Affiliates shall not be liable to the Company or to the
Directors or Stockholders for any act or omission by the Advisor, its directors,
officers or employees, or stockholders, directors or officers of the Advisor's
Affiliates except as provided in Paragraphs 19 and 20 of this Agreement.
(8) Relationship with Directors. Directors, officers and employees of
the Advisor or an Affiliate of the Advisor or any corporate parents of an
Affiliate, or directors, officers or stockholders of any director, officer or
corporate parent of an Affiliate may serve as a Director and as officers of the
Company, except that no director, officer or employee of the Advisor or its
Affiliates who also is a Director or officer of the Company shall receive any
compensation from the Company for serving as a Director or officer other than
reasonable reimbursement for travel and related expenses incurred in attending
meetings of the Directors.
(9) Fees.
(a) Asset Management Fee. The Company shall pay to the Advisor
as compensation for the advisory services rendered to the Company under
Paragraph 3 above a monthly fee in an amount equal to one-twelfth of .60% of the
Company's Real Estate Asset Value and the outstanding principal amount of the
Mortgage Loans (the "Asset Management Fee"), 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 Expenses. The Asset
Management Fee shall be payable monthly on the last day of such month, or the
first business day following the last day of such month. 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.
(b) Acquisition Fees. 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 arm's-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 total of all Acquisition Fees and any Acquisition Expenses
shall be limited in accordance with the Articles of Incorporation.
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<PAGE>
(c) Subordinated Disposition Fee. If the Advisor or an
Affiliate provides a substantial amount of the services (as determined by a
majority of the Independent Directors) in connection with the Sale of one or
more Properties, the Advisor or an Affiliate shall receive a Subordinated
Disposition Fee equal to the lesser of (i) one-half of a Competitive Real Estate
Commission or (ii) 3% of the sales price of such Property or Properties. The
Subordinated Disposition Fee will be paid only if Stockholders have received
total Distributions in an amount equal to the sum of their aggregate Invested
Capital and their aggregate Stockholders' 8% Return. To the extent that
Subordinated Disposition Fees are not paid by the Company on a current basis due
to the foregoing limitation, the unpaid fees will be accrued and paid at such
time as the subordination conditions have been satisfied. The Subordinated
Disposition Fee may be paid in addition to real estate commissions paid to
non-Affiliates, provided that the total real estate commissions paid to all
Persons by the Company shall not exceed an amount equal to the lesser of (i) 6%
of the Contract Sales Price of a Property or (ii) the Competitive Real Estate
Commission. In the event this Agreement is terminated prior to such time as the
Stockholders have received total Distributions in an amount equal to 100% of
Invested Capital plus an amount sufficient to pay the Stockholders' 8% Return
through the Termination Date, an appraisal of the Properties then owned by the
Company shall be made and the Subordinated Disposition Fee on Properties
previously sold will be deemed earned if the Appraised Value of the Properties
then owned by the Company plus total Distributions received prior to the
Termination Date equals 100% of Invested Capital plus an amount sufficient to
pay the Stockholders' 8% Return through the Termination Date. Upon Listing, if
the Advisor has accrued but not been paid such Subordinated 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.
(d) Subordinated Share of Net Sales Proceeds. The Subordinated Share of
Net Sales Proceeds shall be payable to the Advisor in an amount equal to 10% of
Net Sales Proceeds from Sales of assets of the Company payable after the
Stockholders have received Distributions equal to the sum of the Stockholders'
8% Return and 100% of Invested Capital. Following Listing, no Subordinated Share
of Net Sales Proceeds will be paid to the Advisor.
(e) Subordinated Incentive Fee. Upon Listing, the Advisor shall be paid
the Subordinated Incentive Fee in an amount equal to 10% of the amount by which
(i) the market value of the Company, measured by taking the average closing
price or average of bid and asked price, as the case may be, over a period of 30
days during which the Shares are traded, with such period beginning 180 days
after Listing (the "Market Value"), plus the total Distributions paid to
Stockholders from the Company's inception until the date of Listing, exceeds
(ii) the sum of (A) 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. The
Company shall have the option to pay such fee in the form of cash, Securities, a
promissory note or any combination of the foregoing. The Subordinated
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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.
(f) Secured Equipment Lease Servicing Fee. The Company shall pay to the
Advisor out of the Proceeds of the Line of Credit or Permanent Financing as
compensation for negotiating its respective Secured Equipment Leases and
supervising the Secured Equipment Lease program a fee equal to 2% of the
purchase price of the Equipment subject to each Secured Equipment Lease upon
entering into such lease or loan.
(g) Loans from Affiliates. If any loans are made to the Company by an
Affiliate of the Advisor, the maximum amount of interest that may be charged by
such Affiliate shall be the lesser of (i) 1% above the prime rate of interest
charged from time to time by The Bank of New York and (ii) the rate that would
be charged to the Company by unrelated lending institutions on comparable loans
for the same purpose. The terms of any such loans shall be no less favorable
than the terms available between non-Affiliated Persons for similar commercial
loans.
(h) Changes to Fee Structure. In the event of Listing, the Company and
the Advisor shall negotiate in good faith to establish a fee structure
appropriate for a perpetual-life entity. A majority of the Independent Directors
must approve the new fee structure negotiated with the Advisor. In negotiating a
new fee structure, the Independent Directors shall consider all of the factors
they deem relevant, including, but not 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
performing 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 REIT or by others
with whom the REIT does business; (v) the quality and extent of service and
advice furnished by the Advisor; (vi) the performance of the investment
portfolio of the REIT, including income, conversion or appreciation of capital,
and number and frequency of problem investments; and (vii) the quality of the
Property, Mortgage Loan and Secured Equipment Lease portfolio of the Company in
relationship to the investments generated by the Advisor for its own account.
The new fee structure can be no more favorable to the Advisor than the current
fee structure.
(10) Expenses.
(a) In addition to the compensation paid to the Advisor
pursuant to Paragraph 9 hereof, the Company shall pay directly or reimburse the
Advisor for all of the expenses paid or incurred by the Advisor in connection
with the services it provides to the Company pursuant to this Agreement,
including, but not limited to:
(i) the Company's Organizational and Offering Expenses;
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(ii) Acquisition Expenses incurred in connection with the selection and
acquisition of Properties for goods and services provided by the Advisor at 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;
(iii) the actual cost of goods and services used by the Company and
obtained from entities not affiliated with the Advisor, other than Acquisition
Expenses, including brokerage fees paid in connection with the purchase and sale
of securities;
(iv) interest and other costs for borrowed money,
including discounts,
points and other similar fees;
(v) taxes and assessments on income or Property and taxes as an expense of
doing business;
(vi) costs associated with insurance required in connection with the
business of the Company or by the Directors;
(vii) expenses of managing and operating Properties owned by the Company,
whether payable to an Affiliate of the Company or a non-affiliated Person;
(viii) all expenses in connection with payments to the Directors and
meetings of the Directors and Stockholders;
(ix) expenses associated with Listing or with the issuance and distribution
of Shares and Securities, such as selling commissions and fees, advertising
expenses, taxes, legal and accounting fees, Listing and registration fees, and
other Organization and Offering Expenses;
(x) expenses connected with payments of Distributions in cash or otherwise
made or caused to be made by the Directors to the Stockholders;
(xi) expenses of organizing, revising, amending, converting, modifying, or
terminating the Company or the Articles of Incorporation;
(xii) expenses of maintaining communications with Stockholders, including
the cost of preparation, printing, and mailing annual reports and other
Stockholder reports, proxy statements and other reports required by governmental
entities;
(xiii) expenses related to negotiating and servicing Mortgage Loans and
Secured Equipment Leases;
(xiv) expenses related to negotiating and servicing Secured Equipment
Leases and administering the Secured Equipment Lease program;
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(xv) administrative service expenses (including personnel costs; provided,
however, that no reimbursement shall be made for costs of personnel to the
extent that such personnel perform services in transactions for which the
Advisor receives a separate fee at the lesser of actual cost or 90% of the
competitive rate charged by unaffiliated persons providing similar goods and
services in the same geographic location); and
(xvi) audit, accounting and legal fees.
(b) Expenses incurred by the Advisor on behalf of the Company and
payable pursuant to this Paragraph 10 shall be reimbursed no less than monthly
to the Advisor. The Advisor shall prepare a statement documenting the expenses
of the Company during each quarter, and shall deliver such statement to the
Company within 45 days after the end of each quarter.
(11) Other Services. Should the Directors request that the Advisor or
any director, officer or employee thereof render services for the Company other
than set forth in Paragraph 3, such services shall be separately compensated at
such rates and in such amounts as are agreed by the Advisor and the Independent
Directors of the Company, subject to the limitations contained in the Articles
of Incorporation, and shall not be deemed to be services pursuant to the terms
of this Agreement.
(12) Reimbursement to the Advisor. 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. The Company will not reimburse the Advisor or its Affiliates
for services for which the Advisor or its Affiliates are entitled to
compensation in the form of a separate fee. All figures used in the foregoing
computation shall be determined in accordance with generally accepted accounting
principles applied on a consistent basis.
(13) Other Activities of the Advisor. Nothing herein contained shall
prevent the Advisor from engaging in other activities, including, without
limitation, the rendering of advice to other Persons (including other REITs) and
the management of other programs advised, sponsored or organized by the Advisor
or its Affiliates; nor shall this Agreement limit or restrict the right of any
director, officer, employee, or stockholder of the Advisor or its Affiliates to
engage in any other business or to render services of any kind to any other
partnership, corporation, firm, individual, trust or association. The Advisor
may, with respect to any investment in which the Company is a participant, also
render advice and service to each and every other participant therein. The
Advisor shall report to the Directors the existence of any condition or
circumstance, existing or anticipated, of which it has knowledge, which creates
or could create a conflict of interest between the Advisor's obligations to the
Company and its obligations to or its interest in any other partnership,
corporation, firm, individual, trust or
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association. The Advisor or its Affiliates shall promptly disclose to the
Directors knowledge of such condition or circumstance. If the Sponsor, Advisor,
Director or Affiliates thereof have sponsored other investment programs with
similar investment objectives which have investment funds available at the same
time as the Company, it shall be the duty of the Directors (including the
Independent Directors) to adopt the method set forth in the Registration
Statement or another reasonable method by which properties are to be allocated
to the competing investment entities and to use their best efforts to apply such
method fairly to the Company.
The Advisor shall be required to use its best efforts to present a
continuing and suitable investment program to the Company which is consistent
with the investment policies and objectives of the Company, but neither the
Advisor nor any Affiliate of the Advisor shall be obligated generally to present
any particular investment opportunity to the Company even if the opportunity is
of character which, if presented to the Company, could be taken by the Company.
The Advisor or its Affiliates may make such an investment in a property only
after (i) such investment has been offered to the Company and all public
partnerships and other investment entities affiliated with the Company with
funds available for such investment and (ii) such investment is found to be
unsuitable for investment by the Company, such partnerships and investment
entities.
In the event that the Advisor or its Affiliates is presented with a
potential investment which might be made by the Company and by another
investment entity which the Advisor or its Affiliates advises or manages, the
Advisor and its Affiliates shall consider the investment portfolio of each
entity, cash flow of each entity, the effect of the acquisition on the
diversification of each entity's portfolio, rental payments during any renewal
period, the estimated income tax effects of the purchase on each entity, the
policies of each entity relating to leverage, the funds of each entity available
for investment and the length of time such funds have been available for
investment. In the event that an investment opportunity becomes available which
is suitable for both the Company and a public or private entity which the
Advisor or its Affiliates are Affiliated, then the entity which has had the
longest period of time elapse since it was offered an investment opportunity
will first be offered the investment opportunity.
(14) Relationship of Advisor and Company. The Company and the Advisor
are not partners or joint venturers with each other, and nothing in this
Agreement shall be construed to make them such partners or joint venturers or
impose any liability as such on either of them.
(15) Term; Termination of Agreement. This Agreement shall continue in
force until ________ __, 1999, subject to an unlimited number of successive
one-year renewals upon mutual consent of the parties. It is the duty of the
Directors to evaluate the performance of the Advisor annually before renewing
the Agreement, and each such agreement shall have a term of no more than one
year.
(16) Termination by Either Party. This Agreement may be terminated upon
60 days written notice without Cause or penalty, by either party (by a majority
of the Independent
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Directors of the Company or a majority of the Board of Directors of the Advisor,
as the case may be).
(17) Assignment to an Affiliate. This Agreement may be assigned by the
Advisor to an Affiliate with the approval of a majority of the Directors
(including a majority of the Independent Directors). The Advisor may assign any
rights to receive fees or other payments under this Agreement without obtaining
the approval of the Directors. This Agreement shall not be assigned by the
Company without the consent of the Advisor, except in the case of an assignment
by the Company to a corporation or other organization which is a successor to
all of the assets, rights and obligations of the Company, in which case such
successor organization shall be bound hereunder and by the terms of said
assignment in the same manner as the Company is bound by this Agreement.
(18) Payments to and Duties of Advisor Upon Termination. Payments to
the Advisor pursuant to this Section (18) shall be subject to the 2%/25%
Guidelines to the extent applicable.
(a) After the Termination Date, the Advisor shall not be
entitled to compensation for further services hereunder except it shall be
entitled to receive from the Company within 30 days after the effective date of
such termination all unpaid reimbursements of expenses and all earned but unpaid
fees payable to the Advisor prior to termination of this Agreement.
(b) Upon termination, the Advisor shall be entitled to payment
of the Performance Fee if performance standards satisfactory to a majority of
the Board of Directors, including a majority of the Independent Directors, when
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 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 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.
(c) The Performance Fee shall be paid in 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
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the Advisor only for that portion of the holding period for the respective
assets during which the Advisor provided services to the Company.
(d) If Listing occurs, 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
this Agreement is terminated because of failure of the Company and the Advisor
to establish, pursuant to Paragraph 9(h) hereof, a fee structure appropriate for
a perpetual-life entity at such time, if any, as Listing occurs.
(e) The Advisor shall promptly upon termination:
(i) pay over to the Company all money collected and held for the account of
the Company pursuant to this Agreement, after deducting any accrued compensation
and reimbursement for its expenses to which it is then entitled;
(ii) deliver to the Directors a full accounting, including a statement
showing all payments collected by it and a statement of all money held by it,
covering the period following the date of the last accounting furnished to the
Directors;
(iii) deliver to the Directors all assets, including Properties, Mortgage
Loans, and Secured Equipment Leases, and documents of the Company then in the
custody of the Advisor; and
(iv) cooperate with the Company to provide an orderly management
transition.
(19) Indemnification by the Company. The Company shall indemnify and
hold harmless the Advisor and its Affiliates, including their respective
officers, directors, partners and employees, from all liability, claims, damages
or losses arising in the performance of their duties hereunder, and related
expenses, including reasonable attorneys' fees, to the extent such liability,
claims, damages or losses and related expenses are not fully reimbursed by
insurance, subject to any limitations imposed by the laws of the State of
Maryland or the Articles of Incorporation of the Company. Notwithstanding the
foregoing, the Advisor shall not be entitled to indemnification or be held
harmless pursuant to this paragraph 19 for any activity for which the Advisor
shall be required to indemnify or hold harmless the Company pursuant to
paragraph 20. Any indemnification of the Advisor may be made only out of the net
assets of the Company and not from Stockholders.
(20) Indemnification by Advisor. The Advisor shall indemnify and hold
harmless the Company from contract or other liability, claims, damages, taxes or
losses and related expenses including attorneys' fees, to the extent that such
liability, claims, damages, taxes or losses and related expenses are not fully
reimbursed by insurance and are incurred by reason of the Advisor's bad faith,
fraud, willful misfeasance, misconduct, negligence or reckless disregard of
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its duties, but the Advisor shall not be held responsible for any action of the
Board of Directors in following or declining to follow any advice or
recommendation given by the Advisor.
(21) Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report or other communication is required by the Articles of
Incorporation, the Bylaws, or accepted by the party to whom it is given, and
shall be given by being delivered by hand or by overnight mail or other
overnight delivery service to the addresses set forth herein:
To the Directors and to the Company: CNL Health Care Properties, Inc.
400 East South Street
Orlando, Florida 32801
To the Advisor: CNL Health Care Advisors, Inc.
400 East South Street
Orlando, Florida 32801
Either party may at any time give notice in writing to the other party of a
change in its address for the purposes of this Paragraph 21.
(22) Modification. This Agreement shall not be changed, modified,
terminated, or discharged, in whole or in part, except by an instrument in
writing signed by both parties hereto, or their respective successors or
assignees.
(23) Severability. The provisions of this Agreement are independent of
and severable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.
(24) Construction. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of Florida.
(25) Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
(26) Indulgences, Not Waivers. Neither the failure nor any delay on the
part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or
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<PAGE>
privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.
(27) Gender. Words used herein regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
(28) Titles Not to Affect Interpretation. The titles of paragraphs and
subparagraphs contained in this Agreement are for convenience only, and they
neither form a part of this Agreement nor are they to be used in the
construction or interpretation hereof.
(29) Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
(30) Name. CNL Health Care Advisors, Inc. has a proprietary interest in
the name "CNL." Accordingly, and in recognition of this right, if at any time
the Company ceases to retain CNL Health Care Advisors, Inc. or an Affiliate
thereof to perform the services of Advisor, the Directors of the Company will,
promptly after receipt of written request from CNL Health Care Advisors, Inc.,
cease to conduct business under or use the name "CNL" or any diminutive thereof
and the Company shall use its best efforts to change the name of the Company to
a name that does not contain the name "CNL" or any other word or words that
might, in the sole discretion of the Advisor, be susceptible of indication of
some form of relationship between the Company and the Advisor or any Affiliate
thereof. Consistent with the foregoing, it is specifically recognized that the
Advisor or one or more of its Affiliates has in the past and may in the future
organize, sponsor or otherwise permit to exist other investment vehicles
(including vehicles for investment in real estate) and financial and service
organizations having "CNL" as a part of their name, all without the need for any
consent (and without the right to object thereto) by the Company or its
Directors.
(31) Initial Investment. The Advisor has contributed to the Company
$200,000 in exchange for 20,000 Equity Shares (the "Initial Investment"). The
Advisor or its Affiliates may not sell any of the Equity Shares purchased with
the Initial Investment for a period of one year following completion of the
Offering and may only sell Equity Shares representing the Initial Investment
through the market on which the Equity Shares are normally traded. The
restrictions included above shall not apply to any Equity Shares, other than the
Equity Shares acquired through the Initial Investment, acquired by the Advisor
or its Affiliates. The Advisor shall not vote any Equity Shares it now owns, or
hereafter acquires, in any vote for the removal of Directors or any vote
regarding the approval or termination of any contract with the Advisor or any of
its Affiliates.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
CNL HEALTH CARE PROPERTIES, INC.
By:_______________________________
Name:
Its:
CNL HEALTH CARE ADVISORS, INC.
By:______________________________
Name:
Its:
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Exhibit 10.3
Joint Venture Agreement
<PAGE>
JOINT VENTURE AGREEMENT
(For Joint Ventures With
Affiliated Programs)
THIS AGREEMENT made this day of , 19 , by and between CNL
________________, hereinafter sometimes referred to as "Co-Venturer", and CNL
HEALTH CARE PROPERTIES, INC., a Maryland corporation, hereinafter sometimes
referred to as "CNL"; both Co-Venturer and CNL, being hereinafter sometimes
referred to as "Partner", are undertaking this joint venture (the "Joint
Venture" or the "Venture") with reference to the following:
A. The Joint Venture will acquire that certain real property (the "Real
Property") located in , County, , described on Exhibit "A" attached hereto and
incorporated herein by reference. The Real Property shall be acquired in
accordance with the terms and conditions of that certain Real Estate Sale and
Leaseback Contract (the "Leaseback Contract") attached hereto as Exhibit "B".
B. Co-Venturer and CNL believe that the Real Property can be profitably
owned, held, leased, used, sold and otherwise dealt with and that it would be to
the mutual advantage of the Partners to form the Joint Venture for such
purposes.
C. It is further intended by the Partners hereto that the Joint Venture
created by this Agreement shall constitute for federal income tax purposes a
Partnership (as such term is defined under Sub-Chapter K of the Internal Revenue
Code of 1986, as amended).
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements hereinafter contained, the Partners do hereby agree and
covenant with each other as follows:
ARTICLE I
BASIC STRUCTURE
1.1 Form. The Partners hereby agree to associate themselves together as
a Partnership and do hereby form a Partnership pursuant to the provisions of the
Revised Uniform Partnership Act of the State of Florida upon the terms and
conditions herein set forth.
1.2 Name. The business of the Joint Venture shall be conducted under the
name of
.
1.3 Place of Business. The principal office and place of business of
the Venture shall be located at 400 East South Street, Orlando, Florida 32801.
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1.4 Term. The Venture shall commence on the execution of this Agreement
and shall continue for twenty (20) years and thereafter from year to year unless
either Partner shall elect to terminate the Venture by six (6) months prior
written notice to the other Partner, unless earlier terminated in the following
manner:
(a) By the completion of the Venture's purposes, or
(b) Pursuant to this Agreement, or
(c) By applicable law.
1.5 Purpose. The purpose for which the Venture is organized is to own
the Real Property and to lease the same to pursuant to the Lease attached to the
Leaseback Contract, or in the event of termination thereof, to lease the Real
Property to any other appropriate tenant and to otherwise manage, improve,
repair, rent, lease, assign, mortgage, hypothecate, sell or otherwise deal with
the Real Property, its appurtenances, improvements and fixtures.
1.6 Investment Representations of Partners. Each Partner represents and
warrants that it is acquiring its interest in this Venture for its own account,
for investment and not with a view to the sale, disposition or distribution
thereof. The interests of the Partners represented by this Agreement have not
been registered or qualified under the Securities Act of 1933, as amended, and
may not be sold, assigned, pledged or transferred where permitted by this
Agreement, without an effective registration under said Act, or delivery to the
other Partner of an opinion of counsel acceptable to the other Partner and the
Joint Venture that an exemption from registration under said Act is available.
ARTICLE II
FINANCIAL ARRANGEMENTS
2.1 Capital Contributions. Each of the Partners has contributed capital
(the "Capital Contribution") to the Joint Venture as follows:
Co-Venturer
CNL
2.2 Percentage Interests. Each Partner's undivided percentage interest
in the Venture (individually, "Percentage Interest" and jointly "Percentage
Interests") shall be equal to the ratio that its Capital Contribution bears to
the aggregate Capital Contributions of all Partners in the Joint Venture.
2.3 Capital Accounts. As used herein, the term "Capital Account" shall mean
the book account which shall be maintained and determined for each Partner in a
manner which
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complies with Treasury Regulation Section 1.704-1(b)(2)(iv), as amended. Each
Partner's Capital Account shall reflect, among other items, (i) all
contributions made by such Partner to the Joint Venture, (ii) all allocations of
Joint Venture profits and losses to such Partner, and (iii) all distributions
made to such Partner. No Partner shall have the right to withdraw capital from
the Joint Venture without the prior written consent of the other Partners.
2.4 Allocation of Profits, Losses and Distributions.
(a) Net Operating Profits and Losses. The net operating
profits and losses of the Joint Venture shall be determined as of the end of
each fiscal year and shall be allocated to Co-Venturer and CNL in accordance
with their respective Percentage Interests. The "net operating profits and
losses" of the Joint Venture to be allocated pursuant to this Article 2.4(a) for
any fiscal year or other period shall mean (i) the gross operating income of the
Joint Venture from all sources, excluding all gains and losses recognized by the
Joint Venture with respect to a sale, exchange or other disposition of all or a
substantial part of the Joint Venture's property, as calculated for federal
income tax purposes, plus (ii) any income of the Joint Venture that is exempt
from federal income tax and not otherwise taken into account in computing gross
income for federal income tax purposes, and reduced by (a) all items of expense
or deduction that are allowable as deductions to the Joint Venture for such
period for federal income tax purposes, including, without limitation,
depreciation and amortization, (b) any expenditures of the Joint Venture
described in Section 705(a)(2)(B) of the Internal Revenue Code of 1986, as
amended, or treated as expenditures described in such section pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing taxable income, and (c) any income, gain or loss specially
allocated to any Partner under Articles 2.4(d) or (e) below.
(b) Non-operating Profits. Subject to Articles 2.4(d) and (e),
taxable gain recognized by the Joint Venture with respect to a sale, exchange or
other disposition of all or a substantial part of the Joint Venture's property
(as determined for federal income tax purposes in accordance with the Joint
Venture's accounting method and Section 703 of the Internal Revenue Code of
1986, as amended) shall be allocated as follows:
(i) First to the Partners having negative balances in
their Capital Accounts, in the proportion that the negative balance in
each such Partner's Capital Account bears to the aggregate negative
balances in the Capital Accounts of all such Partners, until the
balances in their Capital Accounts are increased to zero; and
(ii) The balance, if any, shall be allocated to
Co-Venturer and CNL in accordance with their respective Percentage
Interests.
(c) Non-operating Losses. Subject to Articles 2.4(d) and (e),
taxable loss recognized by the Joint Venture with respect to a sale, exchange or
other disposition of all or a substantial part of the Joint Venture's property
(as determined for federal income tax purposes in accordance with the Joint
Venture's accounting method and Section 703 of the Internal Revenue Code of
1986, as amended) shall be allocated as follows:
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(i) First to the Partners with positive balances in
their Capital Accounts, in the proportion that the positive
balance in each such Partner's Capital Account bears to the
aggregate positive balances in the Capital Accounts of all
such Partners, until the balances in their Capital Accounts
are reduced to zero; and
(ii) The balance, if any, shall be allocated to
Co-Venturer and CNL in accordance with their respective
Percentage Interest.
(d) General Provisions. Whenever a proportionate part of the
Joint Venture profits, gains or losses is credited or charged to a Partner's
Capital Account, every item of income, gain, loss, deduction or credit entering
into the computation of such profit, gain or loss, as applicable to the period
during which such profit, gain or loss is realized, shall be considered credited
or charged, as the case may be, to such account in the same proportion. For
purposes of allocating gains or losses arising from a sale, exchange or other
disposition of all or a substantial part of the Joint Venture's property, the
Capital Accounts of the Partners shall be determined as if the Joint Venture's
taxable year had ended immediately prior to the sale or other disposition giving
rise to such gains or losses. Notwithstanding anything contained in this
Agreement to the contrary, income, gain, loss and deduction with respect to
property contributed to the Joint Venture by any partner shall be shared between
the Partners so as to take into account the variation between the basis of such
property and its fair market value at the time of contribution in accordance
with Section 704(c) of the Internal Revenue Code of 1986, as amended. As between
a Partner and its transferee, net operating profits and losses for any fiscal
year (or portion thereof, as the case may be), shall be apportioned between the
transferor and transferee in accordance with the ratio that the number of days
in the Joint Venture's fiscal year prior to the effective date of transfer bears
to the number of such days thereafter (including the effective date of
transfer).
(e) Depreciation Recapture. Any depreciation recapture under
Sections 1245 or 1250 of the Internal Revenue Code of 1986, as amended, shall be
allocated to the Partners in the proportions in which the original depreciation
deductions being recaptured were allocated to them.
(f) Distributions of Net Cash Flow. "Net Cash Flow" shall mean
all cash receipts of the Joint Venture (other than Capital Contributions and
proceeds from a sale, exchange or other disposition of all or a substantial part
of the Joint Venture's property in connection with, or which results in, the
liquidation of the Joint Venture pursuant to Article VI below), plus any amounts
which the Partners, in their sole discretion, agree shall be released from
reserves or otherwise made available for distribution, and less all expenses and
current obligations of the Joint Venture (including payments of principal and
interest on any loans, including loans from Partners) and amounts which the
Partners, in their sole discretion, agree shall be added to Joint Venture
reserves. Subject to Article 2.4(g) below, distributions of Net Cash Flow shall
be made from time to time in the discretion of the Partners, but at least
monthly, to CNL and Co-Venturer in accordance with their respective Percentage
Interests.
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(g) Limitations on Cash Distributions. Any distributions of
Net Cash Flow shall be subject to the following limitations, restrictions and
conditions:
(i) At the time of any distribution the Joint Venture
must have available to it cash funds sufficient for such
distribution after taking into account the amounts which the
Partners agree should be set aside to provide a reasonable
reserve for expenses of conducting the business of the Joint
Venture; and
(ii) No distribution shall be made by the Joint
Venture if, immediately after such distribution, the Joint
Venture's assets do not exceed all of its liabilities,
exclusive of liabilities to the Partners on account of their
Capital Contributions.
ARTICLE III
MANAGEMENT AND DUTIES OF PARTNERS
3.1 Rights, Power and Restrictions of Payments. Except as expressly
provided to the contrary in this Article 3.1, no Partner, without the consent of
all the other Partners, shall:
(a) Do any act which would make it impossible to carry on the ordinary
business of the Venture;
(b) Confess judgment against the Venture;
(c) Possess Venture property, or assign its interest or rights
in specific Venture property, for other than a Venture purpose;
(d) Borrow any funds or incur any liability on behalf of the Venture;
(e) Encumber any Venture property, including, without limitation, the Real
Property;
(f) Sell or lease any Venture property; and
(g) Lend any money on behalf of the Venture.
3.2 Day to Day Management. Because the Real Property will be net
leased, it is not anticipated that substantial management responsibilities on
the part of the Venture will exist. However, the Partners agree that CNL,
through its designee, CNL Health Care Advisors, Inc., 400 East South Street,
Orlando, Florida 32801, shall receive the monthly rental payments from the
tenant and place such payments into a new bank account established in the name
of the Joint Venture. From such account, distributions shall be made pursuant to
Article 2.4(f) hereof. No fees or other charges shall be made by CNL for these
administrative duties except actual out-of-pocket costs for establishing the
bank account and acquisition of checks therefor, service charges and other
charges of like nature.
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In addition, CNL shall be responsible for maintaining landlord/tenant
relationships with tenant and for monitoring gross revenues of the tenant and
such other analysis as shall be necessary to determine whether additional rental
is due from tenant, and for performing or supervising all functions incident to
the day-to-day management of the Real Property.
No charges shall be made by CNL for such services rendered to the Joint
Venture. However, the Joint Venture shall reimburse CNL for its actual
out-of-pocket costs incurred which relate to the management of the Real
Property, and such costs shall be a Venture expense.
3.3 Joint Venture Real Property. The Real Property of the Joint Venture
shall be held in the name of the Joint Venture for the sole exclusive benefit of
the Joint Venture. Any and all leases and amendments thereto, sales tax
application forms, tangible personal property tax returns, Joint Venture income
tax returns or other documents requiring the signature of the Joint Venture
shall be signed by CNL on behalf of the Joint Venture. Additionally, any deed or
other document required to be signed by the Joint Venture with respect to the
sale, lease or mortgaging of the property (only as permitted hereunder) may be
executed in the name of the Joint Venture by CNL, acting by itself and without
the joinder of Co-Venturer or, alternatively, by all Partners.
ARTICLE IV
ACCOUNTING; BANK ACCOUNTS
4.1 Books and Records. At all times during the term hereof, the Venture
shall maintain, at a place mutually agreed by the Partners, accurate books and
records of account in which shall be entered all matters relating to the
Venture, including all income, expenditures, assets and liabilities thereof.
Such books of account shall be maintained on the accrual basis (unless otherwise
agreed by the Partners) and shall be adequate to provide either Partner with all
financial information as may be needed by any Partner or any affiliate of such
Partner for the purpose of satisfying the financial reporting obligations of
such Partner or its respective affiliate or affiliates.
Each Partner shall be entitled to any additional information necessary
for the Partner to adjust his financial basis statement to a tax basis as the
Partner's individual needs may dictate.
Each Partner, its authorized representatives, and any supervisory or
regulatory authority (through its appropriate representatives) shall have the
right to inspect, examine and copy the books, records, files and other documents
of the Venture at all reasonable times at the expense of the party requiring
such information.
4.2 Fiscal Year. The fiscal year of the Venture shall end on December 31 of
each year.
4.3 Bank Accounts. Funds of the Venture shall be deposited in an
account in the name of the Venture in a bank approved by the Partners. Subject
to the provisions of Article 3.2, withdrawals from such bank account shall be
made upon the signature of any of the persons designated by the Joint Venture
upon the opening of the account.
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4.4 Tax Returns. Tax returns of the Venture shall be prepared by the
certified public accounting firm selected and approved by the Partners. Copies
of tax returns of the Venture shall be furnished for review and approval by each
of the Partners at least thirty (30) days prior to the statutory date for
filing, including extensions thereof, if any. Prompt notice shall be given to
all Partners upon receipt of advice that the Internal Revenue Service intends to
examine the Venture income tax return for any year.
ARTICLE V
VOLUNTARY WITHDRAWAL, ASSIGNMENT OR SALE OF
PARTNERSHIP INTERESTS
5.1 Right to Withdraw. Except as otherwise provided in Articles 5.2 and
5.3 hereof, either Partner shall have the limited right to withdraw from the
Joint Venture and sell its interest in the Venture to the remaining Partner only
upon such terms and conditions as may be agreed upon in writing by the Partners.
5.2 Bona Fide Third Party Offer. In the event one Partner desires to
withdraw from the Venture but no agreement can be reached between the Partners
as to the terms and conditions of sale for such Partner's interest within ten
(10) days from such time as the Partner desiring to withdraw from the Venture
notifies in writing the remaining Partner of its desire to withdraw and sell its
interest in the Venture, then the Partner desiring to withdraw from the Venture
shall be entitled to solicit and obtain a bona fide offer from an unrelated
third party to purchase its entire interest in the Venture. In such event, the
following provisions shall apply:
(a) If the Partner desiring to withdraw has obtained a bona
fide offer to purchase its interest in the Venture from an unrelated third
party, and if it desires to accept such offer, then that Partner shall cause
such offer to be reduced to writing and delivered to the remaining Partner.
(b) The remaining Partner then, within sixty (60) days after
delivery of such bona fide offer to the remaining Partner, may elect to purchase
the Venture interest of the Partner desiring to withdraw from the Venture at the
price and on the terms set forth in such offer. In the event the remaining
Partner shall fail to timely exercise its option described in the immediately
preceding sentence, then the Partner desiring to dispose of its interest in the
Venture may transfer its interest to the person or persons who made the bona
fide third party offer, provided that such sale is made strictly in accordance
with the terms set forth in such offer and the person or persons or entity so
acquiring such interest shall hold such interest subject to all the terms and
conditions of this Agreement.
(c) In the event of a sale of a Partner's Venture interest to
a third party in accordance with this Article V, a duly executed and
acknowledged instrument of assignment shall be filed with the Joint Venture.
Further, the selling Partner and assignee shall execute and acknowledge such
other instrument or instruments as the other Partner shall deem reasonably
necessary or desirable to effectuate such sale and the admission of the assignee
of the interest to
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the Joint Venture, including the written acceptance and adoption by the assignee
of all of the terms and conditions of this Agreement as the same may have been
theretofore amended. Further, such assignee shall pay to the Joint Venture all
reasonable expenses incurred by the Venture and the other Partner in connection
with such assignment and substitution. Finally, in the event of such a sale and
substitution, the selling Partner shall pay to the Joint Venture any and all
sums owed by it to the Joint Venture.
(d) If for any reason the sale of a Partner's entire interest
in the Venture which is the subject of a bona fide third party offer is not
concluded by the Partner desiring to withdraw from the Venture and the third
party on or before the closing date which is set forth in the original bona fide
third party offer, then the provisions contained in this Article V shall be
reimposed in their entirety, and such bona fide third party offer, as well as
any other offer(s) for such Partner's entire interest in the Venture, must again
be submitted to the remaining Partner pursuant to the terms hereof.
(e) For the purpose of this Article V, a bona fide third party
offer shall not include any offer which is assignable by the prospective
purchaser.
5.3 Buy-Sell Agreement. In the event that one Partner desires to sell
the Real Property and the other Partner does not desire to sell the Real
Property, then in that event either Partner (sometimes hereinafter referred to
as the "Offering Partner") may deliver a written notice (the "Notification") to
the other Partner (sometimes hereinafter referred to as the "Non-Offering
Partner"). The Notification shall state that the Offering Partner intends to
purchase the entire Joint Venture interest of the Non-Offering Partner, the
purchase price (which shall be stated in terms of a specific dollar amount per
each one percent (1%) in Percentage Interest) which the Offering Partner will
pay for such Joint Venture interest, the terms of payment, whether for cash or
credit, and if on credit, the term, dates of payment, interest rate and security
or collateral arrangements, as well as any and all other consideration being
received or paid in connection with the proposed transaction, and any and all
other terms, conditions, and details of such offer. The Notification shall also
state that the Non-Offering Partner shall have ninety (90) days from the date of
delivery of the Notification either to sell its entire Joint Venture interest to
the Offering Partner, or to purchase the entire Joint Venture interest of the
Offering Partner, with such purchase or sale to be consummated strictly upon the
terms and conditions, and for the price per Percentage Interest, set forth in
the Notification.
5.4 No Assignment, Pledge or Encumbrance. Except as otherwise provided
in Sections 5.1, 5.2 and 5.3, no Partner shall have the right to sell, assign,
pledge, encumber or otherwise hypothecate its interest in this Joint Venture
without the prior written consent of the remaining Partner. In the event any
person or entity shall obtain a lien, charging order or similar right as a
creditor against any Partner's Venture interest, the person or entity obtaining
such status shall be in the status of a prospective purchaser of such Partner's
interest but with no right to be admitted to the Venture as a joint venturer or
Partner. In the event the Partner against whom such lien, charging order or
similar right exists shall fail to discharge (by bond, full payment or
otherwise) such lien, charging order or similar right within sixty (60) days
subsequent to its
9
<PAGE>
effective date and such Partner's knowledge thereof, the remaining Partner shall
be entitled to purchase such other Partner's Venture interest for a sum equal to
the amount of the lien, charging order or similar right. Payment of such sum to
the creditor by the remaining Partner and discharge of such lien, charging order
or similar right shall simultaneously cause a termination in full of the Venture
interest of the Partner against whom such lien, charging order or similar right
as a creditor existed.
5.5 No Partition. Each of the Partners does hereby waive any and all
rights that it may have to maintain any action for partition with respect to any
Joint Venture property or to compel any sale thereof, it being understood that
this Article 5.5 shall not act to limit the right of any Partner to sell or
convey its interest in accordance with the terms and conditions of this
Agreement.
ARTICLE VI
DISSOLUTION
6.1 Events. The Joint Venture shall be dissolved upon the occurrence of
any of the following events:
(a) The expiration of the term of the Joint Venture as set forth herein.
(b) Upon mutual written agreement of the Partners.
(c) Except as otherwise provided in this Agreement, the
adjudication of bankruptcy, insolvency or cessation of the existence as a legal
entity of any of the Partners.
(d) Issuance of a final order by a court of competent
jurisdiction ordering the dissolution of the Joint Venture after time for all
rights of appeal have elapsed or have been finally concluded upholding the
dissolution order.
(e) Sale, exchange or other disposition of all, or any
substantial part, of the Joint Venture's property.
6.2 Liquidation. Upon the dissolution of the Joint Venture, the
Partners shall cause the Joint Venture's affairs to be wound up, its receivables
collected and its assets liquidated within a reasonable period of time, a final
accounting made and the books of the Joint Venture closed, with the proceeds,
after expenses of such liquidation, to be distributed as follows:
(a) First, to the satisfaction of all debts and obligations of the Joint
Venture, other than debts and obligations to Partners;
(b) Next, to the payment of amounts owed the Partners for loans;
10
<PAGE>
(c) Next, to the setting up of any reserves which are
reasonably necessary to satisfy any contingent or unforeseen liabilities or
obligations of the Joint Venture; and
(d) After allocations of all profits, gains and losses
(including both net operating profits and losses and gains and losses arising
from the sale, exchange, or other disposition of all or any substantial part of
the Joint Venture's property) have been made pursuant to Section 2.4 hereof, any
proceeds then remaining shall be distributed to the Partners to the extent of,
and in proportion to, their respective positive Capital Account balances.
ARTICLE VII
INDEMNIFICATION
Each Partner shall indemnify and hold harmless the other Partner
against any and all claims, demands, losses, damages, liabilities, lawsuits or
other proceedings, judgments or awards, costs and expenses (including but not
limited to reasonable attorneys' fees) arising directly or indirectly by reason
of such indemnifying Partner's breach of this Agreement or acting outside the
scope of its authority hereunder.
ARTICLE VIII
GENERAL PROVISIONS; MISCELLANEOUS
8.1 Separate Businesses. Partners may engage in any other business,
investment or profession, including the investment and the ownership, financing,
development, operation and management of real property, and neither the Joint
Venture nor any other Partner shall have any rights in and to any said business,
profession or investment or the income or the profits derived therefrom by
reason of this Agreement.
8.2 Scope of Authority. Neither of the Partners shall, without the
approval of the other Partner, take any action on behalf of or in the name of
the Venture, or enter into any commitment or obligation binding upon the
Venture, except for actions expressly provided for in this Agreement or actions
authorized by the other Partner in the manner set forth herein.
8.3 Arbitration. No civil action concerning any dispute arising under
this Agreement shall be instituted before any court and all such disputes shall
be submitted to final and binding arbitration under the auspices of the American
Arbitration Association. Such arbitration shall be conducted in accordance with
the rules of such association before a single arbitrator. The Partners agree
that the interests of the Joint Venture cannot be readily sold in the open
market, and for that reason, among others, the Partners will be irreparably
damaged in the event that this Agreement is not specifically enforced.
Therefore, in addition to any award of damages, any such award shall, if the
Partner entitled to the same demands it, grant specific performance of this
Agreement. All costs and expenses of the arbitration, including actual
attorney's fees, shall be allocated among the Partners according to the
arbitrator's discretion. The arbitrator's award resulting from such arbitration
may be confirmed and entered as a final judgment in any court of competent
jurisdiction and enforced accordingly. Further, the Partners hereto expressly
agree
11
<PAGE>
that proceeding to arbitration and obtaining an award thereunder shall be a
condition precedent to the bringing or maintaining of any action in any court
with respect to any dispute arising under this Agreement, except for the
institution of a civil action to maintain the status quo during the pendency of
any arbitration proceeding.
8.4 Venture Acts. In no event shall this Agreement grant unto any
Partner the authority to act on behalf of the other Partners with respect to
matters not directly related to the purpose of the Venture as set forth herein.
This Agreement shall not grant unto any Partner any interest, claim or liability
whatsoever with respect to any other assets or liabilities of the other
Partners.
8.5 Representative of each Partner. CNL is a Florida limited
partnership. Co-Venturer is a Florida limited partnership. The general
partner(s) of each Partner shall designate to the other, in writing, a single
individual or entity to speak on its behalf with respect to all Joint Venture
matters. In no event shall any individual limited partner or general partner not
so designated be entitled to make any independent demands of the Joint Venture
whatsoever.
8.6 Notices. All written notices or demands of any kind which any
Partner may be required or may desire to serve on the other in connection with
this Agreement may be served by personal service or by registered or certified
mail and shall be deposited in the United States Mail with postage thereon fully
prepaid, registered or certified, and addressed to the Partners so to be served
as follows:
If the Partner to be served is CNL, address CNL at:
CNL HEALTH CARE PROPERTIES, INC.
400 East South Street
Orlando, Florida 32801
Attention: James M. Seneff, Jr.
If the Partner to be served is Co-Venturer, address Co-Venturer at:
CNL ______________________
400 East South Street
Orlando, Florida 32801
Attention: James M. Seneff, Jr.
Service of any such notice or demand so made by mail shall be deemed
complete on the day of actual delivery as shown by the addressee's registry or
certification receipt or at the expiration of the third day after the date of
mailing, whichever is earlier in time. Either Partner hereto may from time to
time, by notice in writing served on the other as herein set forth, designate a
different mailing address or a different person to which all such notices or
demands are thereafter to be addressed.
12
<PAGE>
8.7 Entire Agreement. This Agreement is the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements between them with respect hereto. This
Agreement may not be altered or amended except by written agreement duly
executed by all Partners of the Joint Venture.
8.8 Successors and Assigns. The provisions of this Agreement shall,
subject to the terms and conditions hereof, be binding upon and inure to the
benefit of the successors and assigns of each of the Partners.
8.9 Governing Law. This Agreement and the Joint Venture shall be
governed by and construed in accordance with the laws of the State of Florida.
8.10 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and such counterparts
shall together constitute one and the same agreement, binding upon each of the
Partners hereto, notwithstanding each of the Partners are not signatory to the
original or the same counterpart.
8.11 Paragraph Titles. Titles of the paragraphs and sub-paragraphs are
placed herein for convenient reference only and shall not to any extent have the
effect of modifying, amending or changing the express terms and provisions of
this Agreement.
8.12 Severability. In the event any of the parts of this Agreement are
found to be void, the remaining provisions of this Agreement shall nevertheless
be binding with the same effect as though the void parts were deleted.
8.13 Effective Date. This Agreement shall be effective upon execution by
both of the Partners.
8.14 Waivers. No waiver of any provision of or obligation under this
Agreement shall be valid unless in writing and signed by the Partner to be
bound.
13
<PAGE>
IN WITNESS WHEREOF, the Partners hereto have executed this Agreement as
of the day and year first above written.
Signed, Sealed and Delivered
in the presence of: "LANDLORD"
__________________, a Florida joint
venture and general partnership
BY: CNL HEALTH CARE PROPERTIES,
INC., a Maryland corporation, as general
partner
By:
- ------------------------------------ ------------------------------
Name: Robert A. Bourne, as President
-------------------------------
- ------------------------------------
Name:
-------------------------------
BY: CNL _________________________, a
______________________, as general
partner
14
Exhibit 10.4
Form of Indemnification and Put Agreement
<PAGE>
INDEMNIFICATION AND PUT AGREEMENT
THIS AGREEMENT is made as of the day of __________, 19__, by and among
CNL __________________________, a _________________ (the "Owner"),
____________________________________, a ______________________________
("Developer"), and __________________________________________ (the
"Guarantors").
PRELIMINARY STATEMENT
The Owner has entered into that certain Purchase Agreement dated as of
even date herewith (the "Purchase Agreement") with Developer. Pursuant to the
Purchase Agreement, the Owner will purchase the land described on Exhibit "A"
attached hereto (the "Property"). In addition the Owner has entered into a Lease
Agreement with Developer (the "Lease Agreement") and a Construction Addendum to
the Lease Agreement with Developer (the "Construction Addendum"), both of even
date herewith. Pursuant to the Construction Addendum, Developer has agreed and
undertakes to construct new improvements on the Property and deliver a turn-key
health care facility to Owner. The Lease Agreement provides that Developer shall
lease the Property and improvements now or hereafter on the Property from the
Owner.
AGREEMENT
In consideration of the mutual covenants contained herein and as an
inducement to the Owner to enter into the Lease Agreement, the Construction
Addendum and the Purchase Agreement, the parties agree as follows:
1. If within: (a) sixty (60) days after the date hereof, all permits,
approvals and consents have not been obtained to permit the commencement of
construction or renovation of the health care facility on the Property; or (b)
in the event the condition set forth in (a) has been fulfilled, one hundred
fifty (150) days after the date hereof the construction of the health care
facility has not been completed as evidenced by the issuance of a certificate of
occupancy, then the Owner shall have the right and option to convey the Property
and the improvements completed to the date of such conveyance (the "Premises")
to Developer subject to the terms and conditions set forth herein. The Owner
shall notify Developer that the 60-day or 150-day period has expired, or is
about to expire and that Owner is exercising its option to sell Developer the
Property.
2. In the event the Owner notifies Developer of its election to convey
the Premises to Developer, the Owner shall deliver to Developer or its designee
a quitclaim deed conveying all of the Owner's right, title and interest in the
Premises. Developer shall pay or cause to be paid to the Owner an amount equal
to the total amount disbursed by Owner through the date of such reconveyance
plus interest thereon from the date of disbursement at the rate of 11.5% per
annum, in cash or its equivalent. All costs associated with such conveyance,
including but not
<PAGE>
limited to title insurance fees, recording costs or fees, attorneys' fees,
appraisal fees, stamp taxes and transfer fees shall be borne by Developer.
3. All notices, demands, requests, consents, approvals or other
instruments required or permitted to be given by either party pursuant hereto
shall be in writing and shall be deemed to have been properly given if sent by
registered or certified mail, Federal Express, Airborne, Emery, DHL, Express
Mail, Purolator, or by other recognized overnight courier service (the "Courier
Service"), postage prepaid, to the parties at the addresses set forth in the
Lease Agreement or the Guaranty of even date. All notices shall be deemed
received when delivered but in no event later than ten (10) days after they are
deposited with either the United States Postal Service or the Courier Service,
whichever shall first occur.
4. If Developer or the Guarantors shall fail or refuse to perform
pursuant to the terms and conditions of this Agreement, then the Owner shall
have the right, upon giving written notice to Developer, to declare a default
under the Lease Agreement and to exercise all remedies available at law or in
equity against Developer or the Guarantors.
5. Developer and Guarantors, jointly and severally, hereby agree to
indemnify and hold harmless Owner from any loss, cause of action, claim, cost,
expense or fee (including but not limited to attorney's fees) suffered or
occasioned by the failure of Developer or the Guarantors to satisfy its or their
obligations under this Agreement. The obligations of Developer and Guarantors
under this section shall be independent, primary, joint and several obligations
of Developer and the Guarantors hereunder.
6. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original.
[Signatures on Next Page]
2
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.
WITNESSES:
Signed, Sealed and Delivered
in the presence of: "OWNER"
CNL ______________________, a
__________________ corporation
By:
- --------------------------------- ------------------------------
Name:
------------------------------
- ---------------------------------
Name:
- ---------------------------------
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me this ____ day of
_______________, 1998 by ____________________, as ______________________ of CNL
_____________________, a ____________________, on behalf of the
_______________________. He is personally known to me and did not take an oath.
-----------------------------------------------------
Notary Signature
-----------------------------------------------------
Printed Name
Notary Public, State of Florida
Commission Number:
---------------------
My Commission Number:
---------------------
3
<PAGE>
Signed, Sealed and Delivered
in the presence of: "DEVELOPER"
- --------------------------- ------------------------------------, a
Name: _____________________
----------------
___________________________ By:
----------------------------------
Name:______________________ Name:
----------------------------------
As Its:
----------------------------------
STATE OF FLORIDA
COUNTY OF ORANGE____________
The foregoing instrument was acknowledged before
me this ____ day of _______________, 1998 by,____________
as____________of____________________________________
___________________________________________________.,
a___________________corporation, on behalf of the
corporation. He is personally known to me and did
not take an oath.
-----------------------------------------
Notary Signature
----------------------------------------
Printed Name
Notary Public, State of Florida
Commission Number:
------------------------
My Commission Number:
------------------------
(SEAL)
4
<PAGE>
"GUARANTORS"
WITNESSES:
- ------------------------- ------------------------------
Address:
- ------------------------- --------------------------
--------------------------
- ------------------------- --------------------------
Address:
- ------------------------- --------------------------
--------------------------
5
<PAGE>
STATE OF FLORIDA
COUNTY OF________________
The foregoing instrument was acknowledged before me this ________ day
of _______, 19___ by ________________________, who has produced
_________________ or other picture identification, a copy of which is attached
hereto, which I hereby certify and verify to be the same person who executed
this instrument and who did/did not take an oath.
----------------------------------------
Printed Name:___________________________
Address:________________________________
Phone Number:___________________________
Notary Public, State of_________________
Commission #__________________________
Commission______________________________
expires:
SEAL:
STATE OF FLORIDA
COUNTY OF________________________
The foregoing instrument was acknowledged before me this ________ day
of ________, 19__ by ________________________, who has produced
___________________ or other picture identification, a copy of which is attached
hereto, which I hereby certify and verify to be the same person who executed
this instrument and who did/did not take an oath.
Printed Name:______________________
Address:___________________________
Phone Number:______________________
Notary Public, State of____________
Commission #_____________________
Commission expires:________________
SEAL:
EXHIBITS ATTACHED
Exhibit "A" - Legal Description
6
Exhibit 10.5
Form of Unconditional Guaranty of Payment and Performance
<PAGE>
UNCONDITIONAL GUARANTY
OF PAYMENT AND PERFORMANCE
TO: CNL __________
1. FOR VALUABLE CONSIDERATION, the undersigned ("Guarantor")
unconditionally guarantees and promises to pay to CNL __________, a (State of
Registration) (Landlord Entity Type) ("Landlord"), all sums, including without
limitation Interim Rent, Annual Rent, Percentage Rent, taxes, insurance
premiums, impounds, late charges and interest, damages, costs, fees and all
other sums which may at any time be due to Landlord pursuant to the following
agreements (the "Documents"):
A. Lease Agreement of even date herewith between Landlord and
(TENANT NAME), a (State of Incorporation) (Tenant Entity Type)(the "Tenant").
2. Guarantor hereby further unconditionally guarantees the truth and
accuracy of all representations, warranties, and certifications of Tenant, the
satisfaction of all conditions by Tenant and the full and timely performance of
all obligations to be performed by Tenant under or pursuant to the Documents.
3. The obligation of Guarantor hereunder is primary, joint and several
and independent of the obligation of any and every other guarantor, if any,
whether or not such action is brought against Tenant or any other guarantor and
whether or not Tenant or any other guarantor be joined in such action or
actions. With respect to these persons and the subject matter of any dispute
wherein Landlord may be attempting to enforce any of the obligations guaranteed
hereby against any other person, party or Guarantor, Guarantor jointly and
severally hereby irrevocably consents to the jurisdiction of (i) the state where
the real property which is the subject of the Lease Agreement referenced in
Paragraph 1.A hereof is located and (ii) any other jurisdiction where Tenant
engages in business.
4. Guarantor authorizes Landlord, without notice or demand and without
affecting their liability hereunder, from time to time, to: (a) renew,
compromise, extend, accelerate, reduce the amount of, change the time for
payment of or otherwise change the terms of the obligations guaranteed hereby;
(b) take and hold security for the payment of this Guaranty or the obligations
guaranteed, and exchange, enforce, waive and release any such security; (c)
apply such security and direct the order or manner of sale thereof as Landlord
in its discretion may determine; (d) release or substitute Tenant or any one or
more guarantor; and (e) assign this Guaranty in whole or in part.
5. Guarantor hereby waives the benefit of any defense against the
enforcement of this Guaranty against Guarantor or any defense which Tenant might
have against Landlord (except such defenses as, by law, cannot be expressly
waived), including without limitation: (a) any right to require Landlord to (i)
proceed against Tenant, (ii) proceed against or exhaust any security, (iii)
proceed against any other guarantor, or (iv) pursue any other remedy in
Landlord's power
<PAGE>
whatsoever; (b) any defense arising by reason of any disability or other defense
of Tenant or by reason of the cessation from any cause whatsoever (other than
payment in full) of the liability of Tenant; and (c) all rights and/or
privileges Guarantor might otherwise have to require Landlord to pursue any
other remedy available to Landlord in any particular manner or order under the
legal or equitable doctrine or principle of marshalling and/or suretyship and
further agree that Landlord may proceed against any or all security in such
order and manner as Landlord in its sole discretion may determine.
6. Guarantor shall have no right of subrogation, and does hereby waive
any right to participate in any security now or hereafter held by Landlord.
Guarantor hereby waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, notice of
acceptance of this Guaranty and all other notices whatsoever.
7. Any indebtedness of Tenant now or hereafter held by any or all
Guarantors is hereby subordinated to the indebtedness of Tenant to Landlord. Any
such indebtedness of Tenant to Guarantor, if Landlord so requests, shall be
collected, enforced and received by Guarantor as trustee for Landlord and be
paid over to Landlord on account of the obligations guaranteed hereby, but
without reducing or affecting in any manner the liability of Guarantor under the
other provisions of this Guaranty.
8. It is not necessary for Landlord to inquire into the powers of
Tenant or its officers, directors, partners or agents acting or purporting to
act on its behalf, and Guarantor shall be liable for the obligations of Tenant
in accordance with their terms notwithstanding any lack of authorization or
defect in execution or delivery by Tenant.
9. Guarantor agrees to pay all Landlord's reasonable attorneys' fees
and other costs and expenses which may be incurred by Landlord in the
enforcement of this Guaranty.
10. This Guaranty shall apply to the parties hereto and their
successors and assigns according to the context hereof and without regard to the
number or gender of words or expressions used herein.
11. Guarantor, jointly and severally, hereby agrees to indemnify and
hold harmless Landlord from any loss, cause of action, claim, cost, expense or
fee (including but not limited to attorney's fees) suffered or occasioned by the
failure of Tenant to satisfy its obligations under the Documents or such other
documents contemplated thereby. The obligations of Guarantor under this section
shall be independent, primary, joint and several obligations of Guarantor and
any other guarantor. The agreement to indemnify Landlord contained in this
section shall be enforceable notwithstanding the invalidity or unenforceability
of the Documents or such other documents contemplated thereby or any of them or
the invalidity or unenforceability of any other section or sections contained
herein.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has executed this
Guaranty this ___ day of ____________, 1998.
<TABLE>
<CAPTION>
<S> <C>
Signed, sealed and delivered
in the presence of: "GUARANTOR"
_____________________, a _____________
corporation
- ------------------------- By:
---------------------------------
Name:
--------------------
Name:
---------------------------------
As Its:
--------------------------------
- -------------------------
Name:
--------------------
</TABLE>
[NOTARY ACKNOWLEDGMENT]
3
Exhibit 10.6
Form of Purchase Agreement
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made as of _____________________, 19__, by
and between CNL ___________________________ ("Buyer") whose address is 400 East
South Street, Orlando, Florida 32801 and ____________________, a _____________
corporation ("Seller") with a mailing address at _____________________________.
PRELIMINARY STATEMENT
WHEREAS, CNL ___________________________ ("CNL") and Seller have
entered into that certain Commitment (the "Commitment") dated ______________,
19___ given by CNL and accepted by Seller on ______________, 1998 for the
purchase, sale and leaseback of certain properties presently operated or to be
constructed and operated as _____________ health care facilities; and
WHEREAS, Seller is the owner of that certain parcel of real estate
located in ______________, __________ County, ___________ and more particularly
described on Exhibit "A" attached hereto (hereinafter referred to as the
"Property"), which Buyer desires to purchase and to lease to Seller pursuant to
the Commitment and a Lease Agreement (the "Lease"), and Buyer and Seller have
entered into this Agreement for such purchase and as a part of the obligations
of CNL and Seller under the Commitment.
AGREEMENT
In consideration of the mutual covenants and provisions of this
Agreement, Buyer and Seller agree as follows:
1. Commitment. In the event of a conflict between the terms of this
Purchase Agreement and the Commitment, the Commitment shall prevail. In the
event of any conflict between the terms of the Commitment and the Lease, the
Lease shall prevail.
2. Definitions. The following terms shall have the following meanings
for all purposes of this Agreement.
"Buyer" means CNL ___________________, and/or its affiliates.
"Closing Date" means the date specified in Section 5.
"Escrow Agent" means ________________________________________.
"Property" means the parcel of real estate described on
Exhibit "A" attached hereto, together with all buildings, fixtures and other
improvements now located thereon or to be constructed thereon.
"Purchase Price" means the amount set forth in Section 4 of this Agreement.
<PAGE>
"Seller" means ________________, a ______________ corporation.
"Title Company" means Lawyers Title Insurance Corporation, Tampa National
Division.
"Title Commitment" means the title insurance commitment for the Property
provided to Buyer from Title Company, in accordance with the terms of Paragraph
8.A. of the Commitment.
3. Purchase and Sale of the Property. On the terms and subject to the
conditions set forth in this Agreement, Seller shall sell and Buyer shall
purchase the Property, and Buyer and Seller shall enter into a Lease by which
Buyer shall lease Property to Seller.
4. Purchase Price. The Purchase Price for the Property shall be $ ,
plus closing adjustments in accordance with the Commitment, which shall be
payable in cash or via wire transfer on the Closing Date.
5. Closing Date. The Closing Date for this Agreement shall be on or
before , 19__.
6. Condition of Title. Prior to the Closing Date, Buyer shall be
provided with the Title Commitment from the Title Company in the form required
by the Commitment, together with copies of all exceptions and requirements
listed therein. Within ten (10) business days after the receipt by Buyer of both
the Title Commitment and the other items to be delivered by Seller pursuant to
the terms of Paragraph 7 of this Agreement or five (5) days after the parties'
execution of this Agreement, whichever is later, Buyer shall give Seller written
notice of (a) Buyer's objections, if any, as to the status of title with respect
to the Property as reflected in the Title Commitment and (b) what remedial
actions, if any, must be taken by Seller in order to eliminate such objections
of Buyer. Within ten (10) days after the receipt by Seller of Buyer's notice,
Seller shall either (i) take (or cause others to take) such remedial actions to
eliminate Buyer's objections to title prior to the Closing Date, or (ii)
terminate this Agreement by written notice to Buyer, in which event Seller and
Buyer shall have only those liabilities and obligations to each other which are
specified in the Commitment. Except for the Schedule B-I requirements, the
"standard" Schedule B-II exceptions and the "gap" exception in Schedule B-II of
the Commitment, which shall be deleted by the Title Company at closing, and
subject to issuance by the Title Company of all endorsements requested by the
Buyer, pursuant to Buyer's written instructions pursuant to Paragraph 8.B.
below, all matters reflected in the Title Commitment with respect to which Buyer
does not give Seller notice in accordance with the provisions of this Paragraph
shall be deemed to be "Permitted Exceptions."
7. Seller's Delivery of Certain Documents. Not less than five (5) days
prior to the Closing Date, Seller shall obtain and deliver to Buyer certain
items with respect to the Property, as described in and required by the terms of
Paragraph 8 of the Commitment (except any of the foregoing items which Buyer has
agreed in writing to order on its own behalf).
2
<PAGE>
8. Closing. On or before the Closing Date:
A. Seller's Closing Documents. Seller shall deliver to Title Company or
Buyer, as may be appropriate:
(i) a Warranty Deed, duly executed by Seller, free of all
liens, encumbrances, restrictions, encroachment and
easements, except for Permitted Exceptions;
(ii) an executed and acknowledged Lease;
(iii) an executed and acknowledged Memorandum of Lease;
(iv) written confirmation to Title Company directing it to
close this transaction; and
(v) such other documents and affidavits as Buyer or the Title
Company may reasonably require, including appropriate corporate certificates of
status and authorizing resolutions for Seller.
B. Buyer.
(i) Deposit of Funds. Buyer shall deposit the Purchase Price
in escrow with Title Company, together with any other amounts required to be
paid by Buyer pursuant to the terms of this Agreement.
(ii) Buyer's Closing Documents. Buyer shall deliver to Title
Company or Seller, as may be appropriate:
(a) an executed and acknowledged Lease;
(b) an executed and acknowledged Memorandum of
Lease;
(c) written instructions to Title Company
directing it to close this transaction; and
(d) such other documents as Seller or the Title
Company may reasonably require.
All closing documents shall be dated as of the Closing Date.
9. Costs and Expenses. Seller and Buyer agree to pay their respective
costs as specified in the Commitment, including without limitation, title
insurance premiums and fees, survey costs, recording fees, stamp taxes and
transfer fees. Taxes, assessments and other charges
3
<PAGE>
shall not be prorated as of the Closing Date but shall be borne by Seller, as
Lessee, under the Lease.
10. Escrow Agent. Seller and Buyer hereby employ Title Company to act
as escrow agent in connection with this transaction upon the following terms and
conditions:
A. Seller and Buyer will deliver to Title Company all
documents, pay to Title Company all sums and do or cause to be done all other
things necessary or required by this Agreement, in the reasonable judgment of
Title Company, to enable it to comply herewith and to enable any title insurance
policy provided for herein to be issued.
B. Title Company is authorized to pay from any funds held by
it for Buyer's or Seller's respective credit all amounts necessary to procure
the delivery of such documents and to pay, on their behalf, all charges and
obligations payable by them respectively. Seller and Buyer will each pay all
charges payable by them to Title Company.
C. Title Company is authorized, in the event any demand is
made upon it concerning these instructions or the escrow, at its election, to
hold any money and documents deposited hereunder until an action shall be
brought in a court of competent jurisdiction to determine the rights of Seller
and Buyer or to interplead said parties by an action brought in any such court.
Deposit by Title Company of said documents and funds shall relieve Title Company
of all further liability and responsibility.
D. Buyer and Seller will indemnify and save harmless Title
Company against all costs, damages, attorney's fees, expenses and liabilities,
which it may incur or sustain in connection with these instructions or the
escrow or any court action arising therefrom and will pay the same upon demand.
E. Payment of any funds into escrow prior to the Closing Date
shall be made by wire transfer. Disbursement of any funds from the closing for
the benefit of Seller shall be made as directed by Seller. Title Company shall
be under no obligation to disburse any funds represented by check or draft, and
no check or draft shall be payment to Title Company in compliance with any of
the requirements hereof, until it is advised by the bank in which deposited that
such check or draft has been honored.
F. Title Company is authorized to act upon any statement
furnished by the holder or payee, or a collection agent for the holder or payee,
of any lien on or charge or assessment in connection with a Property, concerning
the amount of such charge or assessment or the amount secured by such lien
without liability or responsibility for the accuracy of such statement.
G. The employment of Title Company, as escrow agent, shall not
affect any rights of subrogation under the terms of any title insurance policy
issued pursuant to the provisions thereof.
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11. Conditions of Closing for Buyer. The obligations of Buyer are
subject to the fulfillment or waiver of each of the following conditions set
forth below:
A. Closing Documents. At or prior to the Closing Date, Seller shall have
executed and delivered Seller's closing documents in accordance with Paragraph 8
of this Agreement.
B. Compliance with Commitment. At the Closing Date, Seller
shall be in compliance with its obligations under the Commitment.
12. Conditions of Closing for Seller. The obligations of Seller are
subject to the fulfillment or waiver of each of the following conditions set
forth below:
A. Closing Documents. At or prior to the Closing Date, Buyer shall have
executed and delivered Buyer's closing documents in accordance with Paragraph 8
of this Agreement.
B. Compliance with Commitment. At the Closing Date, Buyer
shall be in compliance with its obligations under the Commitment.
13. Representations and Warranties of Buyer. Buyer represents and
warrants to Seller as follows:
A. Buyer is duly organized, validly existing and in good
standing under the laws of its state of registration and qualified to do
business in the jurisdiction in which the Property is located. All necessary
action has been taken to authorize the execution, delivery and performance of
this Agreement and of the other documents, instruments and agreements provided
for herein.
B. The person or persons who have executed this Agreement on
behalf of Buyer are duly authorized to do so.
14. Representation and Warranties of Seller. Seller represents and
warrants to Buyer as follows:
A. Seller is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation and qualified
as a foreign corporation to do business in the jurisdiction in which the
Property is located. All necessary corporate action has been taken to authorize
the execution, delivery and performance of this Agreement and of the other
documents, instruments and agreements provided for herein.
B. The person or persons who have executed this Agreement on
behalf of Seller are duly authorized to do so.
5
<PAGE>
C. The Property and the existing use thereof and the condition
thereof does not violate any applicable deed restrictions, zoning or subdivision
regulations, urban redevelopment plans, local, state or federal environmental
law or regulation or any building or fire code applicable to the Property.
D. There is no pending or, to Seller's knowledge, threatened
litigation or other proceeding affecting the title to or the use or operation of
the Property.
E. Seller is not a "foreign person" within the meaning of
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended, and Seller
shall certify its taxpayer identification number at Closing.
F. To the best of Seller's knowledge, there are no federal,
state, county or municipal plans to restrict or change access from any highway
or road to the Property.
G. The Property is a separate parcel for real estate tax
assessment purposes.
H. To the best of Seller's knowledge, all of the information
furnished to Buyer pursuant to the terms of the Commitment regarding the
Property is true, complete and correct.
All of the representations, warranties and agreements of Seller set
forth herein and elsewhere in this Agreement shall be true upon the execution of
this Agreement and shall be reaffirmed and repeated in writing at and as of the
Closing Date, but not subsequent to the Closing Date, and shall survive the
Closing Date.
15. Assignment. Buyer may assign in whole or in part its rights under
this Agreement without Seller's prior written consent to an affiliate of Buyer,
but Buyer agrees to give Seller notice thereof prior to Closing.
16. Default. In the event that a party defaults in the performance of
its obligations hereunder, the party not in default shall have the option (a) to
cancel this Agreement by delivering to the defaulting party and to the Title
Company a written notice of cancellation or (b) to deliver to the defaulting
party and to Title Company a written notice demanding that the defaulting party
comply with the terms hereof within ten (10) days from the receipt of said
notice by the defaulting party. If this Agreement is so cancelled, Seller and
Buyer shall have only those liabilities and obligations to each other which are
specified in the Commitment. Upon such termination, the Title Company is
authorized to return all documents deposited hereunder to the party who
delivered the same except documents executed by Seller and Buyer, which shall be
marked "cancelled" and retained in the files of Title Company.
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<PAGE>
17. Miscellaneous Provisions.
A. Notices. All notices, consents, approvals, or other
instruments required or permitted to be given by either party shall be in
writing and shall be deemed to have been properly given if sent by registered or
certified mail, return receipt requested, Federal Express, Airborne, Emery, DHL,
Express Mail, or by other recognized overnight courier service, postage and
other charges prepaid, to the parties at the addresses set forth in the first
Paragraph hereof or to such other address as either party may give notice
pursuant to this section from time to time. All notices shall be deemed received
when delivered to the address specified.
B. Risk of Loss. Seller shall assume the risk of loss, damage
or destruction of the Property or any part thereof prior to the Closing Date.
C. Condemnation. In the event of a taking of any part or all
of the Property prior to closing, Buyer at its option shall have the right to
either (i) receive the proceeds of any condemnation award and proceed to close
with respect to the Property or (ii) withdraw the Property from these
transactions.
D. Real Estate Commission. Buyer and Seller shall not be
obligated to pay any commission or finder's fee to any broker, real estate
broker or agent in connection with this transaction. To the extent Seller or
Buyer has engaged the services of any such broker, real estate broker or agent,
Seller or Buyer, as the case may be, hereby indemnify and agree to hold the
other harmless from and against any and all costs, expense, loss, and damage,
including but not limited to attorney's fees and court costs, arising or
resulting directly or indirectly out of any claim by any broker, real estate
broker or agent in connection with this transaction.
E. Amendment and Waiver. Upon execution by the parties, this
Agreement may not be altered or amended. Waiver of any matter by either party
shall not be deemed a waiver of the same or any other matter on any future
occasion.
F. Other Documents. Each of the parties agrees to sign such
other and further documents as may be appropriate to carry out the intentions
expressed in this Agreement.
G. Attorney's Fees. In the event of any judicial or other
adversarial proceeding between the parties concerning this Agreement, the
prevailing party shall be entitled to recover its reasonable attorneys' fees in
addition to any other relief to which it may be entitled.
H. Entire Agreement. This Agreement, together with the Commitment and any
other instruments or agreements referred to herein constitute the entire
agreement between the parties with respect to the Property.
I. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
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IN WITNESS WHEREOF, Seller and Buyer have entered into this Agreement
as of the date shown hereinabove.
Signed, Sealed and Delivered
in the presence of: "BUYER"
CNL________________________, a
___________________corporation
- ------------------------------
By:
------------------------------------
Name:
--------------------------
- ------------------------------
Name:
--------------------------
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me this ____ day of
_______________, 1998 by ____________________, as ______________________ of CNL
_____________________, a ____________________, on behalf of the
_______________________. He is personally known to me and did not take an oath.
--------------------------------------------------
Notary Signature
--------------------------------------------------
Printed Name
Notary Public, State of Florida
Commission Number:________________________________
My Commission Number:_____________________________
8
<PAGE>
Signed, Sealed and Delivered
in the presence of: "SELLER"
____________________________, a
--------------
By:
- -------------------------------- ------------------------------------------
Name:
- --------------------------------
Name:
---------------------------------------
As Its:
--------------------------------------
- --------------------------------
Name:
- --------------------------------
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me this ____ day of
_______________, 1998 by __________________,as ____________ of
______________________________., a ___________________ corporation, on behalf of
the corporation. He is personally known to me and did not take an oath.
-----------------------------------------
Notary Signature
-----------------------------------------
Printed Name
Notary Public, State of Florida
Commission Number:_______________________
My Commission Number:____________________
(SEAL)
9
Exhibit 10.7
Form of Lease Agreement including Rent Addendum,
Construction Addendum and Memorandum of Lease
<PAGE>
_________ #(Site Number)/(City), (County) County, (State)
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into as of (Closing Date), by
and between:
(i) CNL __________, a (State of Registration) (Landlord Entity
Type) with principal office and place of business at 400 E.
South Street, Suite 500, Orlando, Florida 32801 ("Landlord"),
and
(ii) (TENANT NAME), a (State of Incorporation) (Tenant Entity
Type), with a mailing address of (Tenant Street Address),
(Tenant Street Address), (Tenant City), (Tenant State) (Tenant
Zip) ("Tenant").
WITNESSETH:
Landlord leases to Tenant, for the purpose of [[developing,
constructing and]] operating a _________ health care facility and for no other
use or purpose whatsoever [[and subject to the terms and conditions of the
Construction Addendum attached hereto]], and Tenant rents from Landlord the
following described premises, (hereinafter "Premises") located at (Site
Address), (City), (County) County, (State) and being more particularly described
in Exhibit "A" attached hereto and made a part hereof, together with all rights
and privileges in and about the Premises as may be necessary or convenient to
Tenant's business, inclusive of all easements benefitting the real property
described in Exhibit "A". Premises shall include all improvements and structures
whether now existing or hereafter constructed thereon.
The following additional stipulations are hereby declared to be
covenants of this Lease and shall, unless otherwise expressly stated, be
applicable at all times throughout the term of this Lease and any extension or
renewal thereof:
1. DEFINITIONS
For purposes of this Lease, the following terms are hereby defined to
mean:
"Effective Date" shall mean the first date set forth at the beginning
of this Lease.
"Landlord" shall mean CNL __________, a (State of Registration)
(Landlord Entity Type), its successors and assigns.
"Lease" shall include this Lease Agreement and all amendments hereto,
if any, entered into from time to time hereafter.
<PAGE>
"Lease Year" shall mean a fiscal period beginning on the Effective Date
(and each anniversary thereof) and expiring twelve (12) months
thereafter.
"Rent" shall mean the Rent payable under this Lease as set forth in the
Rent Addendum attached hereto and incorporated herein, and shall
include [[Interim Rent]] and Annual Rent (all as defined in the Rent
Addendum).
2. TERM AND RENT
(a) Term. The term of this Lease shall begin on the Effective Date and
shall expire on a date ________ (__) years thereafter unless previously
terminated or renewed or extended as provided herein.
(b) Rent. Rent shall be due and payable as provided in the Rent
Addendum attached hereto and incorporated herein.
3. ALTERATIONS AND IMPROVEMENTS, INVESTMENT TAX CREDIT, MECHANIC'S LIENS,
LANDLORD'S DISCLAIMER
(a) Tenant shall be permitted to install, use on and about, and remove
from the Premises at any time and from time to time all trade fixtures and other
personal property (exclusive of lighting, electrical, heating and air
conditioning improvements) which are not a component of the building located or
to be located on the Premises (hereinafter referred to as the "Tenant's
Property"), all of which at all times shall remain the property of Tenant with
the right of removal (subject to paragraph (d) below) at the expiration of this
Lease. Trade fixtures shall include: (1) removable decor items and office
equipment; (2) building lettering, signs, sign posts and sign standards; (3)
unattached equipment; and (4) equipment attached to the building by bolts and
screws and/or by utility connections. Tenant shall also have the right, at its
option and expense, to redecorate or otherwise remodel the Premises upon any
termination hereof or upon subletting or assignment in such manner as will,
without reducing the fair market value thereof, avoid the appearance of the
________ health care facility operated under this Lease; provided, however,
Tenant shall not impair the structural condition of the Premises or reduce the
size thereof. Tenant shall have the right to make any additions, alterations,
changes and improvements, structural and nonstructural, including but not
limited to construction of additional buildings and additions to the then
existing buildings, as Tenant shall desire; provided, however, (i) Tenant shall
submit plans of all structural changes to Landlord at least thirty (30) days in
advance of the proposed construction date, (ii) Tenant shall provide Landlord
with evidence of Tenant's financial ability to pay for such changes, (iii) if
the cost of structural changes exceeds TEN THOUSAND AND NO/100 DOLLARS
($10,000.00), Tenant shall post payment and performance bonds for such work
naming Landlord and Tenant as dual obligees, (iv) all such construction shall be
completed in a workmanlike manner and in full compliance with all
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<PAGE>
building laws and ordinances applicable thereto, at Tenant's expense, and (v)
such additions, alterations, changes and improvements shall not reduce the fair
market value of the Premises. All such additions, alterations, changes and
improvements shall be deemed to be a part of the Premises.
(b) Landlord hereby grants Tenant the right and privilege of applying
for and receiving all investment tax credits, if any, under the Internal Revenue
Code which may be available with respect to the building and other improvements
to be constructed. To this end, Landlord agrees to execute all such further
documents and supply such additional information as may be required to make such
election effective.
(c) Tenant shall not do or suffer anything to be done whereby the
Premises, or any part thereof, may be encumbered by a mechanic's lien or similar
lien, and, if, whenever and as often as any mechanic's lien or similar lien is
filed against the Premises, or any part thereof, purporting to be for or on
account of any labor done, materials or services furnished in connection with
any work in or about the Premises, done by, for or under the authority of
Tenant, or anyone claiming by, through or under Tenant, Tenant shall discharge
the same of record within ten (10) days after service upon Tenant of notice of
the filing thereof; provided, however, Tenant shall have the right to remove the
lien by bonding same in accordance with applicable law and to contest any such
lien; provided further that Tenant shall diligently prosecute any such contest,
at all times effectively staying or preventing any official or judicial sale of
the Premises under execution or otherwise, and, if unsuccessful, satisfy any
final judgment against Tenant adjudging or enforcing such lien or, if
successful, procuring record satisfaction or release thereof.
(d) All of Tenant's Property placed in or upon the Premises by Tenant
shall remain the property of Tenant with the right to remove the same at any
time during the term of this Lease. Landlord, if requested by Tenant, agrees to
execute such documentation subordinating its lien rights (vis a vis any
equipment lender or landlord) to Tenant's personalty and to all rights of levy
for distraint for rent against same as shall be reasonably required by any
equipment lender or lessor of Tenant; provided any damage caused by, or
resulting from the removal of any trade fixtures, equipment or other personal
property shall be promptly repaired by Tenant or the party entitled to remove
same.
4. DESTRUCTION OF PREMISES; INSURANCE
(a) If the Premises are damaged or destroyed by fire, flood, tornado or
other element, or by any other casualty and such damage or destruction does not
occur within the last twenty-four (24) months of the original or of any extended
or renewed term of this Lease, this Lease shall continue in full force and
effect and Tenant shall, as promptly as possible, restore, repair or rebuild the
Premises to substantially the same condition as it existed before the damage or
destruction. Tenant shall for this purpose use all, or such part as may be
necessary, of the insurance proceeds received from insurance policies carried on
the Premises under the provision of subparagraph 4(b) hereinbelow. If such
insurance proceeds are not sufficient to pay such costs, Tenant shall pay such
deficit. Should the Premises be damaged or destroyed by any of the
3
<PAGE>
foregoing described casualties within the last twenty-four (24) months of the
original term or of any extended or renewed term of this Lease, to the extent
that they are untenantable or unsuitable, in Tenant's opinion for continued use
in the normal conduct of Tenant's business, Tenant shall have the right,
exercisable by written notice to Landlord given within thirty (30) days after
the date of such damage or destruction, of terminating this Lease effective upon
the date of such damage or destruction. If Tenant terminates this Lease as thus
provided Landlord shall be entitled to all of the insurance proceeds on the
Premises, but not to the proceeds of insurance carried by Tenant on Tenant's
Property; provided, however, Tenant shall not have the right to terminate this
Lease unless (i) the damage or destruction of the Premises was caused by a peril
which was insured against by the provisions of subparagraph 4(b) of this Lease;
(ii) at the time of such damage and destruction the said insurance policies to
be carried by Tenant were in the amount of the full replacement cost of such
improvements (without deduction or co-insurance) and in full force and effect;
and (iii) the insurer has confirmed coverage and its obligation to pay. If
Tenant defaults in its obligation to carry insurance in the amount required
under subparagraph 4(b), then Tenant shall be obligated to pay toward said
reconstruction or to Landlord, if this Lease is cancelled but prior thereto, the
difference between the amount actually carried and the amount required to be
carried under this paragraph.
(b) Tenant, at its expense and as additional rent hereunder, shall
throughout the term of this Lease and any extension or renewal thereof, keep the
Premises insured with "all risk" coverage, including builder's risk if
applicable, ("all risk" as such term is used in the insurance industry) for the
full replacement value, with any deductible to be approved by Landlord (and
without any co-insurance provision (Agreed Value endorsement)). If the Premises
are located in a flood or earthquake zone, then additional coverage shall be
obtained by Tenant in amounts and in forms acceptable to Landlord. Tenant shall
provide Landlord with copies of such policies or certificates of such coverage,
and the policy or policies shall name Landlord and any mortgagee designated by
Landlord as an additional insured (or, if elected by Landlord, loss payee) and
shall provide that all losses shall be payable as herein provided. All such
policies of insurance shall provide that the amount thereof shall not be reduced
and that none of the provisions, agreements or covenants contained therein shall
be modified or cancelled by the insuring company or companies without thirty
(30) days prior written notice being given to Landlord; and that all insurance
proceeds shall be paid by check payable to Landlord. Such policy or policies of
insurance may also cover loss or damage to Tenant's Property, and the insurance
proceeds applicable to Tenant's Property shall not be paid to Landlord or any
mortgagee but shall accrue and be payable solely to Tenant. In the event of a
casualty, Tenant shall be responsible for any deficiency between the replacement
cost of the Premises and the amount actually paid by the insurance company.
(c) Tenant shall maintain, at its own expense and as additional Rent,
public liability insurance covering the Premises, for the joint benefit of and
insuring Tenant and Landlord, with coverage of not less than $2,000,000.00 per
occurrence, with any deductible to be approved by Landlord, and with a general
aggregate limit of not less than $__0,000,000.00. Landlord (and if Landlord is
either a general or limited partnership, all general partners) shall be named as
an additional insured (or, if elected by Landlord, loss payee). All such
policies of insurance shall
4
<PAGE>
provide that the amount thereof shall not be reduced and that none of the
provisions, agreements or covenants contained therein shall be modified or
cancelled by the insuring company or companies without thirty (30) days prior
written notice being given to all parties to this Lease. A copy of the policy or
certificate of such insurance shall be delivered to Landlord and shall be issued
by a company or companies licensed to do business in the state where the
Premises are located.
(d) Tenant shall maintain, at its own expense, rental value insurance
covering risk of loss due to the occurrence of any of the hazards insured
against under Tenants' "all risk" coverage insurance and providing coverage in
an amount sufficient to permit the payment of rents payable hereunder for a
period (in such case) of not less than six (6) months. All such policies of
insurance shall provide that Landlord is additional insured (or, if elected by
Landlord, loss payee); and that the amount thereof shall not be reduced and that
none of the provisions, agreements or covenants contained therein shall be
modified or cancelled by the insuring company or companies without thirty (30)
days prior written notice being given to all parties to this Lease. A copy of
the policy or certificate of such insurance shall be delivered to Landlord and
shall be issued by a company or companies licensed to do business in the state
where the Premises are located.
(e) All insurance companies providing the coverage required under this
Paragraph 4 shall be selected by Tenant and shall be rated A minus (A-) or
better by Best's Insurance Rating Service, shall be licensed to write insurance
policies in the state in which the Premises is located, and shall be acceptable
to Landlord in Landlord's reasonable discretion.
5. MAINTENANCE AND REPAIR
(a) Tenant shall maintain the Premises and all buildings and
improvements thereon (interior and exterior, structural and otherwise) in good
order and repair and, subject to the provisions of paragraph 4(a) with respect
to damage within the last twenty-four (24) months of the Lease, and paragraph 6
herein, return the Premises and all buildings and improvements thereon at the
expiration of the term of this Lease or any extension thereof in as reasonably
as good condition as when received, ordinary wear and tear excepted.
(b) Tenant agrees that Landlord shall have no obligation under this
Lease to make any repairs or replacements (including the replacement of obsolete
components) to the Premises or the buildings or improvements thereon, or any
alteration, addition, change, substitution or improvement thereof or thereto,
whether structural or otherwise. The terms "repair" and "replacement" include
the replacement of any portions of the Premises which have outlived their useful
life during the term of the Lease (or any extensions thereof). Landlord and
Tenant intend that the rent received by Landlord shall be free and clear of any
expense to Landlord for the construction, care, maintenance (including common
area maintenance charges and charges accruing under easements or other
agreements relating to the Premises), operation, repair, replacement,
alteration, addition, change, substitution and improvement of or to the Premises
and any building and improvement thereon. Upon the expiration or earlier
termination of this Lease,
5
<PAGE>
Tenant shall remain responsible for, and shall pay to Landlord, any cost, charge
or expense for which Tenant is otherwise responsible for hereunder attributable
to any period (prorated on a daily basis) prior to the expiration or earlier
termination of this Lease.
6. CONDEMNATION
(a) In the event that the whole or any material part of the building on
the Premises or such a material portion of the land (for purposes hereof,
"material" shall mean more than 20% of the building on the Premises or more than
40% of the land) shall be taken during the term of this Lease or any extension
or renewal thereof for any public or quasi-public use under any governmental
law, ordinance, regulation or by right of eminent domain, or shall be sold to
the condemning authority under threat of condemnation with the result that the
Premises cannot continue to be operated as the type of health care facility
contemplated herein, or if all reasonable access to the adjacent roadways from
the existing or comparable curb cuts shall be taken (any of such events being
hereinafter referred to as a "taking"), Tenant shall have the option of
terminating this Lease as of a date no earlier than the date of such taking,
such termination date to be specified in a notice of termination to be given by
Tenant to Landlord not fewer than fourteen (14) days prior to the date on which
possession of the Premises, or part thereof, must be surrendered to the
condemning authority or its designee.
(b) In the event of any taking which does not give rise to an option to
terminate or in the event of a taking which does give rise to an option to
terminate and Tenant does not elect to terminate, Landlord shall make its award
available to Tenant and Tenant shall, to the extent of the award from such
taking (which word "award" shall mean the net proceeds after deducting expenses
of any settlement, or net purchase price under a sale in lieu of condemnation
but shall exclude the value of Landlord's reversionary interest), promptly
restore or repair the Premises and all improvements thereon (except the items
which Tenant is entitled to remove) to the same condition as existed immediately
prior to such taking insofar as is reasonably possible. If the estimated cost of
restoration or repair shall exceed the amount of Landlord's award, Tenant shall
deposit with Landlord the amount of such excess. The award and any excess shall
be held in trust by Landlord and used, to the extent required, for the purpose
of such restoration or repair. A just and proportionate part of the Rent payable
hereunder shall be abated from the date of such taking until ten (10) days after
Tenant has restored same and thereafter the Rent shall be reduced in proportion
to the reduction in the then rental value of the Premises after the taking in
comparison with the rental value prior to the taking. If the award shall exceed
the amount spent or to be spent promptly to effect such restoration, repair or
replacement, such excess shall unconditionally belong to Landlord and shall be
paid to Landlord.
(c) In the event of any partial taking where this Lease is not
terminated, Tenant shall not be entitled (except for use in reconstruction) to
any part of the compensation or award given Landlord for the taking of the fee
of the Premises, but Tenant shall have the right to recover from the condemning
authority such compensation as is specifically awarded to Tenant (i) to
reimburse Tenant for any cost which Tenant may incur in removing Tenant's
Property from the Premises and (ii) for loss of Tenant's business.
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<PAGE>
(d) If this Lease is terminated by reason of a taking then Landlord
shall be entitled to receive the entire award in any such condemnation or
eminent domain proceedings or purchase in lieu thereof and Tenant hereby assigns
to Landlord all of its right, title and interest in and to all and any part of
such award, provided, however, Tenant shall be entitled to receive any award
specifically made to reimburse Tenant.
7. TAXES AND ASSESSMENTS
Tenant shall pay prior to delinquency all taxes and assessments which
may be levied upon or assessed against the Premises and all taxes and
assessments of every kind and nature whatsoever arising in any way from the use,
occupancy or possession of the Premises or assessed against the improvements
situated thereon, together with all taxes levied upon or assessed against
Tenant's Property. To that end Landlord shall not be required to pay any taxes
or assessments whatsoever which relate to or may be assessed against this Lease,
the Rent and other amounts due hereunder, the Premises, improvements and
Tenant's Property. Provided, however, that any taxes or assessments which may be
levied or assessed against the Premises for a period ending after the
termination hereof shall be prorated between Landlord and Tenant as of such
date. Within thirty (30) days after Tenant receives the paid receipted tax
bills, Tenant shall furnish Landlord with copies of a paid receipt for such tax
bills. Upon demand by Landlord, Tenant shall deliver and pay over to Landlord
such additional sums as are necessary to satisfy any deficiency in the amount
necessary to pay the taxes before the same become due. Tenant may, at its
option, contest in good faith and by appropriate and timely legal proceedings
any such tax and assessment; provided, however, that Tenant shall indemnify and
hold harmless Landlord from any loss or damage resulting from any such contest,
and all expenses of same (including, without limitation, all attorneys' fees,
court and other costs) are paid solely by Tenant.
8. COMPLIANCE, UTILITIES, SURRENDER
(a) Tenant at its expense shall promptly comply with all governmental
requirements, whether or not compliance therewith shall require structural
changes in the Premises; will procure and maintain all permits, licenses and
other authorizations required for the use of the Premises or any part thereof
then being made and for the lawful and proper installation, operation and
maintenance of all equipment and appliances necessary or appropriate for the
operation and maintenance of the Premises, and shall comply with all easements,
restrictions, reservations and other instruments of record applicable to the
Premises. Tenant shall indemnify and save Landlord harmless from all expenses
and damages by reason of any notices, orders, violations or penalties filed
against or imposed upon the Premises, or against Landlord as owner thereof,
because of Tenant's failure to comply with this paragraph.
(b) Tenant shall pay all charges for heat, water, gas, sewage,
electricity and other utilities used or consumed on the Premises and shall
contract for the same in its own name. Landlord shall not be liable for any
interruption or failure in the supply of any such utility service to the
Premises.
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<PAGE>
(c) Tenant shall peacefully surrender possession of the Premises, the
buildings and other improvements thereon, to Landlord at the expiration, or
earlier termination, of the original term or any extended or renewed term of
this Lease.
9. QUIET ENJOYMENT
Landlord covenants and warrants that Landlord has full power and
authority to make this Lease, and that Tenant shall have and enjoy full, quiet
and peaceful possession of the Premises, their appurtenances and all rights and
privileges incidental thereto during the term hereof and any renewals or
extensions, subject to the provisions of this Lease and any easements,
restrictions, reservations and other instruments of record applicable to the
Premises and in existence at the time of the conveyance of the Premises to
Landlord by Tenant.
10. OPTION TO RENEW
Tenant shall have ___ (_) successive five (5) year options to extend
this Lease for up to an additional _____ (__) years upon the same terms,
covenants, conditions and rental as set forth herein provided that Tenant is not
in default hereunder at the commencement of such option period. Tenant may
exercise each such five (5) year option by giving written notice to Landlord not
less than six (6) months prior to the expiration of the then current term of
this Lease. Should Tenant fail to give Landlord such timely written notice
during the required period, all remaining rights of renewal shall automatically
expire.
11. FIRST RIGHT OF REFUSAL TO PURCHASE; OPTION TO PURCHASE
(a) So long as Tenant is not in default under this Lease, Tenant shall
have the right to purchase the Premises in accordance with the terms of this
paragraph. If Landlord receives and desires to accept a bona fide offer to
purchase (excluding any transfer to an affiliate of Landlord) the Premises
during the term of this Lease or any extension or renewal thereof, Landlord
shall serve a notice on Tenant stating the name of such offeror with a copy of
the terms and conditions of such offer attached and Tenant shall have the right
to purchase the Premises on the same terms and conditions set forth in
Landlord's notice, provided Tenant delivers written notice to Landlord of its
election to do so within twenty (20) days after receipt of such notice from
Landlord. If Tenant does not elect to exercise its right to purchase as
aforesaid, Landlord may sell the Premises, provided the sale is consummated with
the offeror and on the terms and conditions set forth in Landlord's notice to
Tenant. The foregoing preemptive right shall remain in existence notwithstanding
its non-exercise in respect to any sale and shall be binding upon Landlord's
successors in title.
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(b) Tenant shall have the option to purchase the Premises at any time
after the _____________ (__th) Lease Year, as follows:
(i) Tenant shall exercise its option hereunder by giving
written notice in writing to Landlord in accordance with the requirements of
paragraph 20 of this Lease. At the time of the exercise of the option, Tenant
shall also pay to Landlord (or if required by Landlord, to the qualified
intermediary described in Paragraph 19(b) of this Lease Agreement) a
non-refundable deposit of FIVE HUNDRED AND NO/100 DOLLARS ($500.00).
(ii) The purchase price to be paid by Tenant shall be the
greater of (A) the fair market value of the Premises as of the date of the
exercise of the option, as determined by an appraisal of an M.A.I. qualified
appraiser selected by Landlord, or (B) Landlord's cost for the Premises, plus
___________ percent (__%).
(iii) The closing pursuant to the option shall be held in the
office of Landlord's attorneys on or before a date which is thirty (30) days
after Landlord and Tenant have received the above mentioned appraisal from the
appraiser, or at such other place as shall be acceptable to Landlord.
(iv) Tenant shall receive a credit for the deposit required
under (i) above and the balance of the purchase price shall be paid at closing
in cash, by cashier's check on cleared local funds or by wire transfer to
Landlord's account.
(v) All expenses of closing shall be paid equally by Tenant
and Landlord.
(vi) The option granted to Tenant pursuant to this
subparagraph (b) shall terminate and become null and void (A) in the event
Tenant shall purport to exercise said option at a time when Tenant shall then be
in default under any term or condition of this Lease, or (B) in the event
Tenant's right of first refusal becomes operative, Tenant fails to exercise such
right of first refusal, and the offer triggering such right of first refusal
closes.
(c) Tenant's rights and options granted in (a) and (b) above shall be
subject and subordinate to any rights or options currently of record or those
existing under Tenant's franchise agreement, if any.
12. NONCOMPETE
Tenant shall not own an interest in, or operate, another __________
health care facility within a _________ (__) mile radius of the Premises.
Violation of this covenant shall constitute a default hereunder and, because the
parties agree that damages would not be an adequate remedy, Tenant hereby agrees
that Landlord shall be entitled to equitable relief, including injunctive relief
and specific performance in addition to any remedy available at law.
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13. DEFAULT
(a) If any one or more of the following events occur, said event or
events shall hereby be classified as a "Default":
(i) If Tenant fails to pay Interim Rent (if applicable) Annual
Rent, any additional rent, or any other charges required hereunder or under any
other lease with Landlord or an affiliate of Landlord when same shall become due
and payable, and such failure continues for ten (10) days after written notice
from Landlord.
(ii) If Tenant shall fail to perform or observe any term,
condition, covenant, agreement, or obligation of this Lease or any other lease
with Landlord or an affiliate of Landlord, and such failure continues for
fifteen (15) days after written notice from Landlord (except that such fifteen
(15) day period shall be automatically extended for such additional period of
time as is reasonably necessary to cure such Default, if such Default cannot be
cured within such period, provided Tenant is in the process of diligently curing
the same).
(iii) If any default or event of default shall occur and
remain uncured under that certain Franchise Agreement (the "Franchise
Agreement") between Tenant and _________________ following any cure period
applicable thereto and established in the Franchise Agreement, or if such
Franchise Agreement is terminated for any reason. Notwithstanding the foregoing,
Tenant shall have the right to engage in good faith disputes with the franchisor
under the Franchise Agreement without such dispute constituting a default under
this Lease, provided that such dispute shall not prevent Tenant from performing
its obligation to continuously operate a _______ health care facility at the
Premises.
(iv) If Tenant fails to continuously operate its business
within the Premises except for temporary periods of closure caused by casualty,
or temporary and reasonable periods of remodeling not to exceed ninety (90) days
in any Lease Year without first obtaining Landlord's written approval.
(v) If Tenant shall make an assignment for the benefit of
creditors or file a petition, in any federal or state court, in bankruptcy,
reorganization, composition, or make an application in any such proceedings for
the appointment of a trustee or receiver for all or any portion of its property.
(vi) If any petition shall be filed under federal or state law
against Tenant in any bankruptcy, reorganization, or insolvency proceedings, and
said proceedings shall not be dismissed or vacated within thirty (30) days after
such petition is filed.
(vii) If a receiver or trustee shall be appointed under
federal or state law for Tenant, or any guarantor of Tenant's obligations
hereunder, for all or any portion of the property of either of them, and such
receivership or trusteeship shall not be set aside within thirty (30) days after
such appointment.
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(viii) If, after Lessee has obtained approval for Medicare
and/or Medicaid funding, a final unappealable determination is made by the
applicable Governmental Authority that Tenant shall have failed to comply with
applicable Medicare and/or Medicaid regulations in the operation of the
facility, as a result of which failure Tenant declared ineligible to receive
reimbursements under the Medicare and/or Medicaid programs, which determination
shall have a material adverse effect on Tenant, any Guarantor or the facility,
unless such determination is the result of a business decision of Tenant,
approved in advance by Landlord (which approval shall not be unreasonably
withheld or delayed), to operate the facility on a one hundred percent (100%)
non-Medicare and/or non-Medicaid basis, as the case may be; provided, however,
that notwithstanding the foregoing, upon the prior approval of Landlord (which
approval shall not be unreasonably withheld or delayed) Tenant may elect to
decertify (or otherwise remove or withdraw) a portion of the beds at the
facility from participation in the Medicare and/or Medicaid programs.
(ix) If Tenant or any Guarantor receives notice of (a) a final
unappealable determination by applicable Governmental Authorities of the
revocation of any permit required for the lawful operation of the facility in
accordance with its primary intended use, and such revocation shall have a
material adverse affect on the ability of Tenant to operate the facility in
accordance with the primary intended use, or (b) the loss of any permit under
any other circumstances under which Tenant is permanently required to cease
operation of the facility in accordance with its primary intended use.
(b) Upon the happening of any one or more of the aforementioned
Defaults which are not cured within the cure period applicable thereto, if any,
Landlord shall have the right, in addition to any other rights and remedies, to
terminate this Lease by giving written notice of same to Tenant. Upon such
notice, this Lease shall cease and expire, and Tenant shall surrender the
Premises to Landlord. Notwithstanding such termination, Tenant's liability and
obligation under all provisions of this Lease, including the obligation to pay
Rent and any and all other amounts due hereunder shall survive and continue. In
addition, in the event of Tenant's Default under this Lease, Landlord may, by
notice to Tenant, accelerate the monthly installments due hereunder for the
remaining term of this Lease, in which event such amount, together with any sums
then in arrears, shall immediately be due and payable to Landlord. Tenant hereby
expressly agrees that its occupation of the Premises after default constitutes
forcible detainer (or equivalent) as is defined by the law in force in the
jurisdiction in which the Premises are located.
(c) If this Lease shall terminate as provided hereinabove, Landlord may
re-enter the Premises and remove Tenant, its agents and sub-tenants, together
with all or any of Tenant's Property, by suitable action at law, or by force.
Tenant waives any right to the service of any notice of Landlord's intention to
re-enter and Landlord shall not be liable in any way in connection with any
action it takes pursuant to this paragraph. Notwithstanding such re-entry or
removal, Tenant's liability under the provision of this Lease shall survive and
continue.
(d) In case of re-entry, repossession or termination of this Lease,
Tenant shall remain liable for Rent, any additional rent and all other charges
provided for in this Lease for the
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otherwise remaining term of this Lease, and any and all expenses which Landlord
may have incurred in re-entering the Premises including, but not limited to,
allocable overhead, alterations to the building, leasing, construction,
architectural, legal and accounting fees. In addition, Tenant shall pay to
Landlord any and all attorneys' fees, legal costs and expenses incurred with
respect to enforcement of the provisions hereof. Landlord shall have the right,
but not the obligation, to relet the whole or part of the Premises upon terms
which Landlord, in its sole discretion, deems appropriate and Tenant shall be
responsible for all expenses incurred by Landlord in re-letting or attempting to
re-let and all rent collected for reletting shall be credited against all of
Tenant's obligations hereunder.
(e) The rights and remedies of Landlord set forth herein shall be in
addition to any other right and remedy now or hereinafter provided by law, and
all such rights and remedies shall be cumulative. No action or inaction by
Landlord shall constitute a waiver of a Default, and no waiver of Default shall
be effective unless it is in writing, signed by Landlord.
14. HOLDING OVER
In the event Tenant remains in possession of the Premises after the
expiration of this Lease, without executing a new lease, Tenant shall occupy the
Premises as a tenant from month to month subject to all the terms hereof, but
such possession shall not limit Landlord's rights and remedies by reason thereof
nor constitute a holding over.
15. WAIVER OF SUBROGATION
Notwithstanding anything in this Lease to the contrary, other than
Tenant's obligations to repair, restore or rebuild described in paragraph 4
hereinabove, neither party shall be liable to the other for any damage or
destruction of the property of the other resulting from fire or other casualty
covered by insurance required of either party hereunder, whether or not such
loss, damage or destruction of property is caused by or results from the
negligence of such party (which term includes such party's officers, employees,
agents and invitees), and each party hereby expressly releases the other from
all total liability for or on account of any said loss, damage or destruction,
whether or not the party suffering the loss is insured against such loss, and if
insured whether fully or partially. Each party shall procure all endorsements of
insurance policies carried by it necessary to protect the other from any right
of subrogation and/or liability in the event of such loss.
16. LIEN FOR RENTS
As security for Tenant's payment of Rent and all other payments
required to be made by Tenant hereunder (including, by way of illustration only,
taxes, damage to the Premises, court costs, and attorneys' fees) Tenant hereby
grants to Landlord a lien upon all of Tenant's Property now or hereafter located
upon the Premises. The lien herein provided shall be subordinate to the lien of
any chattel mortgage, collateral assignment or security interest given by Tenant
to any seller of such property. If default is made by Tenant in the payment of
any sum which may
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become due hereunder and said sum is not paid within ten (10) days after written
notice is given by Landlord to Tenant for Tenant's default, Landlord may enter
upon the Premises and take possession of Tenant's Property, or any part thereof,
and may sell all or any part of Tenant's Property at public or private sale in
one or successive sales, with or without notice, to the highest bidder for cash
and on behalf of Tenant. Landlord may sell and convey Tenant's Property, or any
part thereof, to such bidder, delivering to such bidder all of Tenant's title
and interest in such property sold to him. The proceeds of such sale shall be
applied by Landlord toward the costs thereof and then toward the payment of all
sums when due by Tenant to Landlord hereunder.
17. ASSIGNMENT AND SUBLETTING
(a) The Tenant shall not have the right, without first obtaining
Landlord's prior written consent which will not be unreasonably withheld, to
assign or sublet any part or all of the Premises to any party for any purpose. A
change in ownership of the controlling interest of Tenant shall also constitute
an assignment subject to this subparagraph. Landlord, without being deemed
unreasonable, may withhold its consent to any proposed assignment or subletting
where (i) the financial capacity of such assignee or subtenant is materially
less than that of tenant or (ii) such assignee or subtenant does not intend to
operate a health care facility on the Premises or (iii) even if such assignee or
subtenant intends to operate a health care facility on the Premises, the type of
health care facility or the operating history of such assignee or subtenant or
the operating history of such type of health care facility reflects an inability
to generate Gross Revenues and potential revenues growth equal to or greater
than that of the Tenant. Even if such consent to assignment or subletting is
given by Landlord, such assignment or subletting shall not relieve Tenant of its
liability for the continued performance of all terms, covenants and conditions
of this Lease, including without limitation the payment of all rent, additional
rent and Percentage Rent and other charges thereunder. Likewise, as a condition
of any such assignment by Tenant, the assignee shall be required to execute and
deliver to Landlord, upon the effective date of such assignment, an agreement,
in recordable form, whereby such assignee assumes and agrees to discharge all
obligations of Tenant under this Lease.
(b) In the event of the subletting or assignment of this Lease, any
monetary consideration obtained from an assignee or transferee upon such
subletting or assignment shall be paid to Landlord. In the event of the
subletting or assignment of this Lease, if Tenant derives funds or rental income
greater than what it is paying to Landlord under this Lease, the Annual Rent
provided for herein shall be increased to that amount received by Tenant from
sublessee or assignee of this Lease.
(c) Prior to any assignment allowed hereunder, Tenant shall deliver to
Landlord (i) a copy of the assignment documents (including copies of any
recorded documents), and (ii) the name, address and telephone number of such
assignee and a designated contact person for such assignee, and (iii) a new
insurance policy and binder complying with the terms of this Lease and naming
such assignee as the tenant of the Premises. Notwithstanding anything herein to
the contrary, in the event of any assignment of this Lease or subletting of the
Premises, Tenant shall not be released from its obligations under this Lease
unless specifically released by virtue of a
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separate written instrument executed by Landlord, which may be withheld in
Landlord's sole discretion.
(d) The Landlord shall have the right without limitation (subject to
paragraph 11 hereof) to sell, convey, transfer or assign its interest in the
Premises or its interest in this Lease, and upon such conveyance being completed
all covenants and obligations of Landlord under this Lease accruing thereafter
shall cease, but such covenants and obligations shall run with the land and
shall be binding upon the subsequent landlord or owners of the Premises or of
this Lease.
18. SUBORDINATION, NON-DISTURBANCE, ATTORNMENT, ESTOPPEL CERTIFICATE.
(a) Upon written request of the holder of any mortgage (which term
"mortgage" shall also include deeds of trust) now or hereafter relating to the
Premises, Tenant will subordinate its rights under this Lease to the lien
thereof and to all advances made or hereafter to be made upon the security
thereof, and Tenant shall execute, acknowledge and deliver an instrument in the
form customarily used by such encumbrance holder to effect such subordination;
provided, however, as a condition of all such subordinations, the holder of such
mortgage shall be first required to agree with Tenant that, notwithstanding the
foreclosure or other exercise of rights under any such first or other mortgage,
Tenant's possession and occupancy of the Premises and the improvements and its
leasehold estate shall not be disturbed or interfered with nor shall Tenant's
rights and obligations under this Lease be altered or adversely affected thereby
so long as Tenant is not in default hereunder.
(b) Notwithstanding anything set out in subparagraph (a) above to the
contrary, in the event the holder of any such mortgage elects to have this Lease
be superior to its mortgage, then upon Tenant's being notified to that effect by
such encumbrance holder, this Lease shall be deemed prior to the lien of said
mortgage, whether this Lease is dated prior or subsequent to the date of said
mortgage, and Tenant shall execute, acknowledge and deliver an instrument, in
the form customarily used by such encumbrance holder, effecting such priority.
(c) In the event proceedings are brought for the foreclosure of, or in
the event of the exercise of the power of sale under any mortgage made by
Landlord covering the Premises, or in the event of delivery of a deed in lieu of
foreclosure under such a mortgage Tenant will attorn to the purchaser upon any
such foreclosure or sale and recognize such purchaser as Landlord under this
Lease, and upon the request of the purchaser, Tenant shall execute, acknowledge
and deliver an instrument, in form and substance satisfactory to such purchaser,
evidencing such attornment.
(d) Each party agrees, within seven (7) days after written request by
the other, to execute, acknowledge and deliver to and in favor of any proposed
mortgagee or purchaser of the Premises, an estoppel certificate, in the form
customarily used by such proposed mortgagee or purchaser, stating, among other
things (i) whether this Lease is in full force and effect, (ii) whether this
Lease has been modified or amended and, if so, identifying and describing any
such
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modification or amendment, (iii) the date to which rent and other charge has
been paid, and (iv) whether the party furnishing such certificate knows of any
default on the part of the other party or has any claim against such party and,
if so, specifying the nature of such default or claims.
(e) Upon written demand by the holder of any mortgage covering the
Premises, Tenant shall forthwith execute, acknowledge and deliver an agreement
in favor of and in the form customarily used by such encumbrance holder, by the
terms of which Tenant will agree to give prompt written notice to such
encumbrance holder in the event of any casualty damage to the Premises or in the
event of any default on the part of Landlord under this Lease, and will agree to
allow such encumbrance holder a reasonable length of time after notice to cure
or cause the curing of such default before exercising Tenant's rights under this
Lease, or terminating or declaring a default under this Lease.
19. COOPERATION
(a) Landlord shall fully cooperate with Tenant throughout the term of
this Lease to secure or maintain proper zoning, building and other permits and
compliance with all applicable laws. Landlord shall execute any petitions,
requests, applications and the like as Tenant shall reasonably request in order
to obtain any permit, license, variances and approvals which, in the reasonable
judgment of Tenant, are necessary for the lawful construction and/or operation
of Tenants business on the Premises, provided, however, that Tenant shall
indemnify and save Landlord harmless from any and all expenses, costs, charges,
liabilities, losses, obligations, damages and claims of any type which may be
imposed upon, asserted against or incurred by Landlord by reason of same.
(b) In the event that Tenant elects to purchase the Premises pursuant
to the terms and conditions of paragraph 11 hereof, Landlord shall have the
right, in Landlord's sole discretion, to enter into an exchange agreement (the
"Exchange Agreement") with a qualified intermediary (the "Intermediary") in
order to effectuate a like-kind exchange of the Premises for one or more other
properties (the "Replacement Property"). In that event, Landlord shall assign to
the Intermediary all of Landlord's right, title and interest in the written
contract for purchase and sale of the Premises entered into between Landlord and
Tenant as required by paragraph 11 hereof (the "Purchase Contract"), and any
deposit paid by Tenant in connection with the purchase of the Premises shall be
placed directly with the Intermediary, subject to the terms and conditions of
the Purchase Contract and the Exchange Agreement. Landlord and Tenant agree
that, at Landlord's option, Tenant shall cooperate with Landlord in effecting a
like-kind exchange of the Premises by Landlord pursuant to and in accordance
with the provisions of Section 1031 of the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations promulgated thereunder, which cooperation
shall include, without limitation, Tenant's consent to Landlord's assignment of
its interest in the Purchase Contract to the Intermediary and Tenant receiving
or taking title to the Premises from the Intermediary or another third party
utilized in the transaction in order to facilitate the like-kind exchange on
behalf of Landlord.
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20. NOTICES
All notices and other communications required or permitted to be given
hereunder shall be in writing and shall be delivered by a nationally recognized
overnight courier or mailed by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If to Landlord: CNL __________
400 East South Street
Orlando, Florida 32801
with copy to: (Attorney's Name and Address)
-------------------------
-------------------------
-------------------------
If to Tenant: (TENANT NAME), a (State of Incorporation)
(Tenant Entity Type)
(Tenant Street Address)
(Tenant Street Address)
(Tenant City), (Tenant State) (Tenant Zip)
Any party may change its address for notices by written notice in like
manner as provided in this paragraph and such change of address shall be
effective seven (7) days after the date notice of such change of address is
given. Notice for purposes of this Lease shall be deemed given when it shall
have been deposited in the mail by the party who is giving such notice with
sufficient postage prepaid.
21. INDEMNIFICATION
Tenant does hereby indemnify and exonerate Landlord against and from
all liabilities, losses, obligations, damages, penalties, claims, costs, charges
and expenses, including reasonable architects' and attorneys' fees, which may be
imposed upon or asserted against or incurred by Landlord by reason of any of the
following occurring:
(a) any work or thing done in respect of construction of, in or to
the Premises or any part of the improvements now or hereafter constructed on
the Premises;
(b) any use, possession, occupation, operation, maintenance or
management of the Premises or any part hereof;
(c) any failure to, or to properly, use, possess, occupy, operate,
maintain or manage the Premises or any part thereof;
(d) the condition, including environmental conditions, of the
Premises or any part thereof;
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(e) any negligence on the part of Tenant or any of its agents,
contractors, servants, employees, licensees or invitees;
(f) any accident, injury or damage to any person or property occurring
in, on or about the Premises or any part thereof including any sidewalk adjacent
thereto; or
(g) any failure on the part of Tenant to perform or comply with any of
the covenants, agreements, terms or conditions contained in this Lease on its
part to be performed or complied with.
22. HOLD HARMLESS
Tenant agrees to hold Landlord harmless against any and all claims,
damages, accidents and injuries to persons or property caused by or resulting
from or in connection with anything in or pertaining to or upon the Premises
during the term of this Lease or while Tenant is occupying the Premises, except
if such claim, damage, accident or injury shall be caused by the negligence of
Landlord or its agents. Landlord shall not be liable to Tenant, Tenant's
employees, agents, invitees, licensees or any other person whomsoever for any
injury to person or damage to property on or about the Premises caused by the
negligence or misconduct of Tenant, its agents, servants or employees or of any
other person entering the building under expressed or implied invitation by
Tenant or due to any other cause whatsoever, unless caused by the negligence or
neglect of Landlord, its employees or its authorized representatives.
23. LANDLORD'S LIABILITIES
The term "Landlord" as used in this Lease means the owner from time to
time of the Premises. Neither Landlord nor any partner, shareholder or
beneficiary thereof shall have any personal liability with respect to any of the
provisions of this Lease and if Landlord is in default with respect to its
obligations hereunder Tenant shall look solely to the equity of Landlord in the
Premises.
24. SUCCESSORS
The covenants, conditions and agreements contained in this Lease shall
bind and inure to the benefit of Landlord and Tenant and their respective heirs,
legal representatives, successors and assigns.
25. ENTIRE AGREEMENT/MEMORANDUM OF LEASE
This Lease contains the entire agreement between the parties hereto and
may not be modified in any manner other than in writing signed by the parties
hereto or their successors in interest. A memorandum of this Lease shall be
executed by the parties and shall be recorded in the official records of the
county where the Premises are located.
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26. GENDER
Whenever the context hereof permits or requires, words in the singular
may be regarded as in the plural and vice-versa, and personal pronouns may be
read as masculine, feminine and neuter.
27. BROKERAGE FEES
It is understood and agreed that neither party has incurred any real
estate brokerage fees or commissions arising out of this Lease and each party
agrees to hold the other harmless from and against all such fees and commissions
incurred, and costs related thereto including legal fees, as a result of its own
conduct or alleged conduct.
28. CAPTIONS
The captions of this Lease are for convenience only, and do not in any
way define, limit, disclose, or amplify terms or provisions of this Lease or the
scope or intent thereof.
29. LANDLORD'S RIGHT TO CURE
In the event Tenant shall fail, refuse or neglect to perform, observe
or comply with any term, condition, covenant, agreement or obligation contained
in the Lease on its part to be performed or complied with, then Landlord may, at
its sole option, enter upon the Premises, if deemed necessary by Landlord in its
sole discretion, and/or do whatever may be deemed necessary by Landlord in its
sole discretion to cure such failure by Tenant. Tenant shall pay to Landlord
within five (5) days of Landlord's request, all costs incurred by Landlord in
connection with Landlord's curing of such failure by Tenant including, but not
limited to, reasonable attorney and paralegal fees whether or not judicial
proceedings are involved. In addition to the above costs, in the event Landlord
does not receive payment from Tenant when due hereunder, interest at the rate of
eighteen percent (18%) per annum or the highest rate allowable by law shall be
due and payable with respect to such payment from the due date thereof until
Landlord receives such payment.
30. COMMITMENT LETTER
That certain commitment letter dated ______________, 199_ is hereby
incorporated herein by reference and the terms and conditions thereof shall
survive closing with respect to the transaction contemplated by this Lease. In
the event any terms of the commitment letter are inconsistent with the terms
contained in this Lease, the terms of this Lease shall control.
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31. NOT A SECURITY ARRANGEMENT
The parties hereto agree and acknowledge that this transaction is not
intended as a security arrangement or financing secured by real property, but
shall be construed for all purposes as a true lease.
32. NET LEASE
It is the intention of the parties hereto that this Lease is and shall
be treated as a triple net lease. Any present or future law to the contrary
notwithstanding, this Lease shall not terminate (except as expressly provided in
paragraph 4(a)) nor shall Tenant be entitled to any abatement, suspension,
deferment, reduction (except as expressly provided in paragraph 6(b) hereof),
setoff, counterclaim, or defense with respect to the rent, nor shall the
obligations of Tenant hereunder be affected by reason of: any damage to or
destruction of the Premises or any part thereof; any taking of any Premises or
any part thereof or interest therein by Condemnation or otherwise (except as
expressly provided in paragraph 6(b) hereof); any prohibition, limitation,
restriction or prevention of Tenant's use, occupancy or enjoyment of the
Premises or any part thereof, or any interference with such use, occupancy or
enjoyment by any person or for any other reason; any title defect or encumbrance
or any matter affecting title to the Premises or any part thereof; any eviction
by paramount title or otherwise; any default by Landlord hereunder; any
proceeding relating to Landlord; the impossibility or illegality of performance
by Landlord, Tenant or both; any action of governmental authority; any breach of
warranty or misrepresentation; any defect in the condition, quality or fitness
for use of the Premises or any part thereof; or any other cause whether similar
or dissimilar to the foregoing and whether or not Tenant shall have notice or
knowledge of any of the foregoing. The parties intend that the obligations of
Tenant hereunder shall be separate and independent covenants and agreements and
shall continue unaffected unless such obligations shall have been modified or
terminated in accordance with an express provision of this Lease.
33. WAIVER
No waiver by Landlord of any provision hereof shall be deemed a wavier
of any other provision hereof or of any subsequent breach by Tenant of the same
or any other provision. Landlords's consent to, or approval of, any act shall
not be deemed to render unnecessary the obtaining of Landlord's consent to or
approval of any subsequent act by Tenant. The acceptance of rent hereunder by
Landlord shall not be a waiver of any preceding breach by Tenant of any
provision hereof, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent.
34. TIME OF THE ESSENCE
Landlord and Tenant agree that time shall be of the essence of all
terms and provisions of this Lease.
19
<PAGE>
35. GOVERNING LAW
This Lease shall be construed in accordance with the laws of the state
in which the Premises is located.
IN WITNESS WHEREOF, the parties hereto have caused this Lease Agreement
to be executed the day and date first above written.
Signed, Sealed and Delivered
in the presence of: "LANDLORD"
CNL ___________________ , a
__________________corporation
- -------------------------
By:
----------------------------------------
Name:
---------------------
- -------------------------
Name:
---------------------
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me this ____ day of
_______________, 1998 by ____________________, as ______________________ of CNL
_____________________, a ____________________, on behalf of the
_______________________. He is personally known to me and did not take an oath.
---------------------------------
Notary Signature
---------------------------------
Printed Name
Notary Public, State of Florida
Commission Number:
---------------
My Commission Number:
---------------
20
<PAGE>
"TENANT"
(TENANT NAME), a (State of
Incorporation) (Tenant Entity Type)
- -----------------------
By:
---------------------------------
Name: Name:
------------------ ---------------------------------
As Its:
-------------------------------
- -----------------------
Name:
------------------
STATE OF ______________
COUNTY OF ____________
The foregoing was executed before me on , 1998, by
_______________________________ as ____________________________ of
__________________________________, a __________ corporation, on behalf of the
corporation. He/She is personally known to me or produced
______________________________________________________________ as identification
and did not take an oath.
-------------------------------------------
(NOTARY SEAL) Notary Public, State of
--------------------
Printed Name:
------------------------------
Notary Commission No.
-----------------------
My Commission Expires:
---------------------
Exhibit "A" - Legal Description
<PAGE>
Exhibit "A"
Legal Description of the Premises
<PAGE>
RENT ADDENDUM
to
LEASE AGREEMENT
THIS RENT ADDENDUM dated (Closing Date), by and between CNL __________,
a (State of Registration) (Landlord Entity Type) as "Landlord", and (TENANT
NAME),a (State of Incorporation) (Tenant Entity Type), as "Tenant", for (HEALTH
CARE FACILITY NAME) (Site Number), (City), (County) County, (State), is attached
to and made a part of that certain Lease Agreement by and between Landlord and
Tenant of even date herewith (the "Lease"). Notwithstanding any other provision
to the contrary which may be contained in said Lease, it is specifically agreed
by and between Landlord and Tenant as follows:
(a) Commencement of Rent.
On the date hereof, Landlord has simultaneously entered into the Lease
with Tenant pursuant to which Tenant has agreed to lease from Landlord the
Premises and all improvements now or hereafter constructed thereon. Payment of
Interim Rent (if applicable), Annual Rent and Percentage Rent shall commence as
of the Effective Date as provided herein, notwithstanding that the improvements
may not be constructed or complete at that time.
(b) Interim Rent.
The terms and provisions of this paragraph (b) shall apply only if a
Construction Addendum is attached to and incorporated in the Lease. From and
after the Effective Date until Annual Rent shall first become due and payable
pursuant to subparagraph (c) below, Interim Rent shall be due and payable in
advance monthly installments on the first day of each month. For purposes of
this Lease, the term "Interim Rent" shall mean an amount equal to the product of
(i) ___________ percent (_____%) per annum, multiplied by (ii) the amount
theretofore funded by Landlord under the terms of the Construction Addendum.
Interim Rent for partial months shall be prorated on a per diem basis.
[[INSERT FOLLOWING VERSION OF PARAGRAPH (c) FOR CONSTRUCTION
SITES]]
(c) Annual Rent
(i) Definitions. Capitalized terms used in the Lease and the
Construction Addendum shall have the same meaning in this Rent Addendum unless
otherwise defined. In addition to those terms defined elsewhere in this Rent
Addendum, as used herein the following terms shall have the meaning indicated:
"Construction Period" shall mean the period beginning on the Effective
Date and ending on the earliest of (i) ____________ (___) days after the
Effective Date; (ii) the date a certificate of occupancy for the Premises is
issued; (iii) the date the health care facility opens for business
<PAGE>
on the Premises; and (iv) the date Tenant receives from Landlord its final
funding of the construction costs for the Project under this Construction
Addendum.
"Annual Rent Commencement Date" shall mean the last day of the Construction
Period.
"Total Cost" shall mean the sum of (i) the purchase price paid by
Landlord for the land comprising a portion of the Premises, plus (ii) all
approved closing costs paid by Landlord, plus (iii) all actual "hard"
construction costs and approved "soft" costs incurred by Tenant and funded by
Landlord during the Construction Period pursuant to the terms and conditions of
the Construction Addendum.
(ii) Initial Annual Rent. Beginning on the Annual Rent
Commencement Date, Tenant covenants and agrees to pay to Landlord Annual Rent in
an annual amount equal to ______________ percent (______%) multiplied by the
Total Cost, payable to Landlord in equal monthly installments in advance, on the
first (1st) day of each month. Landlord and Tenant agree that prior to the
Annual Rent Commencement Date they will endeavor to establish the Total Cost so
that rent payable on the Annual Rent Commencement Date will be known prior to
such date. However, if the exact amount of the Total Cost shall not have been
finally ascertained prior to the Annual Rent Commencement Date, Tenant shall as
of the Annual Rent Commencement Date pay Landlord rent based on an annual rent
under the Lease determined by multiplying ___________ percent (____%) times
$__________________________ (the Funding Limitation set forth in the
Construction Addendum), and if, when the exact amount of the Total Cost shall
have been ascertained (the "Final Disbursement Date"), such Total Cost is more
or less than $_________________, Landlord or Tenant, as the case may be, shall
promptly refund or remit to the other an amount equal to the excess rent paid or
the underpayment of rent due. On the Final Disbursement Date, Landlord shall
mail to Tenant a statement setting forth a schedule of funds disbursed by
Landlord to Tenant under the Construction Addendum; shall compute the Annual
Rent payable hereunder; and shall state the excess rent paid or underpayment of
rent due. The Annual Rent set forth in such statement shall constitute the
Annual Rent due hereunder.
(iii) Increases in Annual Rent. Commencing at the end of the
______ Lease Year after the Effective Date, and on each ______ anniversary of
such date thereafter during the term of this Lease (and any extension thereof),
Annual Rent shall be increased by an amount equal to _____ percent (__%) of the
Annual Rent payable during the immediately preceding Lease Year.
(iv) Partial Months. If the date on which Annual Rent shall
first be due and payable shall fall on a day other than the first day of a
calendar month, then rent for the partial rental month shall be prorated on a
per diem basis on the first Annual Rent payment and shall be paid by Tenant to
Landlord for such month.
[[INSERT FOLLOWING VERSION OF PARAGRAPH (c) FOR EXISTING STORES/NO
CONSTRUCTION ADDENDUM]]
2
<PAGE>
(c) Annual Rent
(i) Beginning on the Effective Date, Tenant covenants and
agrees to pay to Landlord Annual Rent in the annual amount of
_________________________________________, payable to Landlord in equal monthly
installments in the amount of ___________________________________ AND
___/DOLLARS ($ ) monthly in advance, on the first (1st) day of each month.
(ii) Increases in Annual Rent. Commencing at the end of the
______ Lease Year after the Effective Date, and on each _______ anniversary of
such date thereafter during the term of this Lease (and any extension thereof),
Annual Rent shall be increased by an amount equal to _______ percent (__%) of
the Annual Rent payable during the immediately preceding Lease Year.
(iii) Partial Months. If the date on which Annual Rent shall
be first due and payable shall fall on a day other than the first day of a
calendar month, then rent for the partial rental month shall be prorated on a
per diem basis on the first Annual Rent payment and shall be paid by Tenant to
Landlord for such month.
(d) Sales/Use Tax.
Tenant shall also pay to Landlord any sales and use tax imposed on any
Rents payable hereunder from time to time by state law or any other governmental
entity, which sums are due monthly.
(e) Late Charges.
In the event any installment of rent due hereunder (including Interim
Rent and Annual Rent) is not received by Landlord within ten (10) days of its
respective due date, there shall be an automatic late charge due to Landlord
from Tenant in the amount of five percent (5%) of such delinquent installment of
rent. All such late charges due hereunder shall be deemed additional Rent, and
are not penalties but rather are charges attributable to administrative and
collection costs arising out of such delinquency. In addition to such late
charge, in the event Landlord does not receive Rent when due hereunder, interest
at the rate of the maximum rate allowable by law shall be due and payable with
respect to such payment from the due date thereof until Landlord receives such
payment.
(f) Payments of Rents.
Except as provided in the following sentence, all Rent payments shall
be made by check payable to the order of Landlord and shall be sent to 400 East
South Street, Orlando, Florida 32801, or to such other place or places as
Landlord or its successors or assigns, respectively, may from time to time
designate in writing. In the event Tenant is late in the payment of Interim,
3
<PAGE>
Annual or Percentage Rent on three (3) or more occasions, and if Landlord shall
so request, Tenant shall establish arrangements whereby Rent is transferred by
wire or other means directly from Tenant's bank account to such account as
Landlord may designate.
(g) No Abatement.
Unless otherwise stated in the Lease, no abatement, offset, diminution
or reduction (a) of Rent, charges or other compensation, or (b) of Tenant's
other obligations under this Lease shall be allowed to Tenant or any person
claiming under Tenant, under any circumstances or for any reason whatsoever.
Initialed for Identification:
- -----------------------------------
By Landlord
------------------------------------
By Tenant
4
<PAGE>
CONSTRUCTION ADDENDUM
THIS CONSTRUCTION ADDENDUM, executed as of (Closing Date), by and
between CNL __________, a (State of Registration) (Landlord Entity Type) with
principal office and place of business at 400 E. South Street, Orlando, Florida
32801 ("Landlord"), and (TENANT NAME), a (State of Incorporation) (Tenant Entity
Type), with a mailing address of (Tenant Street Address), (Tenant Street
Address), (Tenant City), (Tenant State) (Tenant Zip) ("Tenant").
PRELIMINARY STATEMENT
Landlord has acquired the real property which constitutes a portion of
the Premises described in Exhibit "A" attached to the Lease Agreement and has
leased the same to Tenant under the terms of the Lease Agreement. Landlord
desires to construct or have constructed certain improvements on the Premises
and is entering into this Construction Addendum with Tenant for the purpose of
setting forth the terms and conditions under which Tenant shall serve as
developer in connection with the Project (as that term is defined hereinbelow).
NOW, THEREFORE, it is agreed, by and between the parties hereto as
follows:
1. Definitions. Capitalized terms used in the Lease Agreement shall
have the same meaning in this Construction Addendum unless otherwise defined. In
addition to those terms defined elsewhere in this Construction Addendum, as used
herein the following terms shall have the meaning indicated:
"Project" shall mean construction of the building and all necessary
site improvements on the Premises for the initial use as a ___________ health
care facility by Tenant who is Tenant under the Lease Agreement between Tenant
and Landlord of even date herewith (the "Lease Agreement"). Such building and
improvements shall be completed in accordance with the plans and specifications
approved by Landlord and Tenant prior to Landlord's acquisition of the Premises,
which approval shall not be unreasonably withheld, delayed or conditioned.
"Construction Period" shall mean the period beginning on the Effective
Date and ending on the earliest of (i) _____________ (___) days after the
Effective Date; (ii) the date a certificate of occupancy for the Premises is
issued; (iii) the date the __________ health care facility opens for business on
the Premises; and (iv) the date Tenant receives from Landlord its final funding
of the construction costs for the Project under this Construction Addendum.
2. Authorization, Independent Contractor. Landlord hereby engages
Tenant as an independent contractor and authorizes Tenant to enter upon the
Premises and to undertake responsibilities, duties, obligations, rights and
authority expressly herein set forth and, subject to the provisions hereof,
Tenant hereby accepts such appointment and agrees to perform and fully discharge
all of its duties, responsibilities and obligations herein set forth diligently,
promptly and in full compliance with the provisions hereof.
<PAGE>
3. Co-Tenant and Sub-Agents. Tenant may delegate the performance of any
of its responsibilities hereunder to one or more contractors, subcontractors,
consultants, co-developers or sub-agents; provided, however, that no such
delegation shall relieve Tenant of its duties, responsibilities and obligations
hereunder.
4. Specific Duties and Obligations. Tenant shall be responsible for the
complete development and construction of the Project and shall deliver a
turn-key facility to Landlord. In that connection, Tenant's duties, obligations
and responsibilities include, but shall not be limited to the following:
(a) Project Design. Procuring all necessary architectural and
engineering services related to the site work, design and engineering related to
the Project, any and all engineering and impact studies or reports related to
the development of the Project, and processing and obtaining all required
governmental approvals.
(b) Licenses and Permits. Obtaining all licenses, permits and
approvals required to prepare the site for development, to permit construction
of the Project and to operate it for its intended purposes. Such licenses,
permits and approvals shall include, but shall not be limited to, water
management district approvals, approvals required under any franchise agreement,
financing agreement or any instrument of record, building permits, certificates
of occupancy, and any other required governmental consents or approvals.
(c) General Contractor, Construction Contracts and Purchase
Orders. Negotiating all necessary construction contracts, for the benefit of
Landlord, relating to the development and construction of the Project. All
construction contracts and purchase orders for work, material or equipment shall
be entered into between Tenant and the contractors or vendors selected and shall
be satisfactory in form and substance to Landlord, Tenant, and legal counsel for
Landlord and Tenant, including a payment and performance bond from the general
contractor in the amount of the general construction contract. The general
construction contract and construction/trade cost breakdown shall be approved by
Landlord prior to Landlord's purchase of the property. The general construction
contract shall contain provisions for a ten percent (10%) retainage and
submission to Landlord of all underlying contracts with and invoices (required
only if a cost-plus contract) from materialmen and subcontractors. All change
orders to such contract must be approved in writing by Landlord. Tenant shall
cause its general contractor to submit (and the general construction contract
shall so provide) all subcontracts to Landlord prior to commencement of
construction.
(d) Construction Coordination. Coordinating all aspects of
construction of the Project to completion. Tenant shall monitor the progress of
construction and the compliance by all contractors with the provisions of their
construction contracts, through periodic on-site visits and inspections and
through written and other reports from the architect, contractors and other
construction supervisory personnel. Tenant shall keep Landlord advised from time
to time of the progress of construction. Tenant shall review and approve all
contractor and other payment requests made from time to time and shall review
all such requests to ensure compliance with the
2
<PAGE>
construction contract and the terms hereof. Tenant shall determine which, if
any, contractor or subcontractor is in default under the provisions of its
applicable contract or subcontract, and what measures should be taken in
connection therewith.
(e) Funding. Financing to be provided by Landlord hereunder
shall be limited to all actual "hard" construction costs of the Project together
with approved "soft" costs (to the extent set forth herein), exclusive of any
developer's fee. Landlord's funding shall be disbursed to Tenant monthly against
draw requests submitted by Tenant to Landlord. Each such draw request shall be
submitted on AIA Forms G-702 and G-703 (or other forms approved by Landlord),
shall be prepared in accordance with Landlord's instructions and shall be
received by Landlord no later than the twenty-fifth (25th) day of each month.
Each draw request shall be accompanied by all supporting documentation required
by Landlord (including partial lien waivers from the general contractor and all
subcontractors waiving all lien rights through the date of the last draw
request, and copies of invoices for "soft" costs which may be reimbursable). If
properly prepared and documented requests are received by the twenty-fifth
(25th) day of a month, Landlord shall pay proper amounts reflected in such
request by the tenth (10th) day of the following month. The funds to be advanced
by Landlord pursuant to this Construction Addendum shall at no time in the
aggregate exceed $________________ (the "Funding Limitation"), minus the
purchase price Landlord paid at closing for the acquisition of the Premises,
including Landlord's acquisition costs and closing costs. Tenant shall be solely
responsible for the full and timely payment of any and all costs of developing
the Project which exceed the Funding Limitation determined hereinabove. If, at
any time after the date hereof, there exists any unpaid costs in excess of the
Funding Limitation, then Landlord shall have the right to immediately stop
funding under this Construction Addendum until such time as Tenant has funded
such excess costs and has provided Landlord with evidence that such excess costs
have been paid in full by Tenant. Tenant shall obtain no construction financing
for the Project which is secured by a lien on the Project. Construction
financing shall not include equipment financing.
(f) General Construction Matters. Tenant shall commence
construction as soon as practicable after the date hereof and, after
commencement and subject to Paragraph 9 hereinbelow, shall diligently complete
the Project within __________ (___) days thereafter in a first-class,
workmanlike manner and in conformity with all applicable governmental laws,
ordinances, rules, orders, regulations and other requirements and in substantial
compliance with the plans and specifications approved by Landlord, Tenant's
franchisor and the final working drawings. Notwithstanding the foregoing,
Landlord agrees to consider reasonable written requests from Tenant for
extensions of time to complete the Project beyond the __________(___) day
period.
All of Tenant's records pertaining to the construction of the
Project shall be available for inspection and copying by Landlord and its agents
and employees during normal business hours. Following completion of the Project,
Tenant shall execute such documents and instruments as Landlord may request (in
form and substance reasonably satisfactory to Landlord and Tenant) to evidence
Landlord's ownership of and title to all improvements on the Premises
3
<PAGE>
comprising, in the aggregate, the Project and shall assign to Landlord all
warranties relating to the work and/or materials performed at or incorporated
into the Project.
Tenant shall as part of the construction and development work
engage an inspecting architect or engineer suitable to Landlord to make monthly
inspections and to certify all draw requests to Landlord. Such certification
shall include a statement of work done if not reasonably ascertainable from the
draw request and shall be accompanied by color photographs in no less than 3
1/2" by 5" formats showing the construction work completed as of the inspection
date. Such photographs shall be taken from such vantage points as are required
to clearly show all work done and once vertical construction has commenced shall
show all elevations. The final draw request shall be accompanied by: (1) the
contractor's affidavit of completion and proof of payment of all subcontractors
and all materialmen; (2) an assignment of all manufacturer's warranties for any
material, equipment or workmanship installed as a part of the Project; (3) an
ALTA as-built survey of completed Project certified to Landlord and Tenant, and
any title company designated by Landlord; (4) Certificate(s) of Occupancy for
the Project issued by the appropriate regulatory agencies; and (5) a complete
certified final set of plans, specifications and working drawings for the
Project as completed. At the time such draw request is submitted to Landlord,
Landlord shall order or cause to be ordered an update search or endorsement to
its title insurance policy for the Premises, which must show no additional
matters of record through a then current date (except for matters which have
been previously accepted by Landlord).
No approvals or inspections made, given or conducted by
Landlord shall relieve Tenant of any duties, responsibilities, obligations or
liabilities hereunder.
5. Development Fee. Neither Tenant nor any affiliate shall receive a
development or construction supervision fee for its services hereunder. A
licensed general contractor shall be entitled to reasonable, normal and
customary overhead and profit in connection with the performance of its services
under a general construction contract. Said profit shall include reasonable,
normal and customary superintendent compensation.
6. General. With respect to matters not specifically related to the
Premises or its development, this Construction Addendum shall be governed by the
laws of the state where the Premises is located. All captions and section
headings used herein are for convenience and ease of reference only and do not
constitute part of this instrument. The Preliminary Statement set forth at the
beginning of this Construction Addendum is hereby incorporated herein by
reference and is deemed to constitute an integral part of this instrument.
7. Landlord's Right to Complete Construction on Tenant's Default.
Except for delays caused by events not within the control of Tenant, failure to
continuously prosecute to completion the construction of the Project within
____________ (___) days following the date hereof shall constitute a default by
Tenant hereunder. If, after ten (10) days notice to Tenant, any such default
shall not have been remedied, then Landlord may, if it elects to do so, either:
(a) take over construction of the Project and, at its option, complete such
construction or cause the same to be completed, or (b) terminate the Lease
Agreement and this Construction Addendum, in
4
<PAGE>
which case Tenant shall be required to purchase the Premises from Landlord
(subject to all liens, claims or encumbrances not placed on the Premises by
Landlord) at a price equal to Landlord's purchase price of the Premises, plus
all sums disbursed to Tenant pursuant to this Construction Addendum, plus all
Interim Rent due under the Lease Agreement, plus all fees, costs and expenses
paid by Landlord in connection with its purchase of the Premises, plus interest
on all such sums accruing from the date of disbursement thereof at the rate of
ten percent (10%) per annum. Closing of such purchase and sale shall take place
within thirty (30) days following the date of Landlord's notice of default to
Tenant.
8. Force Majeure. The time for completion of the Project shall be
extended by the period of time, if any, that construction is delayed by virtue
of labor unrest, materials shortage, natural disaster, weather, Acts of God, and
other causes beyond the reasonable control of Tenant; provided, however, that no
such extension shall be permitted with respect to any delay unless written
notice of the delay specifying the cause of the delay and the expected time of
the delay is delivered to Landlord within fifteen (15) days after such delay is
encountered.
9. Entire Agreement. This Construction Addendum and the Lease Agreement
of which this Construction Addendum is a part constitute the entire agreement of
Landlord and Tenant with respect to the development of the Premises, and
supersedes any prior or contemporaneous agreement with respect thereto. No
amendment or modification of this Construction Addendum shall be binding upon
the parties unless made in writing and signed by both Landlord and Tenant.
(Signatures begin on next page)
5
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Construction
Addendum to be executed and sealed as of the date first above written.
Signed, Sealed and Delivered
in the presence of: "LANDLORD"
CNL _______________________, a
__________________ corporation
- ----------------------------
By:
Name: --------------------------
------------------------
- ----------------------------
Name:
-----------------------
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me this ____ day of
_______________, 1998 by ____________________, as ______________________ of CNL
_____________________, a ____________________, on behalf of the
_______________________. He is personally known to me and did not take an oath.
-----------------------------------
Notary Signature
-----------------------------------
Printed Name
Notary Public, State of Florida
Commission Number:
-----------------
My Commission Number:
--------------
6
<PAGE>
"TENANT"
(TENANT NAME), a (State of
Incorporation) (Tenant Entity Type)
- ----------------------- By:
-----------------------------
Name: Name:
------------------ -----------------------------
As Its:
-----------------------------
- -----------------------
Name:
- -----------------------
STATE OF ______________
COUNTY OF ____________
The foregoing was executed before me on , 1998 by
_______________________________ as ____________________________ of
__________________________________, a __________ corporation, on behalf of the
corporation. He/She is personally known to me or produced
_____________________________________________________________ as identification
and did not take an oath.
------------------------------------------
(NOTARY SEAL) Notary Public, State of
-------------------
Printed Name:
-----------------------------
Notary Commission No.
---------------------
My Commission Expires:
--------------------
EXHIBITS ATTACHED
Exhibit "A" - Legal Description
7
<PAGE>
REQUESTED BY:
AFTER RECORDATION RETURN TO:
(Attorney's Name and Address)
------------------------------
------------------------------
------------------------------
------------------------------
RETURN BY: MAIL (X) PICK UP ( )
_________ #(Site Number)/(City), (County) County, (State)
MEMORANDUM OF LEASE
This Memorandum of Lease is made as of (Closing Date), by and between
CNL __________, a (State of Registration) (Landlord Entity Type) with principal
office and place of business at 400 E. South Street, Orlando, Florida 32801
("Landlord"), and (TENANT NAME), a (State of Incorporation) (Tenant Entity
Type), with a mailing address of (Tenant Street Address), (Tenant Street
Address), (Tenant City), (Tenant State) (Tenant Zip) ("Tenant").
In consideration of ONE AND NO/100 DOLLARS ($1.00) and other valuable
consideration paid by Tenant to Landlord and the mutual covenants contained in
that certain Lease Agreement between the parties hereto dated on even date
herewith (hereinafter called the "Lease"), Landlord has leased and does hereby
lease to Tenant, and Tenant has hired and does hereby hire from landlord, upon
the terms and conditions set forth in said Lease, the real property more
particularly described in Exhibit "A" attached hereto and made a part hereof
(the "Premises").
The term of the Lease is __________ (__) years commencing on the date
hereof and ending on _______ ___, 20__. Said Lease provides for options to renew
for _________ (__) five (5) year terms. Tenant shall not allow any mechanic's
lien or similar type of lien to be filed against the Premises. Tenant has the
first right of refusal to purchase the Premises and an option to purchase the
Premises during the term of the Lease and any renewals or extensions thereof
upon the terms and conditions set forth in the Lease.
(Signatures begin on next page)
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Memorandum of
Lease to be executed and sealed as of the date first above written.
Signed, Sealed and Delivered
in the presence of: "LANDLORD"
CNL ________________________, a
__________________ corporation
- ------------------------
Name: By:
-------------------- ----------------------------
- ------------------------
Name:
--------------------
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me this ____ day of
_______________, 1998 by ____________________, as ______________________ of CNL
_____________________, a ____________________, on behalf of the
_______________________. He is personally known to me and did not take an oath.
----------------------------
Notary Signature
----------------------------
Printed Name
Notary Public, State of Florida
Commission Number:
------------
My Commission Number:
----------
2
<PAGE>
"TENANT"
(TENANT NAME), a (State of
Incorporation) (Tenant Entity Type)
- ------------------------ By:
Name: ---------------------------------
----------------------
---------------------------------
Name:
---------------------------------
As Its:
----------------------------------
- -----------------------
Name:
-------------------
STATE OF ______________
COUNTY OF ____________
The foregoing was executed before me on , 1998 by
_______________________________ as ____________________________ of
__________________________________, a __________ corporation, on behalf of the
corporation. He/She is personally known to me or produced
______________________________________________________________ as identification
and did not take an oath.
-------------------------------
(NOTARY SEAL) Notary Public, State of
--------
Printed Name:
------------------
Notary Commission No.
------------
My Commission Expires:
-----------
3
EXHIBIT 23.1
Consent of Coopers & Lybrand L.L.P.,
Certified Public Accountants,
dated February 27, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-11 of our
report dated January 20, 1998 on our audit of the financial statements of CNL
Health Care Properties, Inc. We also consent to the reference to our Firm under
the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Orlando, Florida
February 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the balance sheet of CNL Health Care Properties, Inc. at December 31, 1997,
and its statement of stockholders' equity for the period December 22, 1997 (date
of inception) through December 31, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-22-1997
<PERIOD-END> DEC-31-1997
<CASH> 200,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 280,330
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
200
0
<COMMON> 0
<OTHER-SE> 199,800
<TOTAL-LIABILITY-AND-EQUITY> 280,330
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Health Care Properties, Inc.
has an unclassified balance sheet; therefore, no values are shown
above for current assets and current liabilities.
</FN>
</TABLE>
