UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-47411
CNL HEALTH CARE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 59-3491443
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 650-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X ]
Aggregate market value of the common stock held by nonaffiliates of the
registrant: The registrant registered an offering of shares of common stock (the
"Shares") on Form S-11 under the Securities Act of 1933, as amended. Since no
established market for such Shares exists, there is no market value for such
Shares. Each Share was originally sold at $10 per Share.
The number of shares of common stock outstanding as of March 5, 1999,
was 20,000.
<PAGE>
PART I
Item 1. Business
CNL Health Care Properties, Inc. (the "Company") is a corporation which
was organized pursuant to the laws of the state of Maryland on December 22,
1997, and which intends to make an election for federal income tax purposes to
be taxed as a real estate investment trust (a "REIT"). Beginning in September
1998, the Company offered for sale up to $155,000,000 of shares of common stock
(the "Shares") (15,500,000 shares at $10 per share) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
September 18, 1998. As of December 31, 1998, the Company had received
subscription proceeds of $25,500 (2,550 shares) from the offering. Until
subscription proceeds for the Company total $2,500,000 (250,000 shares), the
proceeds will be held in escrow and interest earned on such will accrue to the
benefit of subscribers. The offering of the Shares of the Company will terminate
no later than September 18, 1999, unless the Company elects to extend it to a
date no later than September 18, 2000, in states that permit such extension. As
of December 31, 1998, capital contributions from the sole stockholder of the
Company, CNL Health Care Advisors, Inc. (the "Advisor"), totalled $200,000
(20,000 shares).
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 congregate living, assisted living and skilled nursing
facilities, 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 Health Care Facilities. Under
the Company's triple-net leases, the lessee will be responsible for repairs,
maintenance, property taxes, utilities, and insurance. 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 of the Mortgage
Loans will be similar to those of its leases. To a lesser extent, the Company
also may 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. The Company has not yet acquired any Properties,
made any Mortgage Loans or entered into any Secured Equipment Leases, nor have
any Properties, Mortgage Loans or Secured Equipment Leases been identified for
investment.
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 terms of the leases, 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 of the shares on a national securities
exchange or over-the-counter market (the "Listing"), or (b) the commencement of
orderly sales of the Company's assets and distribution of the proceeds thereof
(outside the ordinary course of business and consistent with its objectives of
qualifying as a REIT). There can be no assurance that these investment
objectives will be met. In addition, if the Shares are not listed by December
31, 2008, 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.
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 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. 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, the Company intends to provide stockholders of the Company with
liquidity of their investment, either in whole or in part, through Listing of
the Shares of the Company (although liquidity cannot be assured thereby) or by
commencing orderly sales of the Company's assets. If Listing occurs, the Company
intends to reinvest in additional Properties, Mortgage Loans and Secured
Equipment Leases any net sales proceeds not required to be distributed to
stockholders in order to preserve the Company's status as a REIT. The Company's
Articles of Incorporation provide, however, that if Listing does not occur by
December 31, 2008, 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.
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. 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 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.
Leases
As of December 31, 1998, the Company had not entered into any
commitment for an acquisition of a Property. However, leases entered into in the
future are expected to be triple-net leases, which means that the tenants
generally will be required to pay 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 own the Properties either directly or
indirectly through a joint venture, partnership, or a subsidiary.
The initial terms of the leases are presently anticipated to be 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. During the initial term
of each 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
payable in monthly installments. 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 terms of the leases. If the Company is acquiring a Property that is
to be constructed or renovated pursuant to a development agreement, the cost 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.
<PAGE>
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 the right to purchase the Property seven to twenty years
after commencement of the lease at a purchase price equal to the greater of (i)
the appraised value of the Property, or (ii) a specified amount, generally equal
to the Company's purchase price of the Property, plus a pre-determined
percentage of the Company's purchase price.
Certain Management Services
Pursuant to an advisory agreement (the "Advisory Agreement") with the
Company, the Advisor will provide management services relating to the Company,
the Properties, the Mortgage Loans and the Secured Equipment Lease program.
Under this agreement, the Advisor will be responsible for assisting the Company
in negotiating leases, Mortgage Loans, the line of credit (the "Line of Credit")
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 tenants inquiries and notices. The Advisor also will
provide information to the Company about the status of the leases, the
Properties, the Mortgage Loans, the Secured Equipment Leases, the Line of Credit
and the permanent financing. In exchange for these services, the Advisor will be
entitled to receive certain fees from the Company. For supervision of the
Properties and the Mortgage Loans, the Advisor will receive an asset management
fee, which is payable monthly in an amount equal to one-twelfth of .60% of the
total amount invested in the Properties, exclusive of acquisition fees and
acquisition expenses (the "Real Estate Asset Value") plus one-twelfth of .60% of
the outstanding principal amount of any 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 (the "Secured Equipment Lease Servicing Fee"). 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 from the offering, loan
proceeds from permanent financing (the "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.
The Advisory Agreement continues until September 15, 1999, and
thereafter my be extended annually upon mutual consent of the Advisor and the
Board of Directors of the Company unless terminated at an earlier date upon 60
days prior written notice by each party.
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
to acquire assets and to pay certain fees. The Line of Credit may be increased
at the discretion of the Board of Directors. The Line of Credit may be repaid
with offering proceeds, working capital or Permanent Financing. The Board of
Directors anticipates that 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
the Company's net assets (as defined in the Company's prospectus). The Company
has engaged in preliminary discussions with a potential lender, 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. The Board of Directors may elect to
encumber assets in connection with any borrowing.
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.
Employees
Reference is made to Item 10. Directors and Executive Officers of the
Registrant for a listing of the Company's Executive Officers. The Company has no
other employees.
Item 2. 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.
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. 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.
Skilled Nursing Facilities. In addition to housing, meals,
transportation and housekeeping, skilled nursing facilities provide
comprehensive nursing and long term care to their residents. 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.
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 care- related services, plus a monthly
maintenance fee.
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).
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. 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.
Item 3. Legal Proceedings
Neither the Company, nor its Advisor or any affiliates of the Advisor,
nor any of their respective properties, is a party to, or subject to, any
material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of February 5, 1999, the sole stockholder of record of common stock was
the Advisor. There is no public trading market for the Shares, and even though
the Company intends to list the Shares on a national securities exchange or
over-the-counter market within ten years of commencement of the offering of
Shares, there is no assurance that one will develop and it is not known at this
time if a public market for the Shares will develop. Prior to such time, if any,
as Listing occurs, any stockholder (other than the Advisor) may present all or
any portion equal to at least 25% of such stockholder's Shares to the Company
for redemption at any time, in accordance with the procedures outlined in the
Company's prospectus. At such time, the Company may, at its sole option, redeem
such Shares presented for redemption for cash to the extent it has sufficient
funds available. In addition, the Company may, at its discretion, use up to
$100,000 per calendar quarter of the proceeds of any public offering of its
common stock for redemptions. Stockholders who wish to have their distributions
used to acquire additional Shares (to the extent Shares are available for
purchase), may do so pursuant to the Company's Reinvestment Plan. There is no
assurance that there will be sufficient funds available for redemption and,
accordingly, a stockholder's Shares may not be redeemed. Any Shares acquired
pursuant to a redemption will be retired and no longer available for issuance by
the Company. The Directors of the Company, in their 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.
As of December 31, 1998, the offering price per Share was $10.
(b) The information required by this item is set forth in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and is
hereby incorporated herein by reference.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction
with the financial statements and related notes in Item 8 hereof.
1998 (1) 1997 (1) (2)
--------- --------------
Year Ended December 31:
Revenues $ - $ -
Net earnings - -
Cash distributions declared - -
At December 31:
Total assets $976,579 $280,330
Total stockholder's equity 200,000 200,000
(1) 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).
(2) Selected financial data for 1997 represents the period December 22,
1997 (date of inception) through December 31, 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company is a Maryland corporation that was organized on December
22, 1997, to acquire Properties related to health care and seniors' housing
facilities located across the United States. The Health Care Facilities may
include congregate living, assisted living and skilled nursing facilities,
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. The Company may also provide Mortgage Loans to
operators of Health Care Facilities in the aggregate principle amount of
approximately 5% to 10% of the Company's total assets. The Company also may
offer Secured Equipment Leases to operators of Health Care Facilities. The
aggregate principal amount of Secured Equipment Leases is not expected to exceed
10% of the Company's total assets.
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 terms of the leases, 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 of the Shares, 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).
Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933 effective September 18, 1998, the Company registered for sale an
aggregate of $155,000,000 of shares of common stock (15,500,000 shares at $10
per Share), with 500,000 of such shares available only to stockholders who elect
to participate in the Company's reinvestment plan. The offering of Shares of the
Company commenced on September 18, 1998. The offering of Shares of the Company
will terminate no later than September 18, 1999, unless the Company elects to
extend it to a date no later than September 18, 2000, in states that permit such
extension.
The managing dealer of the offering of shares of the Company is CNL
Securities Corp., an affiliate of the Company.
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include the following: changes in general economic conditions,
changes in local real estate conditions, availability of proceeds from the
Company's offering, the ability of the Company to obtain a line of credit or
permanent financing on satisfactory terms, the ability of the Company to locate
suitable tenants for its Properties and borrowers for its Mortgage Loans and
Secured Equipment Leases, and the ability of tenants and borrowers to make
payments under their respective leases, Mortgage Loans or Secured Equipment
Leases.
Liquidity and Capital Resources
A capital contribution of $200,000 from the Advisor is the Company's
sole source of capital until the Company sells the minimum number of 250,000
Shares ($2,500,000). As of February 5, 1999, subscription funds totalling
$35,500 had been deposited with the escrow agent for the offering of shares.
Until subscription proceeds for the Company total at least $2,500,000 (250,000
Shares), the proceeds will be held in escrow.
The Company expects to use net offering proceeds from the sale of
Shares to purchase Properties and to invest in Mortgage Loans. In addition, the
Company intends to borrow money to acquire Properties, to invest in Mortgage
Loans and Secured Equipment Leases, and to pay certain related fees. The Company
intends to encumber assets in connection with such borrowing. The Company plans
to initially obtain a revolving Line of Credit in an amount up to $45,000,000.
The Company also plans to obtain 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 will not exceed
30% of the Company's total assets, the maximum amount the Company may borrow 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.
At December 31, 1998 and 1997, the Company's total assets were $976,579
and $280,330, respectively. The increase in total assets reflects deferred
offering expenses incurred during the year ended December 31, 1998.
During the year ended December 31, 1998 and the period December 22,
1997 (date of inception) through December 31, 1997, affiliates of the Company
incurred $562,739 and $43,397, respectively, for certain organizational and
offering expenses. As of December 31, 1998 and 1997, the Company owed the
affiliates $685,372 and $58,600, respectively, for such amounts, unpaid fees and
administrative expenses. In the event the minimum offering proceeds are not
received by the Company, the Company will have no obligation to repay such
amounts. Further, the Advisor of the Company has agreed to pay all
organizational and offering expenses (excluding commissions and marketing
support and due diligence expense reimbursement fees) in excess of three percent
of the gross offering proceeds.
Due to anticipated low operating expenses, rental income expected to be
obtained from Properties after they are acquired, the fact that the Line of
Credit and Permanent Financing have not been obtained and that the Company has
not entered into Mortgage Loans or Secured Equipment Leases, management does not
believe that working capital reserves will be necessary at this time. Management
has the right to cause the Company to maintain reserves if, in their discretion,
they determine such reserves are required to meet the Company's working capital
needs.
As of December 31, 1998, 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 Mortgage Loans to
be invested in will depend upon the amount of net offering proceeds and loan
proceeds available to the Company. The amount invested in Secured Equipment
Leases is not expected to exceed 10% of the Company's total assets.
Management expects that the cash to be generated from operations will
be adequate to pay operating expenses and to make distributions to stockholders.
Results of Operations
As of December 31, 1998, 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 operation of the Properties.
Year 2000
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Company does not have any information technology systems.
Affiliates of the Advisor provide all services requiring the use of information
technology systems pursuant to a management agreement with the Company. The
maintenance of embedded systems, if any, at the Company's Properties will be the
responsibility of the tenants of the Properties in accordance with the terms of
the Company's leases. The Advisor and its affiliates have established a team
dedicated to reviewing the internal information technology systems used in the
operation of the Company, and the information technology and embedded systems
and the Year 2000 compliance plans of the Company's tenants at such time that
the Company acquires Properties, significant suppliers, financial institutions
and transfer agent.
The information technology infrastructure of the affiliates of the
Advisor consists of a network of personal computers and servers that were
obtained from major suppliers. The affiliates utilize various administrative and
financial software applications on that infrastructure to perform the business
functions of the Company. The inability of the Advisor and its affiliates to
identify and timely correct material Year 2000 deficiencies in the software
and/or infrastructure could result in an interruption in, or failure of, certain
of the Company's business activities or operations. Accordingly, the Advisor and
its affiliates have requested and are evaluating documentation from the
suppliers of the software and infrastructure of the affiliates regarding the
Year 2000 compliance of their products that are used in the business activities
or operations of the Company. The Advisor has not yet received sufficient
certifications to be assured that the suppliers have fully considered and
mitigated any potential material impact of the Year 2000 deficiencies. The costs
expected to be incurred by the Advisor and its affiliates to become Year 2000
compliant will be incurred by the Advisor and its affiliates; therefore, these
costs will have no impact on the Company's financial position or results of
operations.
The Company will have material third party relationships with its
tenants, financial institutions and transfer agent. The Company will depend on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. If any of these third parties are unable to meet their obligations
to the Company because of the Year 2000 deficiencies, such a failure may have a
material impact on the Company. Accordingly, the Advisor has requested and is
evaluating documentation from the Company's financial institutions and transfer
agent relating to their Year 2000 compliance plans. The Advisor has not yet
received sufficient certifications to be assured that the financial institutions
and transfer agent have fully considered and mitigated any potential material
impact of the Year 2000 deficiencies. Therefore, the Advisor does not, at this
time, know of the potential costs to the Company of any adverse impact or effect
of any Year 2000 deficiencies by these third parties.
The Advisor currently expects that all year 2000 compliance testing and
any necessary remedial measures on the information technology systems used in
the business activities and operations of the Company will be completed prior to
June 30, 1999. Based on the progress the Advisor and its affiliates have made in
identifying and addressing the Company's Year 2000 issues and the plan and
timeline to complete the compliance program, the Advisor does not foresee
significant risks associated with the Company's Year 2000 compliance at this
time. Because the Advisor and its affiliates are still evaluating the status of
the systems used in business activities and operations of the Company and the
systems of the third parties with which the Company conducts its business, the
Advisor has not yet developed a comprehensive contingency plan and is unable to
identify "the most reasonably likely worst case scenario" at this time. As the
Advisor identifies significant risks related to the Company's Year 2000
compliance or if the Company's Year 2000 compliance program's progress deviates
substantially from the anticipated timeline, the Advisor will develop
appropriate contingency plans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
CONTENTS
--------
Page
----
Report of Independent Accountants 11
Financial Statements:
Balance Sheets 12
Statements of Stockholders' Equity 13
Notes to Financial Statements 14-17
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors
CNL Health Care Properties, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Health Care Properties, Inc. (a development stage Maryland corporation)
at December 31, 1998 and 1997 in conformity with generally accepted accounting
principles. 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 audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Orlando, Florida
January 15, 1999
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
December 31, December 31,
1998 1997
---------- -----------
ASSETS
Cash $ 92 $200,000
Deferred offering costs 975,339 80,330
Other assets 1,148 --
----------- -----------
$976,579 $280,330
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Due to related parties $685,372 $58,600
Accounts payable and accrued expenses 91,207 21,730
----------- -----------
Total liabilities 776,579 80,330
----------- -----------
Stockholder's equity:
Preferred stock, without par value per share
Authorized and unissued 3,000,000 shares -- --
Excess shares, $.01 par value per share
Authorized and unissued 103,000,000 shares -- --
Common stock, $.01 par value per share
Authorized 100,000,000 and 100,000
shares, respectively; 20,000 shares
issued and outstanding 200 200
Capital in excess of par value 199,800 199,800
----------- -----------
Total stockholder's equity 200,000 200,000
----------- -----------
$976,579 $280,330
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
STATEMENTS OF STOCKHOLDER'S EQUITY
Year Ended December 31, 1998 and the Period
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
Subscriptions received for common
stock through public offering 2,550 26 25,474 25,500
Subscriptions held in escrow at
December 31, 1998 (2,550 ) (26 ) (25,474 ) (25,500 )
---------- --------- ------------ ------------
Balance at December 31, 1998 $ 20,000 $ 200 $ 199,800 $ 200,000
========== ========= ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1998 and the Period
December 22, 1997 (Date of Inception) through
December 31, 1997
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Health Care Properties, Inc.
(the "Company") was organized pursuant to the laws of the state of
Maryland on December 22, 1997. The Company intends to use the proceeds
from its public offering (the "Offering") (see Note 2), 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 congregate living, assisted living
and skilled nursing facilities, 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 may 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.
As of December 31, 1998, the Company was in the development stage and
had not begun operations.
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, 1999. 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. 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.
Use of Estimates - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
New Accounting Standard - In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities," which will be
effective for the Company as of January 1, 1999. This SOP requires
start-up and organization costs to be expensed as incurred and also
requires previously deferred start-up costs to be recognized as a
cumulative effect adjustment in the statement of earnings. Management
of the Company does not believe that adoption of this SOP will have a
material effect on the Company's financial position or results of
operations.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1998 and the Period
December 22, 1997 (Date of Inception) through
December 31, 1997
2. Public Offering:
The Company has filed a currently effective registration statement on
Form S-11 with the Securities and Exchange Commission. A maximum of
15,500,000 shares ($155,000,000) may be sold, including 500,000 shares
($5,000,000) which are available only to stockholders who elect to
participate in the Company's reinvestment plan. The Company has adopted
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. In addition, the
Company has registered 600,000 shares issuable upon the exercise of
warrants granted to the managing dealer of the Offering. As of December
31, 1998, the Company had received subscription proceeds of $25,500
(2,550 shares). Until subscription proceeds for the Company total
$2,500,000 (250,000 shares), the proceeds will be held in escrow.
3. 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. CNL Health Care Advisors, Inc. (the "Advisor") has
agreed to pay all organizational and offering expenses (excluding
commissions and marketing support and due diligence expense
reimbursement fees) which exceed three percent of the gross offering
proceeds received from the sale of shares of the Company.
As of December 31, 1998, the Company had incurred $975,339 in
organizational and offering costs which has been treated as deferred
offering costs. Once the Company receives the minimum amount of
subscriptions, the offering costs will be charged to stockholders'
capital subject to the three percent cap described above.
4. Capitalization:
In September 1998, the Company amended the Articles of Incorporation to
increase the number of authorized shares of capital stock from 100,000
shares to 206,000,000 shares (consisting of 100,000,000 common shares,
3,000,000 preferred shares and 103,000,000 excess shares).
5. Related Party Arrangements:
On December 22, 1997 (date of inception), CNL Health Care Advisors,
Inc. contributed $200,000 in cash to the Company and became its sole
stockholder.
The Advisor and 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.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1998 and the Period
December 22, 1997 (Date of Inception) through
December 31, 1997
5. Related Party Arrangements - Continued:
CNL Securities Corp. is entitled to receive commissions amounting to
7.5% of the total amount raised from the sale of shares for services in
connection with the offering of the shares, a substantial portion of
which will be paid as commissions to other broker-dealers. During the
year ended December 31, 1998, the Company incurred $1,912 of such fees
of which $1,785 will be paid by CNL Securities Corp. as commissions to
other broker-dealers. These fees will not be paid until subscriptions
for at least 250,000 shares ($2,500,000) have been obtained from the
Offering.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, a portion of which may
be reallowed to other broker-dealers. During the year ended December
31, 1998, the Company incurred $128 of such fee, the majority of which
will be reallowed to other broker-dealers and from which all bona fide
due diligence expenses will be paid. These fees will not be paid until
subscriptions for at least 250,000 shares ($2,500,000) have been
obtained from the Offering.
The Advisor is entitled to receive acquisition fees for services in
finding, negotiating the leases of and acquiring properties on behalf
of the Company equal to 4.5% of gross proceeds, loan proceeds from
permanent financing and amounts outstanding on the line of credit, if
any, at the time of Listing, but excluding that portion of the
permanent financing used to finance Secured Equipment Leases. During
the year ended December 31, 1998, the Company incurred $1,148 of such
fees. Such fees are included in other assets at December 31, 1998.
These fees will not be paid until subscriptions for at least 250,000
shares ($2,500,000) have been obtained from the Offering.
In addition, the Company has agreed to issue and sell soliciting dealer
warrants ("Soliciting Dealer Warrants") to CNL Securities Corp. The
price for each warrant will be $0.0008 and one warrant will be issued
for every 25 shares sold by the managing dealer. 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 during the five year period commencing with the date
the offering begins. No Soliciting Dealer Warrant, however, will be
exercisable until one year from the date of issuance.
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance reporting; stockholder distributions and
reporting; due diligence and marketing; and investor relations
(including administrative services in connection with the Offering), on
a day-to-day basis. For the year ended December 31, 1998 and the period
December 22, 1997 (date of inception) through December 31, 1997,
$196,184 and $15,202, respectively, were classified as deferred
offering costs for these services.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1998 and the Period
December 22, 1997 (Date of Inception) through
December 31, 1997
5. Related Party Arrangements - Continued:
Amounts due to related parties consisted of the following at:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
-------------- --------------
<S> <C>
Due to the Advisor:
Expenditures incurred for organizational
and offering expenses on behalf
of the Company $470,798 $43,398
Accounting and administrative
services 211,386 15,202
Acquisition fees 1,148 --
------------- -----------
683,332 58,600
------------- -----------
Due to CNL Securities Corp.:
Commissions 1,912 --
Marketing support and due diligence
expense reimbursement fee 128 --
------------- -----------
2,040 --
------------- -----------
$685,372 $58,600
============= ===========
</TABLE>
6. Subsequent Event:
During the period January 1, 1999 through January 15, 1999, the Company
received subscription proceeds of 1,000 shares ($10,000) of common
stock.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Directors and executive officers of the Company are listed below:
Name Age Position with the Company
----------- -------- -------------------------
James M. Seneff, Jr. 52 Director, Chairman of the Board, and
Chief Executive Officer
Robert A. Bourne 51 Director and President
David W. Dunbar 46 Independent Director
Timothy S. Smick 46 Independent Director
Edward A. Moses 56 Independent Director
Phillip M. Anderson, Jr. 39 Chief Operating Officer and
Executive Vice President
Daniel L. Simmons 45 Executive Vice President
Curtis B. McWilliams 43 Executive Vice President
Jeanne A. Wall 40 Executive Vice President
Lynn E. Rose 50 Secretary and Treasurer
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. and CNL Hospitality
Properties, Inc., each of which is an unlisted REIT, and their advisors, CNL
Fund Advisors, Inc. and CNL Hospitality Advisors, Inc., respectively. 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 the Company's Offering, CNL Investment Company, CNL Health Care Advisors,
Inc., CNL Fund Advisors, Inc. and CNL Hospitality Advisors, Inc. Mr. Seneff has
been Chairman of the Board, Chief Executive Officer and a director of CNL
Securities Corp. since its formation in 1979. Mr. Seneff also has held the
position of Chairman of the Board, Chief Executive Officer, President and a
director of CNL Management Company, a registered investment advisor, since its
formation in 1976, has served as Chief Executive Officer, Chairman of the Board
and a director of CNL Investment Company, and Chief Executive Officer and
Chairman of the Board of Commercial Net Lease Realty, Inc., a REIT listed on the
New York Stock Exchange, 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 Officer, Chairman of the
Board and a director of CNL Institutional Advisors, Inc., a registered
investment advisor, since its inception in 1990. Mr. Seneff also serves as a
director of First Union National Bank of Florida, N.A. 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.
<PAGE>
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 Vice Chairman of the Board of
Directors, director and Treasurer of CNL American Properties Fund, Inc. and as
President and a director of CNL Hospitality Properties, Inc., each of which is
an unlisted REIT. Mr. Bourne currently holds the position of President and
director of CNL Hospitality Advisors, Inc., the advisor of CNL Hospitality
Properties, Inc. and Vice Chairman of the Board of Directors, director and
Treasurer of CNL Fund Advisors, Inc., the advisor to CNL American Properties
Fund, Inc. Mr. Bourne served as President of CNL Fund Advisors, Inc. from the
date of its inception in 1994 through October 1997 and as President of CNL
American Properties Fund, Inc. from the date of its inception in 1994 to
February 1999. Mr. Bourne is President and Treasurer of CNL Group, Inc.,
President, Treasurer, a director, and a registered principal of CNL Securities
Corp. (the managing dealer of the Company's Offering), President, Treasurer, a
director and a registered principal of CNL Investment Company, and Chief
Investment Officer, 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 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., a REIT listed on the New York Stock
Exchange. 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 1991 through December 1997, 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.
David W. Dunbar. Independent Director. Mr. Dunbar serves as chairman and
chief executive officer of Peoples Bank, which he organized and founded in 1996.
Mr. Dunbar is also a member of the boards of directors of Morton Plant Mease
Health Care, Inc., an 841-bed, not-for-profit hospital, Morton Plant Mease
Hospital Foundation and North Bay Hospital, a 122-bed facility. In addition, Mr.
Dunbar serves as a member of the Florida Elections Commission, the body
responsible for investigating and holding hearings regarding alleged violations
of Florida's campaign finance laws. During 1994 and 1995, Mr. Dunbar was a
member of the board of directors and an executive officer of Peoples State Bank.
Mr. Dunbar was the chief executive officer of Republic Bank from 1991 through
1993. From 1988 through 1991, Mr. Dunbar developed commercial and medical office
buildings and, through a financial consulting company he founded, provided
specialized lending services for real estate development clients, specialized
construction litigation support for national insurance companies and strategic
planning services for institutional clients. In 1990, Mr. Dunbar was the chief
executive officer, developer and owner of a 60,000 square foot medical office
building located on the campus of Memorial Hospital in Tampa, Florida. In
addition, in 1990, Mr. Dunbar served as the Governor's appointee to the State of
Florida Taxation and Budget Reform Commission, a 25 member, blue ribbon
commission established to review, study and make appropriate recommendations for
changes to state tax laws. Mr. Dunbar received a degree in finance from Florida
State University. He is also a graduate of the American Bankers Association
National Commercial Lending School at the University of Oklahoma and the School
of Banking of the South at Louisiana State University.
Timothy S. Smick. Independent Director. From 1996 through February 1998,
Mr. Smick served as chief operating officer, executive vice president and a
member of the board of directors of Sunrise Assisted Living, Inc., one of the
nation's leading providers of assisted living care for seniors with 68
communities located in 13 states. In addition, Mr. Smick served as president of
Sunrise Management Inc., a wholly owned subsidiary of Sunrise Assisted Living,
Inc. During 1995, Mr. Smick served as a senior housing consultant to LaSalle
Advisory, Ltd., a pension fund advisory company. From 1985 through 1994, Mr.
Smick was chairman and chief executive officer of PersonaCare, Inc., a company
he co-founded that provided sub-acute, skilled nursing and assisted living care
with 12 facilities in six states. Mr. Smick's health care industry experience
also includes serving as the regional operations director for Manor Healthcare,
Inc., a division of ManorCare, Inc., and as operations director for Allied
Health and Management, Inc. Prior to co-founding PersonaCare, Inc., Mr. Smick
was a partner in Duncan & Smick, a commercial real estate development firm. Mr.
Smick received a B.A. in English from Wheaton College and pursued graduate
studies at Loyola College.
Edward A. Moses. Independent Director. Dr. Moses has served as dean of the
Roy E. Crummer Graduate School of Business at Rollins College since 1994, and as
a professor and NationsBank professor of finance since 1989. As dean, Dr. Moses
is presently establishing a comprehensive program of executive education for
health care management at the Roy E. Crummer Graduate School of Business. From
1985 to 1989 he served as dean and professor of finance at the University of
North Florida. He has also served in academic and administrative positions at
the University of Tulsa, Georgia State University and the University of Central
Florida. Dr. Moses has written six textbooks in the fields of investments and
corporate finance as well as numerous articles in leading business journals. He
has held offices in a number of professional organizations, including president
of the Southern Finance and Eastern Finance Associations, served on the Board of
the Southern Business Administration Association, and served as a consultant for
major banks as well as a number of Fortune 500 companies. He currently serves as
a faculty member in the Graduate School of Banking at Louisiana State
University, and is a member of the board of directors of HTE, Inc. Dr. Moses
received a B.S. in Accounting from the Wharton School at the University of
Pennsylvania in 1965 and a Masters of Business Administration (1967) and Ph.D.
in finance from the University of Georgia in 1971.
Phillip M. Anderson, Jr. Chief Operating Officer and Executive Vice
President. Mr. Anderson joined CNL Health Care Advisors, Inc. in January 1999
and is responsible for the planning and implementation of CNL's interest in
health care industry investments, including acquisitions, development, project
analysis and due diligence. He currently serves as the Chief Operating Officer
of both CNL Health Care Advisors, Inc., the Company's Advisor, and of CNL Health
Care Development, Inc. From 1987 through 1998, Mr. Anderson was employed by
Classic Residence by Hyatt. Classic Residence by Hyatt ("Classic") is affiliated
with Hyatt Hotels and Chicago's Pritzker family. Classic acquires, develops,
owns and operates seniors' housing, assisted living, skilled nursing and
Alzheimer's facilities throughout the United States. Mr. Anderson's
responsibilities grew from overseeing construction of Classic's first properties
to acquiring and developing new properties. After assuming responsibility for
acquisitions, Mr. Anderson doubled the number of senior living apartments/beds
("units") in the portfolio by adding over 1,200 units. In addition, the
development of an additional 1,000 units of seniors' housing commenced under Mr.
Anderson's direction. Mr. Anderson also served on Classic's Executive Committee
charged with the responsibility of monitoring performance of existing properties
and development projects. Mr. Anderson has been a member of the American Senior
Housing Association since 1994 and currently serves on the executive board. He
graduated from the Georgia Institute of Technology in 1982, where he received a
B.S. in Civil Engineering, with honors.
Daniel L. Simmons. Executive Vice President. Mr. Simmons serves as
Executive Vice President of CNL Health Care Advisors, Inc., the Advisor to the
Company. From November 1997 to June 1998, Mr. Simmons served as a consultant to
CNL, providing advice on issues regarding health care property development and
management. Since 1993, Mr. Simmons has served as a consultant to The
Celebration Company, a subsidiary of The Walt Disney Company, regarding seniors'
housing issues. From 1984 to 1993, Mr. Simmons was a co-founder and partner in
the Johnson Simmons Company, where he was responsible for site acquisition,
design, development, financing and regulatory matters for three continuing care
communities. Mr. Simmons was also responsible for the development, financing and
operations associated with the restaurant and commercial properties divisions of
the Johnson Simmons Company. During his tenure, Johnson Simmons Company
developed and managed over 1,100 units of seniors' housing and a 240-bed skilled
nursing facility, held in excess of $100 million in assets, and employed more
than 1,200 people. From 1983 to 1984, Mr. Simmons served as director of
development for Cadem Corporation, a subsidiary of National Medical Enterprises.
At Cadem, he was responsible for site, design, development and regulatory issues
for proposed seniors' housing projects. From 1982 to 1983, Mr. Simmons served as
vice president of Southern Management Services Corporation, where he was
responsible for the development and operations of seniors' housing, assisted
living, and skilled nursing facilities. He was also responsible for all
regulatory issues with the State of Florida, Department of Insurance, and the
current Agency for Health Care Administration regarding the licensing and
regulation of continuing care retirement communities, nursing homes and assisted
living facilities. Mr. Simmons attended Florida State University and the
University of South Florida and was a founding member of the National
Association of Senior Living Industries.
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 Group, Inc. in April 1997 and currently
serves as an Executive Vice President. In addition, Mr. McWilliams serves as
President of CNL American Properties Fund, Inc., an unlisted REIT, CNL Fund
Advisors, Inc., CNL Financial Services, Inc. and certain other subsidiaries of
CNL Group, Inc. From March 1997 to February 1999 Mr. McWilliams served as
Executive Vice President of CNL American Properties Fund, 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 corporate relationships. 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.
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. and
CNL Hospitality Properties, Inc., each of which is an unlisted REIT, and their
advisors, CNL Fund Advisors, Inc. and CNL Hospitality Advisors, Inc.,
respectively. Ms. Wall has served as Chief Operating Officer of CNL Investment
Company and CNL Securities Corp. since November 1994 and has 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., in 1987 she became a Senior Vice President and in July 1997,
she became Executive 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 investor communications.
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., a REIT listed on the New York
Stock Exchange, 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 of CNL American Properties Fund, Inc. and
Secretary and Treasurer of CNL Hospitality Properties, Inc., each of which is an
unlisted REIT, and is Secretary, Treasurer and a director of CNL Hospitality
Advisors, Inc., the advisor of CNL Hospitality Properties, Inc. In addition, Ms.
Rose serves as Secretary and a director of CNL Fund Advisors, Inc., the advisor
of CNL American Properties Fund, Inc. Ms. Rose served as Treasurer of CNL Fund
Advisors, Inc. from the date of its inception through June 30, 1997 and as
Treasurer of CNL American Properties Fund, Inc. from the date of its inception
to February 1999. 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., a REIT listed on the New York
Stock Exchange, from 1992 to February 1996. Ms. Rose also currently serves as
Secretary for approximately 50 additional corporations. Ms. Rose oversees 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 and is a registered financial and operations
principal of CNL Securities Corp. She was licensed as a certified public
accountant in 1979.
Item 11. Executive Compensation
No annual or long-term compensation was paid by the Company to the
Chief Executive Officer for services rendered in all capacities to the Company
during the period December 22, 1997 (date of inception) through December 31,
1997 or during the year ended December 31, 1998. In addition, no executive
officer of the Company received an annual salary or bonus from the Company
during the fiscal year ended December 31, 1998. The Company's executive officers
also are employees and executive officers of Advisor and receive compensation
from CNL Group, Inc. in part for services in such capacities. See Item 13 for a
description of the fees payable and expenses reimbursed to the Advisor.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of February 5, 1999, the number and
percentage of outstanding shares beneficially owned by all persons known by the
Company to own beneficially more than five percent of the Company's Common
Stock, by each director and nominee, and by all officers and directors as a
group, based upon information furnished to the Company by such stockholders,
officers and directors.
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Shares
Robert A. Bourne 0 --
David W. Dunbar 0 --
Edward A. Moses 0 --
James M. Seneff, Jr. 20,000 (1) (2)
Timothy S. Smick 0 --
All directors and executive 20,000 (1) (2)
officers as a group (10 persons)
(1) Represents shares held by CNL Group, Inc., of which Mr. Seneff is Chief
Executive Officer, Chairman of the Board of Directors, director and a
principal stockholder
(2) 100 percent.
Item 13. Certain Relationships and Related Transactions
All of the executive officers of the Company are executive officers of the
Advisor, a wholly owned subsidiary of CNL Group, Inc., of which Messrs. Seneff
and Bourne are affiliates. In addition, Messrs. Seneff and Bourne and Ms. Rose
and Ms. Wall are executive officers of CNL Securities Corp., the managing dealer
of the Company's offering of shares of common stock, and a wholly owned
subsidiary of CNL Group, Inc. Messrs. Seneff and Bourne are directors of the
Company, the Advisor and CNL Securities Corp., and Ms. Rose is a director of the
Advisor. Administration of the day-to-day operations of the Company is provided
by the Advisor, pursuant to the terms of the Advisory Agreement. The Advisor
also serves as the Company's consultant in connection with policy decisions to
be made by the Company's Board of Directors, manages the Company's properties
and renders such other services as the Board of Directors deems appropriate. The
Advisor also bears the expense of providing the executive personnel and office
space to the Company. The Advisor is at all times subject to the supervision of
the Board of Directors of the Company and has only such functions and authority
as the Company may delegate to it as the Company's agent.
CNL Securities Corp. is entitled to receive selling commissions amounting
to 7.5% of the total amount raised from the sale of Shares of common stock for
services in connection with the offering of Shares, a substantial portion of
which will be paid as commissions to other broker-dealers. For the year ended
December 31, 1998, the Company had incurred $1,912 of such fees, the majority of
which will be paid by CNL Securities Corp. as commissions to other
broker-dealers. These fees will not be paid until subscriptions for at least
250,000 Shares ($2,500,000) have been obtained from the Offering.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of the total
amount raised from the sale of Shares, a portion of which may be reallowed to
other broker-dealers. For the year ended December 31, 1998, the Company had
incurred $128 of such fees, the majority of which will be reallowed to other
broker-dealers and from which all bona fide due diligence expenses will be paid.
These fees will not be paid until subscriptions for at least 250,000 Shares
($2,500,000) have been obtained from the Offering.
The Advisor is entitled to receive acquisition fees for services in
identifying the properties and structuring the terms of the acquisition and
leases of the Properties and structuring the terms of the Mortgage Loans 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. For the year ended December 31, 1998, the Company had incurred $1,148 of
such fees. These fees will not be paid until subscriptions for at least 250,000
Shares ($2,500,000) have been obtained from the Offering.
The Advisor and its affiliates provide accounting and administrative
services to the Company (including accounting and administrative services in
connection with the offering of Shares) on a day-to-day basis. For the year
ended December 31, 1998, the Company incurred a total of $196,184 for these
services, including costs related to preparing and distributing reports required
by the Securities and Exchange Commission. Such amounts will not be paid until
subscriptions for at least 250,000 Shares ($2,500,000) have been obtained from
the Offering.
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. The Advisor has agreed to
pay all organizational and offering expenses (excluding commissions and
marketing support and due diligence expense reimbursement fees) which exceed
three percent of the gross offering proceeds received from the sale of shares of
the Company. For the year ended December 31, 1998, the Company had incurred
$562,739 for such costs. Of this amount, $79,170 represents consulting fees and
expenses paid to Daniel L. Simmons, who, prior to becoming an officer of the
Company, served as a consultant to the Company from November 1997 to June 1998.
Mr. Simmons currently serves as an Executive Vice President of the Company.
All amounts incurred by the Company to affiliates of CNL Group, Inc. are
believed by the Company to be fair and comparable to amounts that would be paid
for similar services provided by unaffiliated third parties.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1998 and 1997
Statements of Stockholder's Equity for the year ended December
31, 1998, and the period December 22, 1997 (date of inception)
through December 31, 1997
Notes to Financial Statements
3. Exhibits
3.1 CNL Health Care Properties, Inc. Amended and
Restated Articles of Incorporation (Filed herewith.)
3.2 CNL Health Care Properties, Inc. Bylaws
(Filed herewith.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to
Registration Statement No. 333-47411 on Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of September 15, 1998,
between CNL Health Care Properties, Inc. and CNL
Health Care Advisors, Inc. (Filed herewith.)
10.2 Indemnification Agreement between CNL Health Care
Properties, Inc. and Phillip M. Anderson, Jr. dated
February 19, 1999. Each of the following director
and/or officer has signed a substantially similar
agreement as follows: James M. Seneff, Jr., Robert A.
Bourne, David W. Dunbar, Timothy S. Smick, Edward A.
Moses, Daniel L. Simmons, Curtis B. McWilliams,
Jeanne A. Wall and Lynn E. Rose dated September 15,
1998 (Filed herewith.)
27 Financial Data Schedule (Filed herewith.)
(b) No reports on Form 8-K were filed during the period October 1, 1998
through December 31, 1998.
Supplemental information to be furnished with reports filed pursuant to
Section 15(d) of the Act by Registrants which have not registered securities
pursuant to Section 12 of the Act.
The Company has not sent an annual report for 1998 or proxy materials
for its 1999 annual meeting of shareholders to security holders and has no
present intention to do so.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 19th day of
February, 1999.
CNL HEALTH CARE PROPERTIES, INC.
By: ROBERT A. BOURNE
President (Principal Financial
and Accounting Officer)
/s/ Robert A. Bourne
------------------------
ROBERT A. BOURNE
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
Signature Title Date
/s/ James M. Seneff, Jr.
- --------------------------- Chairman of the Board and Chief February 19, 1999
James M. Seneff, Jr. Executive Officer (Principal
Executive Officer)
/s/ Robert A. Bourne
- --------------------------- Director and President (Principal February 19, 1999
Robert A. Bourne Financial and Accounting Officer)
/s/ David W. Dunbar Independent Director February 19, 1999
- ---------------------------
David W. Dunbar
/s/ Timothy S. Smick Independent Director February 19, 1999
- ---------------------------
Timothy S. Smick
/s/ Edward A. Moses Independent Director February 19, 1999
- ---------------------------
Edward A. Moses
</TABLE>
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number
3.1 CNL Health Care Properties, Inc. Amended and
Restated Articles of Incorporation (Filed herewith.)
3.2 CNL Health Care Properties, Inc. Bylaws (Filed herewith.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to
Registration Statement No. 333-47411 on Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of September 15, 1998,
between CNL Health Care Properties, Inc. and CNL Health Care
Advisors, Inc. (Filed herewith.)
10.2 Indemnification Agreement between CNL Health Care Properties,
Inc. and Phillip M. Anderson, Jr. dated February 19,
1999. Each of the following director and/or officer has
signed a substantially similar agreement as follows: James
M. Seneff, Jr., Robert A. Bourne, David W. Dunbar, Timothy
S. Smick, Edward A. Moses, Daniel L. Simmons, Curtis B.
McWilliams, Jeanne A. Wall and Lynn E. Rose dated September
15, 1998 (Filed herewith.)
27 Financial Data Schedule (Filed herewith.)
EXHIBIT 3.1
Amended and Restated Articles of Incorporation of
CNL Health Care Properties, Inc.
<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, dated December
22, 1997, which are now in effect and as amended hereby, 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.
-1-
<PAGE>
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 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, 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.
-2-
<PAGE>
"Advisor" or "Advisors" means the Person or Persons, if any, appointed,
employed or contracted with by the Company pursuant to Section 4.1 hereof and
responsible for directing or 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.
-3-
<PAGE>
"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
(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.
"Construction Fee" means a fee or other remuneration for acting as a
general contractor and/or construction manager to construct improvements,
supervise and coordinate projects or provide major repairs or rehabilitation on
a Property.
"Development Fee" means a fee for such activities as negotiating and
approving plans and undertaking to assist in obtaining zoning and necessary
variances and necessary financing for a specific Property, either initially or
at a later date.
"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, continuing care retirement communities and life
care communities, and medical office buildings and walk-in clinics.
-4-
<PAGE>
"Independent Director" means a Director who is not, and within the last
two (2) years has not been, directly or indirectly associated with the Advisor
by virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) performance of services, other
than as a Director, for the Company, (v) service as a director or trustee of
more than three (3) real estate investment trusts advised by the Advisor, or
(vi) maintenance of a material business or professional relationship with the
Advisor or any of its Affiliates. An indirect relationship shall include
circumstances in which a Director's spouse, parents, children, siblings,
mothers- or fathers-in-law, sons- or daughters-in-law or brothers- or
sisters-in-law is or has been associated with the Advisor, any of its Affiliates
or the Company. A business or professional relationship is considered material
if the gross revenue derived by the Director from the Advisor and Affiliates
exceeds five percent (5%) of either the Director'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.
-5-
<PAGE>
"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.
"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
-6-
<PAGE>
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,
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, the Soliciting Dealer Warrants 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, the Soliciting
Dealer Warrants 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.
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"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 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.
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"Roll-Up Transaction" means a transaction involving the acquisition,
merger, conversion, or consolidation, directly or indirectly, of the Company and
the issuance of securities of a Roll- Up Entity. Such term does not include: (i)
a transaction involving securities of the Company that have been listed on a
national securities exchange or included for quotation on the National Market
System of the National Association of Securities Dealers Automated Quotation
System for at least 12 months; or (ii) a transaction involving the conversion to
corporate, trust, or association form of only the Company if, as a consequence
of the transaction, there will be no significant adverse change in Stockholder
voting rights, the term of existence of the Company, compensation to the Advisor
or the investment objectives of the Company.
"Sale" or "Sales" (i) means any transaction or series of transactions
whereby: (A) the Company sells, grants, transfers, conveys or relinquishes its
ownership of any Property or portion thereof, including the lease of any
Property consisting of the building only, and including any event with respect
to any Property which gives rise to a significant amount of insurance proceeds
or condemnation awards; (B) the Company sells, grants, transfers, conveys or
relinquishes its ownership of all or substantially all of the interest of the
Company in any Joint Venture in which it is a co-venturer or partner; (C) any
Joint Venture in which the Company as a co-venturer or partner sells, grants,
transfers, conveys or relinquishes its ownership of any Property or portion
thereof, including any event with respect to any Property which gives rise to
insurance claims or condemnation awards; or (D) the Company sells, grants,
conveys, or relinquishes its interest in any Mortgage Loan, Secured Equipment
Lease, or other asset, or portion thereof, including any event with respect to
any Mortgage Loan, Secured Equipment Lease or other asset which gives rise to a
significant amount of insurance proceeds or similar awards, but (ii) shall not
include any transaction or series of transactions specified in clause (i)(A),
(i)(B), or (i)(C) above in which the proceeds of such transaction or series of
transactions are reinvested in one or more Properties within one hundred eighty
(180) days thereafter.
"Secured Equipment Leases" means the Equipment financing made available
by the Company to operators of 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.
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"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 Common Shares, as such term is defined in Section
7.2 hereof.
"Soliciting Dealers" means those broker-dealers that are members of the
National Association of Securities Dealers, Inc., or that are exempt from
broker-dealer registration, and that, in either case, enter into participating
broker or other agreements with the Managing Dealer to sell Shares.
"Sponsor" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Company or any Person who will control,
manage or participate in the management of the Company, and any Affiliate of
such Person. Not included is any Person whose only relationship with the Company
is that of an independent property manager of Company assets, and whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants, and underwriters whose only compensation
is for professional services. A Person may also be deemed a Sponsor of the
Company by:
a. taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company, either
alone or in conjunction with one or more other Persons;
b. receiving a material participation in the Company in
connection with the founding or organizing of the business of
the Company, in consideration of services or property, or both
services and property;
c. having a substantial number of relationships and contacts with
the Company;
d. possessing significant rights to control Company properties;
e. receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or
f. providing goods or services to the Company on a basis which
was not negotiated at arms length with the Company.
"Stock Option Plan" means a plan that provides for the matters set
forth in Rule 260.140.41 of Section 25140 of the Corporations Code of
California, as in effect as of the date of these Articles of Incorporation.
"Stockholders' 8% Return," as of each date, means an aggregate amount
equal to an eight percent (8%) cumulative, noncompounded, annual return on
Invested Capital.
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"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.
"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.
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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.
SECTION 2.4 Initial Board; Term. The initial Directors are James M.
Seneff, Jr., Robert A. Bourne, David W. Dunbar, Timothy S. Smick and Edward A.
Moses. 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
David W. Dunbar 400 E. South Street
Orlando, Florida 32801
Timothy S. Smick 400 E. South Street
Orlando, Florida 32801
Edward A. Moses 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 and (xvi), 6.3,
6.4, 8.1, 8.2, 9.2 and 9.4 herein apply.
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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 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
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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 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
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and delivered for and on behalf of the Company or the Directors by one or more
of the Directors or by a duly authorized officer, employee, agent or nominee of
the Company, on such terms as they deem appropriate; to give consents and make
contracts relating to the Company Property and its use or other property or
matters; to develop, improve, manage, use, alter or otherwise deal with the
Company Property; and to rent, lease or hire from others property of any kind;
provided, however, that the Company may not use or apply land for any purposes
not permitted by applicable law.
(iv) Financings. To borrow or, in any other manner, raise
money for the purposes and on the terms they determine, which terms may (i)
include evidencing the same by issuance of Securities of the Company and (ii)
may have such provisions as the Directors determine; to reacquire such
Securities of the Excess Shares Trust; to enter into other contracts or
obligations on behalf of the Excess Shares Trust; to guarantee, indemnify or act
as surety with respect to payment or performance of obligations of any Person;
to mortgage, pledge, assign, grant security interests in or otherwise encumber
the Company Property to secure any such Securities of the Company, contracts or
obligations (including guarantees, indemnifications and suretyships); and to
renew, modify, release, compromise, extend, consolidate or cancel, in whole or
in part, any obligation to or of the Company or participate in any
reorganization of obligors to the Company; provided, however, that the Company's
Leverage, may not exceed 300% of Net Assets.
(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.
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(viii) Expenses and Taxes. To pay any charges, expenses or
liabilities necessary or desirable, in the sole discretion of the Directors, for
carrying out the purposes of these Articles of Incorporation and conducting
business of the Company, including compensation or fees to Directors, officers,
employees and agents of the Company, and to Persons contracting with the
Company, and any taxes, levies, charges and assessments of any kind imposed upon
or chargeable against the Company, the Company Property or the Directors in
connection therewith; and to prepare and file any tax returns, reports or other
documents and take any other appropriate action relating to the payment of any
such charges, expenses or liabilities.
(ix) Collection and Enforcement. To collect, sue for and
receive money or other property due to the Company; to consent to extensions of
the time for payment, or to the renewal, of any Securities or obligations; to
engage or to intervene in, prosecute, defend, compound, enforce, compromise,
release, abandon or adjust any actions, suits, proceedings, disputes, claims,
demands, security interests or things relating to the Company, the Company
Property or the Company's affairs; to exercise any rights and enter into any
agreements and take any other action necessary or desirable in connection with
the foregoing.
(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
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owner might, including without limitation to vote or give any consent, request
or notice or waive any notice, either in person or by proxy or power of
attorney, which proxies and powers of attorney may be for any general or special
meetings or action, and may include the exercise of discretionary powers.
(xiv) Officers, Etc.; Delegation of Powers. To elect, appoint
or employ such officers for the Company and such committees of the Board of
Directors with such powers and duties as the Directors may determine, the
Company's Bylaws provide or the MGCL requires; to engage, employ or contract
with and pay compensation to any Person (including subject to Section 9.5
hereof, any Director and Person who is an Affiliate of any Director) as agent,
representative, Advisor, member of an advisory board, employee or independent
contractor (including advisors, consultants, transfer agents, registrars,
underwriters, accountants, attorneys-at-law, real estate agents, property and
other managers, appraisers, brokers, architects, engineers, construction
managers, general contractors or otherwise) in one or more capacities, to
perform such services on such terms as the Directors may determine; to delegate
to one or more Directors, officers or other Persons engaged or employed as
aforesaid or to committees of Directors or to the Advisor, the performance of
acts or other things (including granting of consents), the making of decisions
and the execution of such deeds, contracts, leases or other instruments, either
in the names of the 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
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negligence, gross negligence, misconduct, willful misconduct or an alleged
violation of federal or state securities laws. Nothing contained herein shall
preclude the Company from purchasing and paying for such types of insurance,
including extended coverage liability and casualty and workers' compensation, as
would be customary for any Person owning comparable assets and engaged in a
similar business, or from naming the Insured as an additional insured party
thereunder, provided that such addition does not add to the premiums payable by
the Company. The Board of Directors' power to purchase and pay for such
insurance policies shall be limited to policies that comply with all applicable
state laws and the NASAA REIT Guidelines.
(xviii) Distributions. To declare and pay dividends or other
Distributions to Stockholders, subject to the provisions of Section 7.2 hereof.
(xix) Discontinue Operations; Bankruptcy. To discontinue the
operations of the Company (subject to Section 10.2 hereof); to petition or apply
for relief under any provision of federal or state bankruptcy, insolvency or
reorganization laws or similar laws for the relief of debtors; to permit any
Company Property to be foreclosed upon without raising any legal or equitable
defenses that may be available to the Company or the Directors or otherwise
defending or responding to such foreclosure; to confess judgment against the
Excess Shares Trust (as hereinafter defined); or to take such other action with
respect to indebtedness or other obligations 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.
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(xxiv) Listing Shares. To cause the Listing of the Shares at
any time after completion of the Initial Public Offering but in no event shall
such Listing occur more than ten (10) years after completion of the offering.
(xxv) Further Powers. To do all other acts and things and
execute and deliver all instruments incident to the foregoing powers, and to
exercise all powers which they deem necessary, useful or desirable to carry on
the business of the Company or to carry out the provisions of these Articles of
Incorporation, even if such powers are not specifically provided hereby.
SECTION 3.3 Determination of Best Interest of Company. In determining
what is in the best interest of the Company, a Director shall consider the
interests of the Stockholders of the Company and, in his or her sole and
absolute discretion, may consider (i) the interests of the Company's employees,
suppliers, creditors and customers, (ii) the economy of the nation, (iii)
community and societal interests, and (iv) the long-term as well as short-term
interests of the Company and its Stockholders, including the possibility that
these interests may be best served by the continued independence of the Company.
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.
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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 and each such determination shall be reflected in the minutes of
the meeting 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. A majority of the Independent Directors also will be responsible for
reviewing the performance of the Advisor and determining that compensation to be
paid to the Advisor is reasonable in relation to the nature and quality of
services to be performed and the investment performance of the Company and that
the provisions of the Advisory Agreement are being carried out and each such
determination shall be reflected in the minutes of the meeting of the Board of
Directors. 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.
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SECTION 4.6 Real Estate Commission on Sale of Property. The Company
shall pay the Advisor a deferred, subordinated real estate disposition fee upon
Sale of one or more Properties, in an amount equal to the lesser of (i) one-half
(1/2) of a Competitive Real Estate Commission, or (ii) three percent (3%) of the
sales price of such Property or Properties. Payment of such fee shall be made
only if the Advisor provides a substantial amount of services in connection with
the Sale of a Property or Properties and shall be subordinated to receipt by the
Stockholders of Distributions equal to the sum of (i) their aggregate
Stockholders' 8% Return and (ii) their aggregate Invested Capital. If, at the
time of a Sale, payment of such disposition fee is deferred because the
subordination conditions have not been satisfied, then the disposition fee shall
be paid at such later time as the subordination conditions are satisfied. Upon
Listing, if the Advisor has accrued but not been paid such real estate
disposition fee, then for purposes of determining whether the subordination
conditions have been satisfied, Stockholders will be deemed to have received a
Distribution in the amount equal to the product of the total number of Shares
outstanding and the average closing price of the Shares over a period, beginning
180 days after Listing, of 30 days during which the Shares are traded.
SECTION 4.7 Subordinated Share of Net Sales Proceeds. The Company shall
pay the Advisor a deferred, subordinated share from Sales of assets of the
Company, whether or not in liquidation of the Company, equal to 10% of Net Sales
Proceeds 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.
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(iii) In the event that the Company becomes a perpetual life
entity, which will occur if the Shares become listed on a national securities
exchange or over-the-counter market, the Company and the Advisor will negotiate
in good faith a fee structure appropriate for an entity with a perpetual life,
subject to approval by a majority of the Independent Directors. In negotiating a
new fee structure, the Independent Directors shall consider all of the factors
they deem relevant. These are expected to include, but will not necessarily be
limited to: (i) the amount of the advisory fee in relation to the asset value,
composition, and profitability of the Company's portfolio; (ii) the success of
the Advisor in generating opportunities that meet the investment objectives of
the Company; (iii) the rates charged to other REITs and to investors other than
REITs by Advisors that perform the same or similar services; (iv) additional
revenues realized by the Advisor and its Affiliates through their relationship
with the Company, including loan administration, underwriting or broker
commissions, servicing, engineering, inspection and other fees, whether paid by
the Company or by others with whom the Company does business; (v) the quality
and extent of service and advice furnished by the Advisor; (vi) the performance
of the investment portfolio of the Company, including income, conservation or
appreciation of capital, and number and frequency of problem investments; and
(vii) the quality of the Property portfolio of the Company in relationship to
the investments generated by the Advisor for its own account. The Board of
Directors, including a majority of the Independent Directors, may not approve a
new fee structure that, in its judgment, is more favorable to the Advisor than
the current fee structure.
SECTION 4.9 Performance Fee. Upon termination of the Advisory
Agreement, the Advisor shall be entitled to receive a Performance Fee if
performance standards satisfactory to a majority of the Board of Directors,
including a majority of the Independent Directors, when 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
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Company and the Advisor. The Advisor shall not be entitled to payment of the
Performance Fee in the event the Advisory Agreement is terminated because of
failure of the Company and the Advisor to establish a fee structure appropriate
for a perpetual-life entity at such time, if any, as the Shares become listed on
a national securities exchange or over-the-counter market. The Performance Fee,
to the extent payable at the time of Listing, will not be paid in the event that
the Subordinated Incentive Fee is paid.
SECTION 4.10 Acquisition Fee and Acquisition Expenses. The Company
shall pay the Advisor a fee in the amount of 4.5% of Total Proceeds as
Acquisition Fees. Acquisition Fees shall be reduced to the extent that, and if
necessary to limit, the total compensation paid to all persons involved in the
acquisition of any Property to the amount customarily charged in arms-length
transactions by other persons or entities rendering similar services as an
ongoing public activity in the same geographical location and for comparable
types of Properties, and to the extent that other acquisition fees, finder's
fees, real estate commissions, or other similar fees or commissions are paid by
any person in connection with the transaction. The Company shall reimburse the
Advisor for Acquisition Expenses incurred in connection with the initial
selection and acquisition of Properties, provided that reimbursement shall be
limited to the actual cost of goods and services used by the Company and
obtained from entities not affiliated with the Advisor, or the lesser of the
actual cost or 90% of the competitive rate charged by unaffiliated persons
providing similar goods and services in the same geographic location for goods
or services provided by the Advisor or its Affiliates. The total of all
Acquisition Fees and any Acquisition Expenses shall be reasonable and shall not
exceed an amount equal to six percent (6%) of the Real Estate Asset Value or the
Contract Purchase Price of a Property, or in the case of a Mortgage Loan, six
percent (6%) of the funds advanced, unless a majority of the Board of Directors,
including a majority of the Independent Directors not otherwise interested in
the 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.
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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.
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.
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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.
(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,
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Directors, or Affiliates, such appraisal of the underlying property must be
obtained from an Independent Expert. Such appraisal shall be maintained in the
Company's records for at least five (5) years and shall be available for
inspection and duplication by any Stockholder. In addition to the appraisal, a
mortgagee's or owner's title insurance policy or commitment as to the priority
of the mortgage or condition of the title must be obtained.
(iv) The Company shall not make or invest in mortgage loans,
including construction loans, on any one (1) property if the aggregate amount of
all mortgage loans outstanding on the property, including the loans of the
Company would exceed an amount equal to eighty-five percent (85%) of the
appraised value of the property as determined by appraisal unless substantial
justification exists because of the presence of other underwriting criteria. For
purposes of this subsection, the "aggregate amount of all mortgage loans
outstanding on the Property, including the loans of the Company" shall include
all interest (excluding contingent participation in income and/or appreciation
in value of the mortgaged property), the current payment of which may be
deferred pursuant to the terms of such loans, to the extent that deferred
interest on each loan exceeds five percent (5%) per annum of the principal
balance of the loan.
(v) The Company shall not invest in indebtedness ("Junior
Debt") secured by a mortgage on real property which is subordinate to the lien
or other indebtedness ("Senior Debt"), except where such amount of such Junior
Debt, plus the outstanding amount of Senior Debt, does not exceed 90% of the
appraised value of such property, if after giving effect thereto, the value of
all such mortgage loans of the Company (as shown on the books of the Company in
accordance with generally accepted accounting principles, after all reasonable
reserves but before provision for depreciation) would not then exceed 25% of the
Company's Net Assets. The value of all investments in Junior Debt of the Company
which does not meet the aforementioned requirements shall be limited to 10% of
the Company's tangible assets (which would be included within the 25%
limitation).
(vi) The Company shall not engage in any short sale, or
borrow, on an unsecured basis, if such borrowing will result in an Asset
Coverage of less than 300%, except that such borrowing limitation shall not
apply to a first mortgage trust. "Asset Coverage," for the purpose of this
Section 5.4(vi) means the ratio which the value of the total assets of an
issuer, less all liabilities and indebtedness except indebtedness for unsecured
borrowings, bears to the aggregate amount of all unsecured borrowings of such
issuer.
(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
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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 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 an Independent Expert 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.
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(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 not exceed three hundred percent (300%).
(xvi) The Company may borrow money from the Advisor, Director
or any Affiliate thereof, upon a finding by a majority of Directors (including a
majority of Independent Directors) not otherwise interested in the transaction
that such transaction is fair, competitive and commercially reasonable and no
less favorable to the Company than loans between unaffiliated parties under the
same circumstances. Notwithstanding the foregoing, the Advisor and its
Affiliates shall be entitled to reimbursement, at cost, for actual expenses
incurred by the Advisor or its Affiliates on behalf of the Company or Joint
Ventures in which the Company is a co-venturer, subject to subsection xviii)
below.
(xvii) The Company shall not make loans to the Advisor or its
Affiliates.
(xviii) The Company shall not operate so as to be classified
as an "investment company" under the Investment Company Act of 1940, as amended.
(xix) 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 or
lease 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.
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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 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
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Affiliates, to be more appropriate for an entity other than the entity which
committed to make the investment, however, the Advisor has the right to agree
that the other entity affiliated with the Advisor or its Affiliates may make the
investment.
SECTION 6.4 Other Transactions.
(i) No goods or services will be provided by the Advisor or
its Affiliates to the Company except for transactions in which the Advisor or
its Affiliates provide goods or services to the Company in accordance with these
Articles of Incorporation or if a majority of the Directors (including a
majority of the Independent Directors) not otherwise interested in such
transactions approve such transactions as fair and reasonable to the Company and
on terms and conditions not less favorable to the Company than those available
from unaffiliated third parties.
(ii) The Company will not make any loans to Affiliates. Any
loans to the Company by the Advisor or its Affiliates must be approved by a
majority of the Directors (including a majority of Independent Directors) not
otherwise interested in such transaction as fair, competitive, and commercially
reasonable, and no less favorable to the Company than comparable loans between
unaffiliated parties.
ARTICLE 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
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number, designation, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of any such Common Shares and, in such event, the Company shall
file for record with the State Department of Assessments and Taxation of the
State of Maryland amended articles in substance and form as prescribed by Title
2 of the MGCL.
(iii) Distribution Rights. The holders of Common Shares shall
be entitled to receive such Distributions as may be declared by the Board of
Directors of the Company out of funds legally available therefor.
(iv) Dividend or Distribution Rights. The Directors from time
to time may declare and pay to Stockholders such dividends or Distributions in
cash or other property as the Directors in their discretion shall determine. The
Directors shall endeavor to declare and pay such dividends and Distributions as
shall be necessary for the Company to qualify as a real estate investment trust
under the REIT Provisions of the Code; provided, however, Stockholders shall
have no right to any dividend or Distribution unless and until declared by the
Directors. The exercise of the powers and rights of the Directors pursuant to
this section shall be subject to the provisions of any class or series of Equity
Shares at the time outstanding. The receipt by any Person in whose name any
Equity Shares are registered on the records of the Company or by his duly
authorized agent shall be a sufficient discharge for all dividends or
Distributions payable or deliverable in respect of such Equity Shares and from
all liability to see to the application thereof. Distributions in kind shall not
be permitted, except for distributions of readily marketable securities;
distributions of beneficial interests in a liquidating trust established for the
dissolution of the Company and the liquidation of its assets in accordance with
the terms of these Articles of Incorporation; or distributions of in-kind
property as long as the Directors (i) advise each Stockholder of the risks
associated with direct ownership of the property; (ii) offer each Stockholder
the election of 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
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not give full value for such Excess Shares (as through a gift, a devise or other
event or transaction), a price per share equal to the Market Price (as that term
is defined in Section 7.6(i)) for the Common Shares on the date of the purported
Transfer, Acquisition, change in capital structure or other transaction or event
that resulted in such Excess Shares. Any amount available for distribution in
excess of the foregoing limitations shall be paid ratably to the holders of
Common Shares and other holders of Excess Shares resulting from the exchange of
Common Shares to the extent permitted by the foregoing limitations.
(vi) Voting Rights. Except as may be provided in these
Articles of Incorporation, and subject to the express terms of any series of
Preferred Shares, the holders of the Common Shares shall have the exclusive
right to vote on all matters (as to which a common Stockholder shall be entitled
to vote pursuant to applicable law) at all meetings of the Stockholders of the
Company, and shall be entitled to one (1) vote for each Common Share entitled to
vote at such meeting.
SECTION 7.3 Preferred Shares. The Directors are hereby expressly
granted the authority to authorize from time to time the issuance of one or more
series of Preferred Shares. The issuance of Preferred Shares shall be approved
by a majority of the Independent Directors who do not have an interest in the
transaction and who have access, at the expense of the Company, to the Company's
or independent legal counsel. 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 on 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.
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(vi) Whether the shares of the series shall be convertible
into shares of any other class or series, or any other security, of the Company
or any other corporation or other entity, and, if so, the specification of such
other class or series of such other security, the conversion price or prices or
rate or rates, any adjustments thereof, the date or dates on which such shares
shall be convertible and all other terms and conditions upon which such
conversion may be made.
(vii) Restrictions on the issuance of shares of the same
series or of any other class or series.
(viii) The voting rights of the holders of shares of the
series subject to the limitations contained in this Section 7.3.
(ix) Any other relative rights, preferences and limitations on
that series.
Subject to the express provisions of any other series of Preferred
Shares then outstanding, and notwithstanding any other provision of these
Articles of Incorporation, the Board of Directors may increase or decrease (but
not below the number of shares of such series then outstanding) the number of
shares, or alter the designation or classify or reclassify any unissued shares
of a particular series of Preferred Shares, by fixing or altering, in one or
more respects, from time to time before issuing the shares, the terms, rights,
restrictions and qualifications of the shares of any such series of Preferred
Shares.
SECTION 7.4 General Nature of Shares. All Shares shall be personal
property entitling the Stockholders only to those rights provided in these
Articles of Incorporation, the MGCL or in the resolution creating any class or
series of Shares. The legal ownership of the Company Property and the right to
conduct the business of the Company are vested exclusively in the Directors; the
Stockholders shall have no interest therein other than the beneficial interest
in the Company conferred by their Shares and shall have no right to compel any
partition, division, 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.
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SECTION 7.6 Restrictions On Ownership and Transfer.
(i) Definitions. For purposes of Sections 7.6 and 7.7, the
following terms shall have the following meanings:
"Acquire" means the acquisition of Beneficial or Constructive Ownership
of Equity Shares by any means, including, without limitation, the exercise of
any rights under any option, warrant, convertible security, pledge or other
security interest or similar right to acquire shares, but shall not include the
acquisition of any such rights unless, as a result, the acquiror would be
considered a Beneficial Owner or Constructive Owner. The terms "Acquires" and
"Acquisition" shall have correlative meanings.
"Beneficial Ownership" means ownership of Shares by an individual who
would be treated as an owner of such Shares under Section 542(a)(2) of the Code,
either directly or constructively through the application of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code. For purposes of this
definition, the term "individual" shall include any organization, trust, or
other entity that is treated as an individual for purposes of Section 542(a)(2)
of the Code. The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially
Owned" shall have correlative meanings.
"Beneficiary" means a beneficiary of the Excess Shares Trust as
determined pursuant to Section 7.7(v)(a) hereof.
"Closing Price" on any day shall mean the last sale price, regular way
on such day, or, if no such sale takes place on that day, the average of the
closing bid and asked prices, regular way, in either case as reported on the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange, or if the affected
class or series of Equity Shares are not so listed or admitted to trading, as
reported in the principal 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.
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"Common Share Ownership Limit" means, with respect to the Common
Shares, nine point eight percent (9.8%) of the outstanding Common Shares,
subject to adjustment pursuant to Section 7.6(x) (but not more than nine point
nine percent (9.9%) of the outstanding Common Shares, as so adjusted) and to the
limitations contained in Section 7.6(xi).
"Constructive Ownership" means ownership of Equity Shares by a person
who would be treated as an owner of such shares, either actually or
constructively, directly or indirectly, through the application of Section 318
of the Code, as modified by Section 856(d)(5) thereof. The terms "Constructive
Owner," "Constructively Owns" and "Constructively Owned" shall have correlative
meanings.
"Excess Shares Trust" means the trust created pursuant to Section
7.7(i) hereof.
"Excess Shares Trustee" means the Company as trustee for the Excess
Shares Trust, and any successor trustee appointed by the Company.
"Market Price" means, during the offering, the price per Equity Share
and thereafter, until the Equity Shares are listed for trading on an exchange or
market, a price determined on the basis of the quarterly valuation of the
Company's assets. Upon listing of the Shares, market price shall mean the
average of the Closing Prices for the ten (10) consecutive Trading Days
immediately preceding such day (or those days during such ten (10)-day period
for which Closing Prices are available).
"Ownership Limit" means the Common Share Ownership Limit or the
Preferred Share Ownership Limit, or both, as the context may require.
"Preferred Share Ownership Limit" means, with respect to the Preferred
Shares, nine point eight percent (9.8%) of the outstanding Shares of a
particular series of Preferred Shares of the Company, subject to adjustment
pursuant to Section 7.6(x) (but not more than nine point nine 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.
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"Purported Record Holder" means, with respect to any event or
transaction other than a purported Transfer or Acquisition which results in
Excess Shares, the record holder of the Equity Shares that were, pursuant to
Section 7.6(iii), automatically exchanged for Excess Shares upon the occurrence
of such an event or transaction. The Purported Record Holder and the Purported
Beneficial Holder may be the same Person.
"Purported Record Transferee" means, with respect to any purported
Transfer or Acquisition which results in Excess Shares, the record holder of the
Equity Shares if such Transfer or Acquisition which results in Excess Shares had
been valid under Section 7.6(ii). The Purported Record Transferee and the
Purported Beneficial Transferee may be the same Person.
"Restriction Termination Date" means the first day after the date of
the closing of the Initial Public Offering on which the Board of Directors of
the Company determines, pursuant to Section 3.2(xxii) hereof, that it is no
longer in the best interests of the Company to attempt or continue to qualify as
REIT.
"Trading Day" means a day on which the principal national securities
exchange on which the affected class or series of Equity Shares are listed or
admitted to trading is open for the transaction of business or, if the affected
class or series of Equity Shares are not listed or admitted to trading, shall
mean any day other than a Saturday, Sunday or other day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Transfer" means any sale, transfer, gift, hypothecation, assignment,
devise or other disposition of a direct or indirect interest in Equity Shares or
the right to vote or receive dividends on Equity Shares (including (i) the
granting of any option (including any option to acquire an option or any series
of such options) or entering into any agreement for the sale, transfer or other
disposition of Equity Shares or the right to vote or receive dividends on Equity
Shares or (ii) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or 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
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Transfer, Acquisition, change in the capital structure of the
Company, other purported change in Beneficial or Constructive
Ownership of Equity Shares or other event or transaction that,
if effective, would result in any Person Beneficially or
Constructively Owning Equity Shares in excess of the Common or
Preferred Share Ownership Limit shall be void ab initio as to
the Transfer, Acquisition, change in the capital structure of
the Company, other purported change in Beneficial or
Constructive Ownership or other event or transaction with
respect to that number of Equity Shares which would otherwise
be Beneficially or Constructively Owned by such Person in
excess of the Common or Preferred Share Ownership Limit, and
none of the Purported Beneficial Transferee, the Purported
Record Transferee, the Purported Beneficial Holder or the
Purported Record Holder shall acquire any rights in that
number of Equity Shares.
(c) Notwithstanding any other provision of these
Articles of Incorporation, and except as provided in Section
7.8, from the date of the Initial Public Offering and prior to
the Restriction Termination Date, any Transfer, Acquisition,
change in the capital structure of the Company, or other
purported change in Beneficial or Constructive Ownership
(including actual ownership) of Equity Shares or other event
or transaction that, if effective, would result in the Equity
Shares being actually owned by fewer than 100 Persons
(determined without reference to any rules of attribution)
shall be void ab initio as to the Transfer, Acquisition,
change in the capital structure of the Company, other
purported change in Beneficial or Constructive Ownership
(including actual ownership) with respect to that number of
Equity Shares which otherwise would be owned by the
transferee, and the intended transferee or subsequent owner
(including a Beneficial Owner or Constructive Owner) shall
acquire no rights in that number of Equity Shares.
(d) Notwithstanding any other provision of these
Articles of Incorporation, except as provided in Section 7.8,
from the date of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer, Acquisition,
change in the capital structure of the Company, other
purported change in Beneficial or 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
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Beneficial Transferee, the Purported Record Transferee, the
Purported Beneficial Holder or the Purported Record Holder
shall acquire any rights in that number of Equity Shares.
(e) Notwithstanding any other provision of these
Articles of Incorporation, except as provided in Section 7.8,
from the date of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer, Acquisition,
change in capital structure of the Company, or other purported
change in Beneficial or Constructive Ownership of Equity
Shares or other event or transaction that, if effective, would
(i) cause the Company to own (directly or Constructively) an
interest in a tenant that is described in Section 856(d)(2)(B)
of the Code and (ii) cause the Company to fail to satisfy any
of the gross income requirements of section 856(c) of the
Code, shall be void ab initio as to the Transfer, Acquisition,
change in capital structure of the Company, other purported
change in Beneficial or Constructive Ownership or other event
or transaction with respect to that number of Equity Shares
which would cause the Company to own an interest (directly or
Constructively) in a tenant that is described in Section
856(d)(2)(B) of the Code, and none of the Purported Beneficial
Transferee, the Purported Record Transferee, the Purported
Beneficial Holder or the Purported Record Holder shall acquire
any rights in that number of Equity Shares.
(f) Notwithstanding any other provision of these
Articles of Incorporation, any person selling securities on
behalf of the Company in its Initial Public Offering may not
complete a sale of securities to a Stockholder until at least
five (5) business days after the date the Stockholder receives
a final Prospectus and shall send each Stockholder a
confirmation of his or her purchase.
(iii) Exchange for Excess Shares.
(a) If, notwithstanding the other provisions
contained in this Article VII, at any time from the date of
the Initial Public Offering and prior to the Restriction
Termination Date, there is a purported Transfer, Acquisition,
change in the capital structure of the Company, other
purported change in the Beneficial or Constructive Ownership
of Equity Shares or other event or transaction such that any
Person would either Beneficially or Constructively Own Equity
Shares in excess of the Common or Preferred Share Ownership
Limit, then, except as otherwise provided in Section 7.6(ix),
such Equity Shares (rounded up to the next whole number of
shares) in 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
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of the purported Transfer, Acquisition, change in capital
structure, other change in purported Beneficial or
Constructive Ownership of Shares, or other event or
transaction.
(b) If, notwithstanding the other provisions
contained in this Article VII, at any time after the date of
the Initial Public Offering and prior to the Restriction
Termination Date, there is a purported Transfer, Acquisition,
change in the capital structure of the Company, other
purported change in the Beneficial or Constructive Ownership
of Equity Shares or other event or transaction which, if
effective, would result in a violation of any of the
restrictions described in subparagraphs (b), (c), (d) and (e)
of paragraph (ii) of this Section 7.6 or, directly or
indirectly, would cause the Company for any reason to fail to
qualify as a REIT by reason of being "closely held" within the
meaning of Section 856(h) of the Code, or otherwise, directly
or indirectly, would cause the Company to fail to qualify as a
REIT, then the Shares (rounded up to the next whole number of
Shares) being Transferred or which are otherwise affected by
the change in capital structure or other purported change in
Beneficial or Constructive Ownership and which, in any case,
would cause the Company to be "closely held" within the
meaning of such Section 856(h) or otherwise would cause the
Company to fail to qualify as a REIT automatically shall be
exchanged for an equal number of Excess Shares having terms,
rights, restrictions and qualifications identical thereto,
except to the extent that this Article VII requires different
terms. Such exchange shall be effective as of the close of
business on the business day prior to the date of the
purported Transfer, Acquisition, change in capital structure,
other purported change in Beneficial or Constructive Ownership
or other event or transaction.
(iv) Remedies For Breach. If the Board of Directors or its
designee shall at any time determine in good faith that a Transfer, Acquisition,
change in the capital structure of the Company or other purported change in
Beneficial or Constructive Ownership or other event or transaction has taken
place in violation of Section 7.6(ii) or that a Person intends to Acquire or has
attempted to Acquire Beneficial or Constructive Ownership of any Equity Shares
in violation of this Section 7.6, the Board of Directors or its designee shall
take such action as it deems advisable to refuse to give effect to or to prevent
such Transfer, Acquisition, change in the capital structure of the Company,
other attempt to Acquire Beneficial or Constructive Ownership of any Shares or
other event or transaction, including, but not limited to, refusing to give
effect thereto on the books of the Company or instituting injunctive proceedings
with respect thereto; provided, however, that any Transfer, Acquisition, change
in the capital structure of the Company, attempted Transfer or other attempt to
Acquire Beneficial or Constructive Ownership of any Equity Shares or other event
or transaction in violation of subparagraphs (b), (c), (d) and (e) of Section
7.6(ii) (as applicable) shall be void ab initio and where applicable
automatically shall result in the exchange described in Section 7.6(iii),
irrespective of any action (or inaction) by the Board of Directors or its
designee.
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(v) Notice of Restricted Transfer. Any Person who acquires or
attempts to Acquire Beneficial or Constructive Ownership of Equity Shares in
violation of Section 7.6(ii) and any Person who Beneficially or Constructively
Owns Excess Shares as a transferee of Equity Shares resulting in an exchange for
Excess Shares, pursuant to Section 7.6(iii), or otherwise shall immediately give
written notice to the Company, or, in the event of a proposed or attempted
Transfer, Acquisition, or purported change in Beneficial or Constructive
Ownership, shall give at least fifteen (15) days prior written notice to the
Company, of such event and shall promptly provide to the Company such other
information as the Company, in its sole discretion, may request in order to
determine the effect, if any, of such Transfer, attempted Transfer, Acquisition,
Attempted Acquisition or purported change in Beneficial or Constructive
Ownership on the Company's status as a REIT.
(vi) Owners Required To Provide Information. From the date of
the Initial Public Offering and prior to the Restriction Termination Date:
(a) Every Beneficial or Constructive Owner of more
than five percent (5%), or such lower percentages as
determined pursuant to regulations under the Code or as may be
requested by the Board of Directors, in its sole discretion,
of the outstanding shares of any class or series of Equity
Shares of the Company shall annually, no later than January 31
of each calendar year, give written notice to the Company
stating (i) the name and address of such Beneficial or
Constructive Owner; (ii) the number of shares of each class or
series of Equity Shares Beneficially or Constructively Owned;
and (iii) a description of how such shares are held. Each such
Beneficial or Constructive Owner promptly shall provide to the
Company such additional information as the Company, in its
sole discretion, may request in order to determine the effect,
if any, of such Beneficial or Constructive Ownership on the
Company's status as a REIT and to ensure compliance with the
Common or Preferred Share Ownership Limit and other
restrictions set forth herein.
(b) Each Person who is a Beneficial or Constructive
Owner of Equity Shares and each Person (including the
Stockholder of record) who is holding Equity Shares for a
Beneficial or Constructive Owner promptly shall provide to the
Company such information as the Company, in its sole
discretion, may request in order to determine the Company's
status as a REIT, to comply with the requirements of any
taxing authority or other governmental agency, to determine
any such compliance or to ensure compliance with the Common or
Preferred Share Ownership Limit and other restrictions set
forth herein.
(vii) Remedies Not Limited. Nothing contained in this Article
VII except Section 7.8 shall limit scope or application of the provisions of
this Section 7.6, the ability of the Company to implement or enforce compliance
with the terms thereof or the authority of the Board of Directors to take any
such other action or actions as it may deem necessary or advisable to protect
the Company and the interests of its Stockholders by preservation of the
Company's
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status as a REIT and to ensure compliance with the Ownership Limit for any class
or series of Equity Shares and other restrictions set forth herein, including,
without limitation, refusal to give effect to a transaction on the books of the
Company.
(viii) Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 7.6, including any
definition contained in Sections 1.5 and 7.6(i), the Board of Directors shall
have the power and authority, in its sole discretion, to determine the
application of the provisions of this Section 7.6 with respect to any situation
based on the facts known to it.
(ix) Exception. The Board of Directors, upon receipt of a
ruling from the Internal Revenue Service, an opinion of counsel or other
evidence satisfactory to the Board of Directors, in its sole discretion, in each
case to the effect that the restrictions contained in subparagraphs (c), (d) and
(e) of Section 7.6(ii) will not be violated, may waive or change, in whole or in
part, the application of the Common or Preferred Share Ownership Limit with
respect to any Person. In connection with any such waiver or change, the Board
of Directors may require such representations and undertakings from such Person
or affiliates and may impose such other conditions as the Board deems necessary,
advisable or prudent, in its sole discretion, to determine the effect, if any,
of the proposed transaction or ownership of Equity Shares on the Company's
status as a REIT.
(x) Increase in Common or Preferred Share Ownership Limit.
Subject to the limitations contained in Section 7.6(xi), the Board of Directors
may from time to time increase the Common or Preferred Share Ownership Limit.
(xi) Limitations on Modifications.
(a) The Ownership Limit for a class or series of
Equity Shares may not be increased and no additional ownership
limitations may be created if, after giving effect to such
increase or creation, the Company would be "closely held"
within the meaning of Section 856(h) of the Code (assuming
ownership of shares of Equity Shares by all Persons equal to
the greatest of (A) the actual ownership, (B) the Beneficial
Ownership of Equity Shares by each Person, or (C) the
applicable Ownership Limit with respect to such Person.
(b) Prior to any modification of the Ownership Limit
with respect to any Person, the Board of Directors may require
such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary, advisable or prudent, in
its sole discretion, in order to determine or ensure the
Company's status as a REIT.
(c) Neither the Preferred Share Ownership Limit nor
the Common Share Ownership Limit may be increased to a
percentage that is greater than nine point nine percent
(9.9%).
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(xii) Notice to Stockholders Upon Issuance or Transfer. Upon
issuance or transfer of Shares, the Company shall provide the recipient with a
notice containing information about the shares purchased or otherwise
transferred, in lieu of issuance of a share certificate, in a form substantially
similar to the following:
"The securities issued or transferred are subject to
restrictions on transfer and ownership for the purpose of
maintenance of the Company's status as a real estate
investment trust (a "REIT") under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code").
Except as otherwise provided pursuant to the Articles of
Incorporation of the Company, no Person may (i) Beneficially
or Constructively Own Common Shares of the Company in excess
of 9.8% (or such greater percent as may be determined by the
Board of Directors of the Company) of the outstanding Common
Shares; (ii) Beneficially or Constructively Own shares of any
series of Preferred Shares of the Company in excess of 9.8% of
the outstanding shares of such series of Preferred Shares; or
(iii) Beneficially or Constructively Own Common Shares or
Preferred Shares (of any class or series) which would result
in the Company being "closely held" under Section 856(h) of
the Code or which otherwise would cause the Company to fail to
qualify as a REIT. Any Person who has Beneficial or
Constructive Ownership, or who Acquires or attempts to Acquire
Beneficial or Constructive Ownership of Common Shares and/or
Preferred Shares in excess of the above limitations and any
Person who Beneficially or Constructively Owns Excess Shares
as a transferee of Common or Preferred Shares resulting in an
exchange for Excess Shares (as described below) immediately
must notify the Company in writing or, in the event of a
proposed or attempted Transfer or Acquisition or purported
change in Beneficial or Constructive Ownership, must give
written notice to the Company at least 15 days prior to the
proposed or attempted transfer, transaction or other event.
Any Transfer or Acquisition of Common Shares and/or Preferred
Shares or other event which results in violation of the
ownership or transfer limitations set forth in the Company's
Articles of Incorporation shall be void ab initio and the
Purported Beneficial and Record Transferee shall not have or
acquire any rights in such Common Shares and/or Preferred
Shares. If the transfer and ownership limitations referred to
herein are violated, the Common Shares or Preferred Shares
represented hereby automatically will be exchanged for Excess
Shares to the extent of violation of such limitations, and
such Excess Shares will be held in trust by the Company, all
as provided by the Articles of Incorporation of the Company.
All defined terms used in this
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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 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
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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 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
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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).
(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).
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(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 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
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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 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.
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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.
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
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reproduction pursuant to the Stockholder request. A Stockholder may request a
copy of the Stockholder List in connection with, without limitation, matters
relating to Stockholders' voting rights, and the exercise of Stockholder rights
under federal proxy laws.
If the Advisor or Directors neglect or refuse to exhibit, produce or
mail a copy of the Stockholder List as requested, the Advisor and the Directors
shall be liable to any Stockholder requesting the list for the costs, including
attorneys' fees, incurred by that Stockholder for compelling the production of
the Stockholder List, and for actual damages suffered by any Stockholder by
reason of such refusal or neglect. It shall be a defense that the actual purpose
and reason for the requests for inspection or for a copy of the Stockholder List
is to secure such list of Stockholders or other information for the purpose of
selling such list or copies thereof, or of using the same for a commercial
purpose other than in the interest of the applicant as a Stockholder relative to
the affairs of the Company. The Company may require the Stockholder requesting
the Stockholder List to represent that the list is not requested for a
commercial purpose unrelated to the Stockholder's interest in the Company. The
remedies provided 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).
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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.
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
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Indemnitee actually received an improper personal benefit in money, property, or
services, (c) in the case of any criminal proceeding, the Indemnitee had
reasonable cause to believe that the act or omission was unlawful, or (d) in a
proceeding by or in the right of the Company, the Indemnitee shall have been
adjudged to be liable to the Company.
(iv) The Directors may take such action as is necessary to
carry out this Section 9.2 and are expressly empowered to adopt, approve and
amend from time to time Bylaws, resolutions or contracts implementing such
provisions. No amendment of these Articles of Incorporation or repeal of any of
its provisions shall limit or eliminate the right of indemnification provided
hereunder with respect to acts or omissions occurring prior to such amendment or
repeal.
SECTION 9.3 Payment of Expenses. The Company shall pay or reimburse
reasonable legal expenses and other costs incurred by a Director, Advisor, or
Affiliate in advance of final 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:
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(i) The transaction is fair and reasonable to the Company
and its Stockholders.
(ii) The terms of such transaction are at least as favorable
as the terms of any comparable transactions made on an arms-length basis and
known to the Directors.
(iii) The total consideration is not in excess of the
appraised value of the property being acquired, if an acquisition is involved.
(iv) Payments to the Advisor, its Affiliates and the Directors
for services rendered in a capacity other than that as Advisor or Director may
only be made upon a determination that:
(a) The compensation is not in excess of their
compensation paid for any comparable services; and
(b) The compensation is not greater than the charges
for comparable services available from others who are
competent and not Affiliated with any of the parties involved.
Transactions between the Company and its Affiliates are further subject
to any express restrictions in these Articles of Incorporation (including
Article IV and Section 7.7) or adopted by the Directors in the Bylaws or by
resolution, and further subject to the disclosure and ratification requirements
of MGCL Section 2-419 and other applicable law.
ARTICLE 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.
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(ii) The Directors, by a two-thirds (2/3) vote, may amend
provisions of these Articles of Incorporation from time to time as necessary to
enable the Company to qualify as a real estate investment trust under the REIT
Provisions of the Code. With the exception of the foregoing, the Directors may
not amend these Articles of Incorporation.
(iii) An amendment to these Articles of Incorporation shall
become effective as provided in Section 12.5.
(iv) These Articles of Incorporation may not be amended except
as provided in this Section 10.1.
SECTION 10.2 Reorganization. Subject to the provisions of any class or
series of Equity Shares at the time outstanding, the Directors shall have the
power (i) to cause the organization of a corporation, association, trust or
other organization to take over the Company Property and to carry on the affairs
of the Company, or (ii) merge the Company into, or sell, convey and transfer the
Company Property to any such corporation, association, trust or organization in
exchange for Securities thereof or beneficial interests therein, and the
assumption by the transferee of the liabilities of the Company, and upon the
occurrence of (i) or (ii) above 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 an Independent Expert. The Properties shall be appraised
on a consistent basis, and the appraisal shall be based on the evaluation of all
relevant information and shall
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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 Expert shall clearly state that the engagement is
for the benefit of the Company and the Stockholders. A summary of the appraisal,
indicating all material assumptions underlying the appraisal, shall be included
in a report to Stockholders in connection with a proposed Roll-Up Transaction.
In connection with a proposed Roll-Up Transaction, the person sponsoring the
Roll-Up Transaction shall offer to Stockholders who vote against the proposed
Roll-Up Transaction the choice of:
(i) accepting the securities of a Roll-Up Entity offered
in the proposed Roll-Up Transaction; or
(ii) one of the following:
(a) remaining Stockholders of the Company and
preserving their interests therein on the same terms and
conditions as existed previously; or
(b) receiving cash in an amount equal to the
Stockholder's pro rata share of the appraised value of the net
assets of the Company.
The Company is prohibited from participating in any proposed Roll-Up
Transaction:
(iii) which would result in the Stockholders having democracy
rights in a Roll- Up Entity that are less than the rights provided for in
Sections 8.1, 8.2, 8.4, 8.5, 8.6 and 9.1 of these Articles of Incorporation;
(iv) which includes provisions that would operate as a
material impediment to, or frustration of, the accumulation of shares by any
purchaser of the securities of the Roll-Up Entity (except to the minimum extent
necessary to preserve the tax status of the Roll-Up Entity), or which would
limit the ability of an investor to exercise the voting rights of its Securities
of the Roll-Up Entity on the basis of the number of Shares held by that
investor;
(v) in which investor's rights to access of records of the
Roll-Up Entity will be less than those described in Sections 8.5 and 8.6 hereof;
or
(vi) in which any of the costs of the Roll-Up Transaction
would be borne by the Company if the Roll-Up Transaction is not approved by the
Stockholders.
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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.
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
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amendment of these Articles of Incorporation pursuant to Section 10.1 hereof;
provided, however, that such determination by the Directors shall not affect or
impair any of the remaining provisions of these Articles of Incorporation or
render invalid or improper any action taken or omitted prior to such
determination. No Director shall be liable for making or failing to make such a
determination.
(ii) If any provision of these Articles of Incorporation shall
be held invalid or unenforceable in any jurisdiction, such holding shall not in
any manner affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of these Articles of Incorporation in any
jurisdiction.
SECTION 12.4 Construction. In these Articles of Incorporation, unless
the context otherwise requires, words used in the singular or in the plural
include both the plural and singular and words denoting any gender include both
genders. The title and headings of different parts are inserted for convenience
and shall not affect the meaning, construction or effect of these Articles of
Incorporation. In defining or interpreting the powers and duties of the Company
and its Directors and officers, reference may be made, to the extent
appropriate, to the Code and to Titles 1 through 3 of the Corporations and
Associations Article of the Annotated Code of Maryland, referred to herein as
the "MGCL."
SECTION 12.5 Recordation. These Articles of Incorporation and any
amendment hereto shall be filed for record with the State Department of
Assessments and Taxation of Maryland and may also be filed or recorded in such
other places as the Directors deem appropriate, but failure to file for record
these Articles of Incorporation or any amendment hereto in any office other than
in the State of Maryland shall not affect or impair the validity or
effectiveness of these Articles of Incorporation or any amendment hereto. A
restated Articles of Incorporation shall, upon filing, be conclusive evidence of
all amendments contained therein and 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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IN WITNESS WHEREOF, these Articles of Amendment and Restatement have
been signed on this 15th day of September, 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: /s/ Robert A. Bourne
------------------------
Name: Robert A. Bourne
Title: President
Attest:
By: /s/ Lynn E. Rose
------------------------
Name: Lynn E. Rose
Title: Secretary
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EXHIBIT 3.2
Bylaws of CNL Health Care Properties, Inc.
<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
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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-
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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
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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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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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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
September 15, 1998.
/s/ Lynn E. Rose
---------------------------
Secretary
16
EXHIBIT 10.1
Advisory Agreement
<PAGE>
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT, dated as of September 15, 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. 333-47411) 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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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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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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Construction Fee. A fee or other remuneration for acting as a general
contractor and/or construction manager to construct improvements, supervise and
coordinate projects or provide major repairs or rehabilitation on a Property.
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.
Development Fee. A fee for such activities as negotiating and approving
plans and undertaking to assist in obtaining zoning and necessary variances and
necessary financing for a specific Property, either initially or at a later
date.
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.
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Health Care Facilities. Facilities at which health care services are
provided, including, but not limited to, congregate living, assisted living, and
skilled nursing facilities, 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 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 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 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.
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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.
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
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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).
Organizational and Offering Expenses. Any and all costs and expenses,
other than Selling Commissions, the Soliciting Dealer Warrants, 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.
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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.
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. 333-47411) 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.
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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.
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.
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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.
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;
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(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, 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;
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(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 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
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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 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.
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<PAGE>
(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 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.
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<PAGE>
(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.
(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.
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<PAGE>
(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 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.
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<PAGE>
(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;
(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;
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<PAGE>
(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;
(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.
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(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 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.
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(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 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, exclusive of
disputed items arising out of possible unauthorized transactions.
(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%
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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 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
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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 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.
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(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 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
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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.
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: /s/ James M. Seneff, Jr.
------------------------------
Name: JAMES M. SENEFF, JR.
Its:
CNL HEALTH CARE ADVISORS, INC.
By: /s/ Robert A. Bourne
------------------------------
Name: ROBERT A. BOURNE
Its:
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EXHIBIT 10.2
Indemnification Agreement
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into
as of the 19th day of February 1999, by and among CNL Health Care Properties,
Inc., a Maryland corporation (the "Company") and Phillip M. Anderson, Jr., a
director and/or officer of the Company (the "Indemnitee").
W I T N E S S E T H:
WHEREAS, the interpretation of ambiguous statutes, regulations,
articles of incorporation and bylaws regarding indemnification of directors and
officers may be too uncertain to provide such directors and officers with
adequate notice of the legal, financial and other risks to which they may be
exposed by virtue of their service as such; and
WHEREAS, damages sought against directors and officers in shareholder
or similar litigation by class action plaintiffs may be substantial, and the
costs of defending such actions and of judgments in favor of plaintiffs or of
settlement therewith may be prohibitive for individual directors and officers,
without regard to the merits of a particular action and without regard to the
culpability of, or the receipt of improper personal benefit by, any named
director or officer to the detriment of the corporation; and
WHEREAS, the issues in controversy in such litigation usually relate to
the knowledge, motives and intent of the director or officer, who may be the
only person with firsthand knowledge of essential facts or exculpating
circumstances who is qualified to testify in his defense regarding matters of
such a subjective nature, and the long period of time which may elapse before
final disposition of such litigation may impose undue hardship and burden on a
director or officer or his estate in launching and maintaining a proper and
adequate defense of himself or his estate against claims for damages; and
WHEREAS, the Company is organized under the Maryland General
Corporation Law (the "MGCL") and Section 2-418 of the MGCL empowers corporations
to indemnify and advance expenses of litigation to a person serving as a
director, officer, employee or agent of a corporation and to persons serving at
the request of the corporation, while a director of a corporation, as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan, and further provides that the indemnification and
advancement of expenses set forth in said section, subject to certain
limitations are not "exclusive of any other rights, by indemnification or
otherwise, to which a director may be entitled under the charter, the bylaws, a
resolution of stockholders or directors, an agreement or otherwise, both as to
action in an official capacity and as to action in another capacity while
holding such office"; and
WHEREAS, the Articles of Incorporation of the Company, as they may be
amended or amended and restated from time to time (the "Articles of
Incorporation"), provide that the Company shall indemnify and hold harmless
directors, advisors, or affiliates, as such terms are defined in the Articles of
Incorporation; and
<PAGE>
WHEREAS, the Board of Directors of the Company (the "Board") has
concluded that it is reasonable and prudent for the Company contractually to
obligate itself to indemnify in a reasonable and adequate manner the Indemnitee
and to assume for itself maximum liability for expenses and damages in
connection with claims lodged against him for his decisions and actions as a
director and/or officer of the Company; and
NOW, THEREFORE, in consideration of the foregoing, and of other good
and valuable consideration, the receipt and sufficiency of which is acknowledged
by each of the parties hereto, the parties agree as follows:
I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
A. "Board" shall mean the Board of Directors of the Company.
B. "Change in Control" shall mean a change in the ownership or power to
direct the Voting Securities of the Company or the acquisition by a person not
affiliated with the Company of the ability to direct the management of the
Company.
C. "Corporate Status" shall mean the status of a person who is or was a
director or officer of the Company, or a member of any committee of the Board,
and the status of a person who, while a director or officer of the Company, is
or was serving at the request of the Company as a director, officer, partner
(including service as a general partner of any limited partnership), trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, other incorporated or unincorporated entity or enterprise
or employee benefit plan.
D. "Disinterested Director" shall mean a director of the Company who
neither is nor was a party to the Proceeding in respect of which indemnification
is being sought by the Indemnitee.
E. "Expenses" shall mean without limitation expenses of Proceedings
including all attorneys' fees, retainers, court costs, transcript costs, fees of
experts, investigation fees and expenses, accounting and witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating or being or preparing to be a witness in a
Proceeding.
F. "Good Faith Act or Omission" shall mean an act or omission of the
Indemnitee reasonably believed by the Indemnitee to be in or not opposed to the
best interests of the Company and other than (i) one involving negligence or
misconduct, or, if the Indemnitee is an independent director, one involving
gross negligence or willful misconduct; (ii) one that was material to the loss
or liability and that was committed in bad faith or that was the result of
active
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or deliberate dishonesty; (iii) one from which the Indemnitee actually received
an improper personal benefit in money, property or services; or (iv) in the case
of a criminal Proceeding, one as to which the Indemnitee had cause to believe
his conduct was unlawful.
G. "Liabilities" shall mean liabilities of any type whatsoever,
including, without limitation, any judgments, fines, excise taxes and penalties
under the Employee Retirement Income Security Act of 1974, as amended, penalties
and amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such judgments,
fines, penalties or amounts paid in settlement) in connection with the
investigation, defense, settlement or appeal of any Proceeding or any claim,
issue or matter therein.
H. "Proceeding" shall mean any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other actual, threatened or completed proceeding
whether civil, criminal, administrative or investigative, or any appeal
therefrom.
I. "Voting Securities" shall mean any securities of the Company that
are entitled to vote generally in the election of directors.
II
TERMINATION OF AGREEMENT
This Agreement shall continue until, and terminate upon the later to
occur of (i) the death of the Indemnitee; or (ii) the final termination of all
Proceedings (including possible Proceedings) in respect of which the Indemnitee
is granted rights of indemnification or advancement of Expenses hereunder and of
any proceeding commenced by the Indemnitee regarding the interpretation or
enforcement of this Agreement.
III
SERVICE BY INDEMNITEE, NOTICE OF
PROCEEDINGS, DEFENSE OF CLAIMS
A. Notice of Proceedings. The Indemnitee agrees to notify the Company
promptly in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder, but the Indemnitee's omission to so notify the Company shall
not relieve the Company from any liability which it may have to the Indemnitee
under this Agreement.
B. Defense of Claims. The Company will be entitled to participate, at
its own expense, in any Proceeding of which it has notice. The Company jointly
with any other indemnifying party similarly notified of any Proceeding will be
entitled to assume the defense of the Indemnitee therein, with counsel
reasonably satisfactory to the Indemnitee; provided, however, that the Company
shall not be entitled to assume the defense of the Indemnitee in any Proceeding
if there has been a Change in Control or if the Indemnitee has reasonably
concluded that there may be a conflict of interest between the Company and the
Indemnitee with respect to
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such Proceeding. The Company will not be liable to the Indemnitee under this
Agreement for any Expenses incurred by the Indemnitee in connection with the
defense of any Proceeding, other than reasonable costs of investigation or as
otherwise provided below, after notice from the Company to the Indemnitee of its
election to assume the defense of the Indemnitee therein. The Indemnitee shall
have the right to employ his own counsel in any such Proceeding, but the fees
and expenses of such counsel incurred after notice from the Company of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Company; (ii) the Indemnitee shall have reasonably concluded that counsel
employed by the Company may not adequately represent the Indemnitee and shall
have so informed the Company; or (iii) the Company shall not in fact have
employed counsel to assume the defense of the Indemnitee in such Proceeding or
such counsel shall not, in fact, have assumed such defense or such counsel shall
not be acting, in connection therewith, with reasonable diligence; and in each
such case the fees and expenses of the Indemnitee's counsel shall be advanced by
the Company in accordance with this Agreement.
C. Settlement of Claims. The Company shall not settle any Proceeding in
any manner which would impose any liability, penalty or limitation on the
Indemnitee without the written consent of the Indemnitee; provided, however,
that the Indemnitee will not unreasonably withhold or delay consent to any
proposed settlement. The Company shall not be liable to indemnify the Indemnitee
under this Agreement or otherwise for any amounts paid in settlement of any
Proceeding effected by the Indemnitee without the Company's written consent,
which consent shall not be unreasonably withheld or delayed.
IV
INDEMNIFICATION
A. In General. Upon the terms and subject to the conditions set forth
in this Agreement, the Company shall hold harmless and indemnify the Indemnitee
against any and all Liabilities actually incurred by or for him in connection
with any Proceeding (whether the Indemnitee is or becomes a party, a witness or
otherwise is a participant in any role) to the fullest extent required or
permitted by the Articles of Incorporation and by applicable law in effect on
the date hereof and to such greater extent as applicable law may hereafter from
time to time permit. For all matters for which the Indemnitee is entitled to
indemnification under this Article IV, the Indemnitee shall be entitled to
advancement of Expenses in accordance with Article V hereof.
B. Proceeding Other Than a Proceeding by or in the Right of the
Company. If the Indemnitee was or is a party or is threatened to be made a party
to any Proceeding (whether the Indemnitee is or becomes a party, a witness or
otherwise is a participant in any role) (other than a Proceeding by or in the
right of the Company) by reason of his Corporate Status, or by reason of alleged
action or inaction by him in any such capacity, the Company shall, subject to
the limitations set forth in Section IV.F. below, hold harmless and indemnify
him against any and all Expenses and Liabilities actually and reasonably
incurred by or for the Indemnitee in connection with the Proceeding if the
act(s) or omission(s) of the Indemnitee giving rise thereto were Good Faith
Act(s) or Omission(s).
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C. Proceedings by or in the Right of the Company. If the Indemnitee was
or is a party or is threatened to be made a party to any Proceeding (whether the
Indemnitee is or becomes a party, a witness or otherwise is a participant in any
role) by or in the right of the Company to procure a judgment in its favor by
reason of his Corporate Status, or by reason of any action or inaction by him in
any such capacity, the Company shall, subject to the limitations set forth in
Section IV.F. below, hold harmless and indemnify him against any and all
Expenses actually incurred by or for him in connection with the investigation,
defense, settlement or appeal of such Proceeding if the act(s) or omission(s) of
the Indemnitee giving rise to the Proceeding were Good Faith Act(s) or
Omission(s); except that no indemnification under this Section IV.C. shall be
made in respect of any claim, issue or matter as to which the Indemnitee shall
have been finally adjudged to be liable to the Company, unless a court of
appropriate jurisdiction (including, but not limited to, the court in which such
Proceeding was brought) shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
regardless of whether the Indemnitee's act(s) or omission(s) were found to be a
Good Faith Act(s) or Omission(s), the Indemnitee is fairly and reasonably
entitled to indemnification for such Expenses which such court shall deem
proper.
D. Indemnification of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee is, by reason of the Indemnitee's Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, the Indemnitee shall
be indemnified by the Company to the maximum extent consistent with applicable
law, against all Expenses and Liabilities actually incurred by or for him in
connection therewith. If the Indemnitee is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the Company shall
hold harmless and indemnify the Indemnitee to the maximum extent consistent with
applicable law, against all Expenses and Liabilities actually and reasonably
incurred by or for him in connection with each successfully resolved claim,
issue or matter in such Proceeding. Resolution of a claim, issue or matter by
dismissal, with or without prejudice, except as provided in subsection F hereof,
shall be deemed a successful result as to such claim, issue or matter, so long
as there has been no finding (either adjudicated or pursuant to Article VI
hereof) that the act(s) or omission(s) of the Indemnitee giving rise thereto
were not a Good Faith Act(s) or Omission(s).
E. Indemnification for Expenses of Witness. Notwithstanding any other
provision of this Agreement, to the extent that the Indemnitee, by reason of the
Indemnitee's Corporate Status, has prepared to serve or has served as a witness
in any Proceeding, or has participated in discovery proceedings or other trial
preparation, the Indemnitee shall be held harmless and indemnified against all
Expenses actually and reasonably incurred by or for him in connection therewith.
F. Specific Limitations on Indemnification. In addition to the other
limitations set forth in this Article IV, and notwithstanding anything in this
Agreement to the contrary, the Company shall not be obligated under this
Agreement to make any payment to the Indemnitee for indemnification with respect
to any Proceeding:
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1. To the extent that payment is actually made to the
Indemnitee under any insurance policy or is made on behalf of the
Indemnitee by or on behalf of the Company otherwise than pursuant to
this Agreement.
2. If a court in such Proceeding has entered a judgment or
other adjudication which is final and has become nonappealable and
establishes that a claim of the Indemnitee for such indemnification
arose from: (i) a breach by the Indemnitee of the Indemnitee's duty of
loyalty to the Company or its shareholders; (ii) acts or omissions of
the Indemnitee that are not Good Faith Acts or Omissions or which are
the result of active and deliberate dishonesty; (iii) acts or omissions
of the Indemnitee which the Indemnitee had reasonable cause to believe
were unlawful; or (iv) a transaction in which the Indemnitee actually
received an improper personal benefit in money, property or services.
3. If there has been no Change in Control, for Liabilities in
connection with Proceedings settled without the consent of the Company
which consent, however, shall not be unreasonably withheld.
4. 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 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.
V
ADVANCEMENT OF EXPENSES
Notwithstanding any provision to the contrary in Article VI hereof, the
Company shall advance to the Indemnitee all Expenses which, by reason of the
Indemnitee's Corporate Status, were incurred by or for him in connection with
any Proceeding for which the Indemnitee is entitled to indemnification pursuant
to Article IV hereof, in advance of the final disposition of such Proceeding,
provided that all of the following are satisfied: (i) the Indemnitee was made a
party to the proceeding by reason of his service as a director or officer 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 pursuant to Article IV hereof, (iii) the
Indemnitee provides the Company with a written agreement (the "Undertaking") 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 of the
Company 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
Indemnitee shall be required to execute and submit the Undertaking to repay
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Expenses advanced in the form of Exhibit A attached hereto or in such form as
may be required under applicable law as in effect at the time of execution
thereof. The Undertaking shall reasonably evidence the Expenses incurred by or
for the Indemnitee and shall contain the written affirmation by the Indemnitee,
described above, of his good faith belief that the standard of conduct necessary
for indemnification has been met. The Company shall advance such expenses within
five (5) business days after the receipt by the Company of the Undertaking. The
Indemnitee hereby agrees to repay any Expenses advanced hereunder if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
against such Expenses. Any advances and the undertaking to repay pursuant to
this Article V shall be unsecured.
VI
PROCEDURE FOR PAYMENT OF LIABILITIES;
DETERMINATION OF RIGHT TO INDEMNIFICATION
A. Procedure for Payment. To obtain indemnification for Liabilities
under this Agreement, the Indemnitee shall submit to the Company a written
request for payment, including with such request such documentation as is
reasonably available to the Indemnitee and reasonably necessary to determine
whether, and to what extent, the Indemnitee is entitled to indemnification and
payment hereunder. The Secretary of the Company, or such other person as shall
be designated by the Board of Directors, promptly upon receipt of a request for
indemnification shall advise the Board of Directors, in writing, of such
request. Any indemnification payment due hereunder shall be paid by the Company
no later than five (5) business days following the determination, pursuant to
this Article VI, that such indemnification payment is proper hereunder.
B. No Determination Necessary when the Indemnitee was Successful. To
the extent the Indemnitee has been successful, on the merits or otherwise, in
defense of any Proceeding referred to in Sections IV.B. or IV.C. above or in the
defense of any claim, issue or matter described therein, the Company shall
indemnify the Indemnitee against Expenses actually and reasonably incurred by or
for him in connection with the investigation, defense or appeal of such
Proceeding.
C. Determination of Good Faith Act or Omission. In the event that
Section VI.B. is inapplicable, the Company also shall hold harmless and
indemnify the Indemnitee unless the Company shall prove by clear and convincing
evidence to a forum listed in Section VI.D. below that the act(s) or omission(s)
of the Indemnitee giving rise to the Proceeding were not Good Faith Act(s) or
Omission(s).
D. Forum for Determination. The Indemnitee shall be entitled to select
from among the following the forums, in which the validity of the Company's
claim under Section VI.C., above, that the Indemnitee is not entitled to
indemnification will be heard:
1. A quorum of the Board consisting of Disinterested
Directors;
2. The shareholders of the Company;
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3. Legal counsel selected by the Indemnitee, subject to the
approval of the Board, which approval shall not be unreasonably delayed
or denied, which counsel shall make such determination in a written
opinion; or
4. A panel of three arbitrators, one of whom is selected by
the Company, another of whom is selected by the Indemnitee and the last
of whom is selected jointly by the first two arbitrators so selected.
As soon as practicable, and in no event later than thirty (30) days after
written notice of the Indemnitee's choice of forum pursuant to this Section
VI.D., the Company shall, at its own expense, submit to the selected forum in
such manner as the Indemnitee or the Indemnitee's counsel may reasonably
request, its claim that the Indemnitee is not entitled to indemnification, and
the Company shall act in the utmost good faith to assure the Indemnitee a
complete opportunity to defend against such claim. The fees and expenses of the
selected forum in connection with making the determination contemplated
hereunder shall be paid by the Company. If the Company shall fail to submit the
matter to the selected forum within thirty (30) days after the Indemnitee's
written notice or if the forum so empowered to make the determination shall have
failed to make the requested determination within thirty (30) days after the
matter has been submitted to it by the Company, the requisite determination that
the Indemnitee has the right to indemnification shall be deemed to have been
made.
E. Right to Appeal. Notwithstanding a determination by any forum listed
in Section VI.D. above that the Indemnitee is not entitled to indemnification
with respect to a specific Proceeding, the Indemnitee shall have the right to
apply to the court in which that Proceeding is or was pending, or to any other
court of competent jurisdiction, for the purpose of enforcing the Indemnitee's
right to indemnification pursuant to this Agreement. Such enforcement action
shall consider the Indemnitee's entitlement to indemnification de novo, and the
Indemnitee shall not be prejudiced by reason of a prior determination that the
Indemnitee is not entitled to indemnification. The Company shall be precluded
from asserting that the procedures and presumptions of this Agreement are not
valid, binding and enforceable. The Company further agrees to stipulate in any
such judicial proceeding that the Company is bound by all the provisions of this
Agreement and is precluded from making any assertion to the contrary.
F. Right to Seek Judicial Determination. Notwithstanding any other
provision of this Agreement to the contrary, at any time after sixty (60) days
after a request for indemnification has been made to the Company (or upon
earlier receipt of written notice that a request for indemnification has been
rejected) and before the third (3rd) anniversary of the making of such
indemnification request, the Indemnitee may petition a court of competent
jurisdiction, whether or not the court has jurisdiction over, or is the forum in
which is pending, the Proceeding, to determine whether the Indemnitee is
entitled to indemnification hereunder, and such court thereupon shall have the
exclusive authority to make such determination, unless and until such court
dismisses or otherwise terminates the Indemnitee's action without having made
such determination. The court, as petitioned, shall make an independent
determination of whether the Indemnitee is entitled to indemnification
hereunder, without regard to any prior determination in any other forum as
provided hereby.
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G. Expenses under this Agreement. Notwithstanding any other provision
in this Agreement to the contrary, the Company shall indemnify the Indemnitee
against all Expenses incurred by the Indemnitee in connection with any hearing
or proceeding under this Section VI involving the Indemnitee and against all
Expenses incurred by the Indemnitee in connection with any other action between
the Company and the Indemnitee involving the interpretation or enforcement of
the rights of the Indemnitee under this Agreement, even if it is finally
determined that the Indemnitee is not entitled to indemnification in whole or in
part hereunder.
VII
PRESUMPTIONS AND EFFECT
OF CERTAIN PROCEEDINGS
A. Burden of Proof. In making a determination with respect to
entitlement to indemnification hereunder, the person, persons, entity or
entities making such determination shall presume that the Indemnitee is entitled
to indemnification under this Agreement and the Company shall have the burden of
proof to overcome that presumption.
B. Effect of Other Proceedings. The termination of any Proceeding or of
any claim, issue or matter therein, by judgment, order or settlement shall not
create a presumption that the act(s) or omission(s) giving rise to the
Proceeding were not Good Faith Act(s) or Omission(s). The termination of any
Proceeding by conviction, or upon a plea of nolo contendere, or its equivalent,
or an entry of an order of probation prior to judgment, shall create a
rebuttable presumption that the act(s) or omission(s) of the Indemnitee giving
rise to the Proceeding were not Good Faith Act(s) or Omission(s).
C. Reliance as Safe Harbor. For purposes of any determination of
whether any act or omission of the Indemnitee was a Good Faith Act or Omission,
each act of the Indemnitee shall be deemed to be a Good Faith Act or Omission if
the Indemnitee's action is based on the records or books of accounts of the
Company, including financial statements, or on information supplied to the
Indemnitee by the officers of the Company in the course of their duties, or on
the advice of legal counsel for the Company or on information or records given
or reports made to the Company by an independent certified public accountant or
by an appraiser or other expert selected with reasonable care by the Company.
The provisions of this Section VII.C. shall not be deemed to be exclusive or to
limit in any way the other circumstances in which the Indemnitee may be deemed
to have met the applicable standard of conduct set forth in this Agreement or
under applicable law.
D. Actions of Others. The knowledge and/or actions, or failure to act,
of any director, officer, agent or employee of the Company shall not be imputed
to the Indemnitee for purposes of determining the right to indemnification under
this Agreement.
-9-
<PAGE>
VIII
INSURANCE
In the event that the Company maintains officers' and directors' or
similar liability insurance to protect itself and any director or officer of the
Company against any expense, liability or loss, such insurance shall cover the
Indemnitee to at least the same degree as each other director and/or officer of
the Company.
IX
OBLIGATIONS OF THE COMPANY
UPON A CHANGE IN CONTROL
In the event of a Change in Control, upon written request of the
Indemnitee the Company shall establish a trust for the benefit of the Indemnitee
hereunder (a "Trust") and from time to time, upon written request from the
Indemnitee, shall fund the Trust in an amount sufficient to satisfy all amounts
actually paid hereunder as indemnification for Liabilities or Expenses
(including those paid in advance) or which the Indemnitee reasonably determines
and demonstrates, from time to time, may be payable by the Company hereunder.
The amount or amounts to be deposited in the Trust shall be determined by legal
counsel selected by the Indemnitee and approved by the Company, which approval
shall not be unreasonably withheld. The terms of the Trust shall provide that
(i) the Trust shall not be dissolved or the principal thereof invaded without
the written consent of the Indemnitee; (ii) the trustee of the Trust (the
"Trustee") shall be selected by the Indemnitee; (iii) the Trustee shall make
advances to the Indemnitee for Expenses within ten (10) business days following
receipt of a written request therefor (and the Indemnitee hereby agrees to
reimburse the Trust under the circumstances under which the Indemnitee would be
required to reimburse the Company under Article V hereof; (iv) the Company shall
continue to fund the Trust from time to time in accordance with its funding
obligations hereunder; (v) the Trustee promptly shall pay to the Indemnitee all
amounts as to which indemnification is due under this Agreement; (vi) unless the
Indemnitee agrees otherwise in writing, the Trust for the Indemnitee shall be
kept separate from any other trust established for any other person to whom
indemnification might be due by the Company; and (vii) all unexpended funds in
the Trust shall revert to the Company upon final, nonappealable determination by
a court of competent jurisdiction that the Indemnitee has been indemnified to
the full extent required under this Agreement.
X
NON-EXCLUSIVITY,
SUBROGATION AND MISCELLANEOUS
A. Non-Exclusivity. The rights of the Indemnitee hereunder shall not be
deemed exclusive of any other rights to which the Indemnitee may at any time be
entitled under any provision of law, the Articles of Incorporation, the Bylaws
of the Company, as the same may be in effect from time to time, any agreement, a
vote of shareholders of the Company or a resolution of directors of the Company
or otherwise, and to the extent that during the term of this Agreement the
rights of the then-existing directors and officers of the Company are more
favorable to such directors or officers than the rights currently provided to
the Indemnitee under this Agreement, the Indemnitee shall be entitled to the
full benefits of such more favorable rights.
-10-
<PAGE>
No amendment, alteration, rescission or replacement of this Agreement or any
provision hereof which would in any way limit the benefits and protections
afforded to an Indemnitee hereby shall be effective as to such Indemnitee with
respect to any action or inaction by such Indemnitee in the Indemnitee's
Corporate Status prior to such amendment, alteration, rescission or replacement.
B. Subrogation. In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all documents required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce such
rights.
C. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i) if
delivered by hand, by courier or by telegram and receipted for by the party to
whom said notice or other communication shall have been directed at the time
indicated on such receipt; (ii) if by facsimile at the time shown on the
confirmation of such facsimile transmission; or (iii) if by U.S. certified or
registered mail, with postage prepaid, on the third business day after the date
on which it is so mailed:
If to the Indemnitee, as shown with the Indemnitee's signature below.
If to the Company to:
CNL Health Care Properties, Inc.
400 East South Street
Orlando, FL 32801
Attention: President
Facsimile No. (407)423-2894
or to such other address as may have been furnished to the Indemnitee by the
Company or to the Company by the Indemnitee, as the case may be.
D. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the substantive laws
of the State of Maryland, without application of the conflict of laws principles
thereof.
E. Binding Effect. Except as otherwise provided in this Agreement, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their heirs, executors, administrators, successors, legal representatives
and permitted assigns. The Company shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of its respective assets or business, by written
agreement in form and substance reasonably satisfactory to the Indemnitee,
expressly to assume and agree to be bound by and to perform this Agreement in
the same manner and to the same extent as the Company would be required to
perform absent such succession or assignment.
F. Waiver. No termination, cancellation, modification, amendment,
deletion, addition or other change in this Agreement, or any provision hereof,
or waiver of any right or remedy herein, shall be effective for any purpose
unless specifically set forth in a writing signed by the
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<PAGE>
party or parties to be bound thereby. The waiver of any right or remedy with
respect to any occurrence on one occasion shall not be deemed a waiver of such
right or remedy with respect to such occurrence on any other occasion.
G. Entire Agreement. This Agreement, constitutes the entire agreement
and understanding among the parties hereto in reference to the subject matter
hereof; provided, however, that the parties acknowledge and agree that the
Amended and Restated Articles of Incorporation of the Company contain provisions
on the subject matter hereof and that this Agreement is not intended to, and
does not, limit the rights or obligations of the parties hereto pursuant to such
instruments.
H. Titles. The titles to the articles and sections of this Agreement
are inserted for convenience of reference only and should not be deemed a part
hereof or affect the construction or interpretation of any provisions hereof.
I. Invalidity of Provisions. Every provision of this Agreement is
severable, and the invalidity or unenforceability of any term or provision shall
not effect the validity or enforceability of the remainder of this Agreement.
J. Pronouns and Plurals. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.
K. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one agreement binding on all the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CNL HEALTH CARE PROPERTIES, INC.
By: /s/ Robert A. Bourne
Name: Robert A. Bourne
Title: President
/s/ Phillip M. Anderson, Jr., as INDEMNITEE
Name: Phillip M. Anderson, Jr.
Title: Chief Operating Officer
Address: 400 East South Street
Orlando, FL 32801
Facsimile No.: (407) 648-8920
-12-
<PAGE>
EXHIBIT A
FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED
The Board of Directors of CNL Health Care
Properties, Inc.
Re: Undertaking to Repay Expenses Advanced
Ladies and Gentlemen:
This undertaking is being provided pursuant to that certain
Indemnification Agreement dated the ____ day of September, 1998, by and among
CNL Health Care Properties, Inc. and the undersigned Indemnitee (the
"Indemnification Agreement"), pursuant to which I am entitled to advancement of
expenses in connection with [Description of Proceeding] (the "Proceeding").
Terms used herein and not otherwise defined shall have the meanings specified in
the Indemnification Agreement.
I am subject to the Proceeding by reason of my Corporate Status or by
reason of alleged actions or omissions by me in such capacity. During the period
of time to which the Proceeding relates I was _____________________ [name of
office(s) held] of CNL Health Care Properties, Inc. Pursuant to Section IV of
the Indemnification Agreement, the Company is obligated to reimburse me for
Expenses that are actually and reasonably incurred by or for me in connection
with the Proceeding, provided that I execute and submit to the Company an
Undertaking in which I (i) undertake to repay any Expenses paid by the Company
on my behalf, together with the applicable legal rate of interest thereon, if it
shall be ultimately determined that I am not entitled to be indemnified thereby
against such Expenses; (ii) affirm my good faith belief that I have met the
standard of conduct necessary for indemnification; and (iii) reasonably evidence
the Expenses incurred by or for me.
[Description of expenses incurred by or for Indemnitee]
This letter shall constitute my undertaking to repay to the Company any
Expenses paid by it on my behalf, together with the applicable legal rate of
interest thereon, in connection with the Proceeding if it is ultimately
determined that I am not entitled to be indemnified with respect to such
Expenses as set forth above. I hereby affirm my good faith belief that I have
met the standard of conduct necessary for indemnification and that I am entitled
to such indemnification.
----------------------------------
Signature
----------------------------------
Print Name
----------------------------------
Date
<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, 1998 and is qualified
in its entirety by reference to the Form 10-K of CNL Health Care Properties,
Inc. for the 12 months ended December 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 92
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 976,579
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 200
<OTHER-SE> 199,800
<TOTAL-LIABILITY-AND-EQUITY> 976,579
<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 for current assets
and current liabilities.
</FN>
</TABLE>
